Investment strategy in an uncertain world
This month: A review of
Jeremy Grantham's quarterly report, a recap on
the basics of stock / bond funds and parting investment
Grantham, the famed money manager with GMO has
come out with his quarterly report which is a
good read for those inclined. It's a bit lengthy
but he makes some very good points for the next
couple of years. For those not familiar Mr. Grantham
became very bearish in 2000 predicting a difficult
road for the decade. He was ridiculed, but most
of his predictions ultimately played out. What
caught my attention was his recent shift from
a bear to a bull earlier this year. His recent
report backs up some thoughts that I have been
sharing with investment clients regarding where
this market may be headed in the intermediate
here for: GMO Quarterly Report
recap the basics of stock/bond funds:
anything if you don't review it very often you
will forget, so for those that have forgotten
the basics of stock / bond funds here is a recap:
does a Mutual Fund work?
you mention the word "mutual fund" most folks
immediately understand this as an investment tool
in their 401k, IRA or Brokerage account. A mutual
fund is an investment company set up to buy an
underlying basket of stocks. This allows you to
get instant exposure to a select asset class in
the market. Mutual funds can be passive and track
indexes (think Vanguard index funds) or actively
managed by a fund manager who tries to beat the
benchmark index (normally the S&P 500).
the difference in a stock and bond fund?
stock mutual fund owns shares in many different
companies for diversification. It can be a Large
Cap fund owning stocks in the largest publicly
traded companies, a Mid Cap fund investing in
companies with valuations of 2 to 10 billion in
market cap, or a Small Cap fund investing in companies
less than 2 billion in market capital.
Bond is the equivalent of loaning money to a company.
Most corporations are capitalized by selling stock
as well as issuing bonds (or debt). A bond or
bond fund is generally thought to be more secure
than stocks as the company guarantees to pay a
set interest rate on the debt for a period of
years and then redeem the bond at the end of that
period. Bond Funds offer diversification and come
in many different forms: corporate, government,
international and high yield.
important part to note in the paragraph above
is that bonds pay interest. You generally don't
expect much principal growth (that is what stocks
are for) but you do collect an income for investing
in the bonds.
lot changed in the investing world over the past
18 months. Many theories and strategies that were
taken for granted got thrown out the window. For
most investors it now means rethinking strategies,
including those of us that do this for a living.
Below are some general ideas I will be incorporating
over the next few years with clients, at least
until the next great bull market starts, at that
point we can sit back and let the buy & hold
strategy play out:
is not investment advice, just my general
the S&P can reach the 1000 to 1100 mark
reduce exposure to stocks and increase bond
ready to adjust strategies at any time over
the next 5 years as inflation / deflation forces
the global stimulus likely to cause intermediate
inflation be ready to add commodities such as
gold, oils and agriculture.
tactical and if able to catch a decent run in
the market be ready to sell.
when it looks the worst and sell when the financial
media begins talking about a bull market.
best guess is that we will be in a choppy range
for the next several years, much like what Mr.
Grantham states in his report above. However,
there will be plenty of opportunities to get a
return on your investments just as there were
from 2000 to 2007, it will just require a bit