Generic Hedge Investments

[kyounge1956]

Every now and again I read a doom & gloom investment book, the latest being Crash Proof. I didn't finish it (it was an audiobook and I didn't like the reader), but when I took it back to the library they had the hardcover edition on the shelf, so I did peek at the last few chapters to check out the investment recommendations. It didn't surprise me at all to see gold and commodities, especially oil, among them. It seems these two regularly appear on such lists. I don't know if there are any others that are as widely suggested for hedging against disaster as those two.

Of course the authors of these books think one's whole portfolio should be invested according to their recommendations, and I'm not going to do that, but I do wonder if it wouldn't be prudent to invest a portion of my financial resources in hedging assets.

[yakers]

Or you could go to PRPFX/Permanent Portfolio. Should cover some long tail/black swan events. If the gold portion of it weren't so high I would actually consider buying it.

[chinaco]

Quote:

Originally Posted by yakers Or you could go to PRPFX/Permanent Portfolio. Should cover some long tail/black swan events. If the gold portion of it weren't so high I would actually consider buying it.

The next largest holding is Treasuries.

[chinaco]

IMO - the US has several areas where inflation will spike. Energy being one of them.

One area of huge inflation in the US... "Health Care"... is within our means to control it better but the political debate is a road block. Another service that seems to have spiraling inflation is education. Another political road block.

IMO - our politicians do not want to fix it... they merely want to please their PACS and funding donors.

[braumeister]

There's no doubt at all in my mind that significant inflation is just over the horizon.

I've always kept a small percentage of my assets in hedge-type investments. Right now that's GLD and FXF, but there have been others.

[verygoodthings]

Based on this thread date, I'm assuming you are referring to Crashproof 2.0, the update book. I got the feeling the author was a little full of himself, and of course his recommendations would make many advisors laugh. I've also read Aftershock, a similar book, if you are interested in the topic. Another book that discusses these investments is The Age of Deleveraging. These three titles are all kind of written from the angle that the world is going to destruct.

Larry Swedroe has a book on Alternative Investments you should check out. There are other (better?) ways to protect against inflation besides commodities.

Gold has not kept up with inflation over any significant period of time (10+ years). That was enough to disinterest me, but it probably has good purpose in someone else's portfolio.

[traineeinvestor]

There has never been a shortage of books predicting one sort of extreme financial crisis or another. I don't completely discount the possibility that one day one or more of these people may be right because there are plenty of historical examples (1920s Germany, 1930s US/Europe etc) and some contemporary examples (Zimbabwe). However, betting heavily on such an extreme outcome strikes me as a good way to (i) stay poor and (ii) become too paranoid to seriously consider early retirement.

If the concern is a return to inflation at rates higher than those experienced in the last 10-20 years, then IMHO one of the best hedges would be buying an decent quality property in a location with favourable demographics (and a few other characteristics) and financing the purchase with a long term fixed rate mortgage. In an inflationary environment the property should increase in nominal terms (not necessarily matching inflation) and the real value of the mortgage will fall.

[dex]

http://finance.yahoo.com/q?s=RJA


https://www.elementsetn.com/RICI-Agriculture-ETN.aspx

Don't forget to get something you can eat.

[harley]

I've read a fair amount about the Permanent Portfolio. I like the concept of investing the portion of your money that you can't afford to lose in it. That leaves the other part for what Harry Browne called the Variable Portfolio, basically whatever you feel like. There are plenty of hedges out there, gold, oil, agricultural, etc. I haven't decided to go for it yet, but there's something very tempting about protecting your critical assets with the PP. It holds up well against the past. As usual, the problem is the future. Who knows?

[Onward]

And don't forget to pick up these gems:







BTW, here is Bill Bernstein's take on the Permanent Portfolio:

Wild About Harry

[kyounge1956]

Quote:

Originally Posted by verygoodthings Based on this thread date, I'm assuming you are referring to Crashproof 2.0, the update book. I got the feeling the author was a little full of himself, and of course his recommendations would make many advisors laugh. I've also read Aftershock, a similar book, if you are interested in the topic. Another book that discusses these investments is The Age of Deleveraging. These three titles are all kind of written from the angle that the world is going to destruct.

No, it was the first Crash Proof from 2006. The library has Crash Proof 2.0 but a gazillion people have it on hold. I was just browsing the shelf when I picked it up. Titles written from the angle that the world is about to destruct was what I meant by "doom & gloom" books. I don't think I have read Aftershock, but the title sounds familiar. I may have seen it on the shelf but not taken it home.

Quote:

Larry Swedroe has a book on Alternative Investments you should check out. There are other (better?) ways to protect against inflation besides commodities. Gold has not kept up with inflation over any significant period of time (10+ years). That was enough to disinterest me, but it probably has good purpose in someone else's portfolio.

I have read Swedroe on Alternative Investments but maybe it's time for a re-read. There was a thread recently over at bogleheads.org on "Gold as a Diversifier" or something along those lines. It has low/negative correlation with many other assets so a small allocation can do that "reduce risk, increase return" MPT magic. I don't know if commodities would have the same diversification value, but it seems to me that the price of oil, at least, must go up eventually. Demand is increasing and supply is finite. But I certainly would not formulate my whole portfolio based on somebody's prediction of when that will happen.

[kyounge1956]

Quote:

Originally Posted by dex RJA: Summary for AB Svensk Ekportkredit (Swedish- Yahoo! Finance https://www.elementsetn.com/RICI-Agriculture-ETN.aspx Don't forget to get something you can eat.

Buying enough land for a big garden is definitely included in my plans. I plan to grow at least some fruit & veggies for fun and freshness, even if I can afford to buy them at the store. Fresh ripe peach warm from the tree with the fuzz still on it.....YUMM!

[Gone4Good]

Quote:

Originally Posted by Onward BTW, here is Bill Bernstein's take on the Permanent Portfolio:

Bernstein's got several worthwhile quotes in that piece, but this one is the one that I think is most important . . .

Quote:

Consider: over the long sweep of financial history, the annual real return of long bonds and gold have been 2% and 0%, respectively; over the decade ending 2009, they were 5% and 11%.

It's already too late, the party's over, or nearly so.

[clifp]

Quote:

Originally Posted by Gone4Good Bernstein's got several worthwhile quotes in that piece, but this one is the one that I think is most important . . . It's already too late, the party's over, or nearly so.

The 2% for bonds 0% for gold was very interesting statistic.

Actually that was very worthwhile article because it showed the practical difficulties in purchasing/profiting from alternative investments. For instance I have long looked at oil as inflation hedge alternative to gold. I think there is a slim possibility that oil will supplement the dollar as form of currency. For example oil contracts in yuan, yen, or Euro have already been seen and I think they will be more common in the future.

How to take advantage of this. I naively thought that an ETF like USO (US oil) would be a good vehicle. It turns out the because of contango and a number of other factors that only vaguely understand related to future contracts USO is lousy wayto bet on the future price of oil.

Likewise a couple of years ago I was convinced the US government bonds were overvalued and want to short them. It turns out you can't simple short US treasury bonds like you can stock. There are ways but they are convoluted and expensive. So fortunately for me I gave up try, good thing cause treasury continued to rise

So my comment to the OP, is that even if the doom gloom folks are right (and I am giving them more attention now than I did a few years ago), you still need to correctly identify the right asset class to invest before the crash. Then you have to have good timing to avoid the problems that Bernstein. All in all tomato, lettuce and healthy stuff like that seems like a better investment.

[harley]

Again, the PP is for the money you can't afford to lose. It's not a portfolio for making the big score. I don't belieive "the party is over" for it. Yes, gold may go down and stagnate for another 15-20 years, but the mix will (probably) keep your investment intact, and grow at least to keep up with inflation. It's a different concept of investing, defensive as opposed to most others which are significantly more volatile. So to some extent, it becomes an apple/oranges comparison. Bernstein doesn't seem to understand that.

I'm not advocating it, since I haven't gone with it myself. IMO, Bernstein's biggest problem with it, the fact that people time in and out of it at the wrong times, applies to every other allocation too. Most people can't stay the course, no matter what (present company excepted, of course).

That's as far as I'm going with the PP, since there are billions of electrons out there dedicated to it. If you are interested, google to your heart's content.

[kyounge1956]

Quote:

Originally Posted by yakers Or you could go to PRPFX/Permanent Portfolio. Should cover some long tail/black swan events. If the gold portion of it weren't so high I would actually consider buying it.

Sometimes I think about doing the 4x25% Permanent Portfolio. Right now it's not a practical possibility because I can't buy the necessary asset classes, or PRPFX either, in my tax deferred account, which is where about 80% of my money is. After retirement and rollover to a TIRA....well, maybe.

[kyounge1956]

Quote:

Originally Posted by clifp (snip)So my comment to the OP, is that even if the doom gloom folks are right (and I am giving them more attention now than I did a few years ago), you still need to correctly identify the right asset class to invest before the crash. Then you have to have good timing to avoid the problems that Bernstein. All in all tomato, lettuce and healthy stuff like that seems like a better investment.

I'd have to have good timing and all that if I were to follow the recommendations of any one of these Doom & Gloom types. What I was trying to get at—and I used the wrong word in the thread title, I should have called it Consensus Hedge Investments—is the assets recommended by most or all prophets of doom, regardless of what form they think calamity will take or when they think it will strike. I would expect those assets to be the ones that people have often gravitated to in anxious or unsettled times, and what better way for me to weather such times than to have available for sale a bit of something that everyone else wants to buy? As for precious metals, I would guess that having a stash of physical gold or silver has more than once enabled people to flee for their lives in truly dire circumstances. I hear there's nothing like it for bribing border guards. And if I never do need to flee for my life, it can just sit in my portfolio, zigging when everything else is zagging.

[harley]

Quote:

Originally Posted by kyounge1956 I'd have to have good timing and all that if I were to follow the recommendations of any one of these Doom & Gloom types. What I was trying to get at—and I used the wrong word in the thread title, I should have called it Consensus Hedge Investments—is the assets recommended by most or all prophets of doom, regardless of what form they think calamity will take or when they think it will strike. I would expect those assets to be the ones that people have often gravitated to in anxious or unsettled times, and what better way for me to weather such times than to have available for sale a bit of something that everyone else wants to buy? As for precious metals, I would guess that having a stash of physical gold or silver has more than once enabled people to flee for their lives in truly dire circumstances. I hear there's nothing like it for bribing border guards. And if I never do need to flee for my life, it can just sit in my portfolio, zigging when everything else is zagging.

We loaded up on physical gold during the years when it was cheap. Of course, at the time I thought it was DW's midlife crisis as enabled by QVC. I didn't realize she was just being a survivalist. If things go to hell I'm grabbing her jewelry box(es) and my back up hard drive, and heading for Costa Rica.