Given the environment for the U.S. stock market over the next several years, I see investment opportunities in the following areas:
1. U.S. small and mid-cap value stocks currently present the best opportunities for growth in what will likely be a sideways to down market over the next several years.
In slow growth markets, small and mid-cap stocks have performed better than large caps. Smaller companies focused on specific markets can grow at rates greater than the general economy. Large companies tend to grow at the growth rate of the economy. In the current market environment, it is risky to pay high prices for stocks, as we are not in a growth environment and need the margin of safety as protection against downturns. A no-load small or madcap value fund, a small or madcap value index fund or a small or madcap ETF would be appropriate investment vehicles.
2. Commodities and natural resources present growth opportunities, as worldwide demand will outrun supply for some time. The risks are volatility, as they tend to go up and down in large moves. If the growth of the world economy slows for a time, as it might, there could be a sudden temporary drop in commodity prices. They need to be watched closely.
Gold has been attractive in the past few years due to political unrest in the world and the decline in the value of the U.S. dollar. Gold and precious metals are high-risk investments as they often change course quickly and dramatically. Investments in any of these areas can be made through no-load mutual funds, index funds or ETF’s.
3. Real Return U.S. Bonds. With the threats of inflation and the rising interest rate environment, the best way to invest in U.S. bonds is through TIP’s or Treasury Inflation Protected Bonds, which pay the appropriate U.S. Treasury interest rate and are indexed for inflation. They are available through a number of no-load mutual funds or through direct purchase from the U.S. Government.
4. Foreign Stocks. With the declining value of the U.S.
dollar relative to other currencies, and with higher growth rates in developing countries, foreign stocks appear to offer some opportunity for investment growth.
Stocks of some foreign counties are selling for lower valuations than the U.S. A value approach should be taken in this area, as there are additional political and currency risks. Foreign emerging market countries such as Russia performed well in 2003 and 2004 and could provide future opportunity, but carry additional risk. A number of no-load mutual funds, index funds and ETF’s are available in this investment area.
5. Foreign Bonds. With higher interest rates offered by some countries, foreign bonds offer the potential of higher returns than U.S. bonds. The decline of the dollar helped returns in 2003 and 2004. Political and currency risks need to be considered.
6. Real Estate. Over the past five years real estate has been one of the few asset classes that has shown consistent double-digit returns. Some experts say that we now have a lot of overpriced real estate and the bubble will burst, sending prices down. This could occur with a downturn in the U.S. economy.
However, commercial real estate could still provide an opportunity for gains. They can be invested in through either no-load mutual funds, real estate development company stocks, Real Estate Investment Trusts (REITs) or ETF’s.
Summary
In this book I have shared with you an approach to investing that I have developed over the last twenty years both by trial and error, and by studying some of the brightest and most successful investors.
There are many different approaches to investing. All have a set of principles and the discipline they stick with even when the market and outside pressures try to sway them in other directions. There are some approaches that are more effective in certain market environments than others. As an example, momentum investing is more effective in rising markets, and value investing is more effective in flat or declining markets.
My approach to investing is based on value principles and considers major trends in the U.S. and world economies that may impact specific investments. I invest in those markets that offer the best current opportunities. With investment reviews twice per year, I keep my investments current with the changing environment.
My investment principles define how I will invest, and the current environment defines what I will invest in and when.
We are facing some very challenging times in the new century of the 2000’s. Consistent investment returns are going to be more difficult to achieve than in the 1990’s. It will take a disciplined approach as well as a continual awareness of the outside world to win.
I have written this book for the individual investor and encourage each of you to either develop a set of investment principles and the discipline to follow them, or find someone that shares your investment philosophy that can help keep you on track.
If there are any questions about investing that I can help answer, contact me through our website at thevogusgroup.com.
We are here to help you in your journey through the treacherous waters of investing. I hope this book has been helpful.
Recommended Reading
I would encourage you to explore different views on investing. Some of the books that I have found insightful include:
Title Author
Beating the Street Peter Lynch Common Sense on Mutual
Funds John Bogle
The Essential Buffet Robert G. Hagstrom What Works on Wall Street James P. O’Shaughnessy Irrational Exuberance Robert J. Shiller
The Next Great Bubble Boom Harry S. Dent, Jr.
Winning the Loser’s Game Charles D. Ellis Stocks for the Long Run Jeremy J. Siegel 24 Essential Lessons for
Investment Success William J. O’Neil Bull’s Eye Investing John Mauldin
Security Analysis Benjamin Graham and David Dodd
Financial Reckoning Day William Bonner with Addison Wiggin Soros – The Life, Times &
Trading Secrets Robert Slater Prudent Speculator Al Frank
Yes, You Can Time The Market! Ben Stein and Phil DeMuth