Many investors and speculators become excited about an investment idea, and, thinking that they sense a good buy-in level, they tempt fate and put too much of their investment capital into this idea all-at-once.
Too often they decide to plunge-in just before the markets are ready to slide back into correction mode.
I was discussing this topic with a good friend yesterday. We both are interested in adding several investment types into our portfolio, but it's hard to know where to enter on two of them.
It seems to me that Natural Gas at these levels makes for a reasonable long-term investment. For this purpose I use the US Natural Gas Fund ETF (UNG).
Natural gas certainly is now selling for a much lower ratio to the current price of Oil than is the historic norm. Right now it's a little over 19 to 1, with oil around $71 a barrel and natural gas currently at $3.71 a British Thermal Unit. My understanding is that the historic norm is closer to a 10 or 11-to-1 ratio.
I decided to begin the accumulation process by putting to work what I determined is a good starting amount with UNG at current price levels, with the idea of adding to my position (by making sure I keep some "powder dry") during the rest of the summer shopping season which could last until November this year.
The same could be said for the precious metals, whether we're investing in ETFs like GLD (GLD), SLV (SLV), ASA (ASA) and GDX (GDX) or, the physical assets themselves, or individual stocks like Barrick Gold (ABX), Goldcorp (GG), Silver Standard Resources (SSRI) or Silver Wheaton (SLW).
Those who are interested in bond-oriented funds could use that approach for the iShares Barclays TIPS ETF (TIP) or for the so-called "AAA-rated and/or Insured" Muni-bond closed end funds like BAF (BAF), BYM (BYM), and NIO (NIO).
Here's a red-flag warning about the broader stock market right now from the folks at the S&A Digest, which they wrote Tuesday when the S&P was over 940.
The combination of a market rally and rampant new share issuance from issuers whose future isn't terribly bright reminds me of 1999 and early 2000. That's when the Nasdaq soared from about 2,500 to a peak of just over 5,000, and IPOs were popping up everywhere like stretch marks on a fat man at a pie-eating contest.
Back then, nobody thought stocks were risky, and hot tips oozed from every cabbie, bartender, and shoeshine boy. No one knew for sure why the tech stocks and dot-com stocks were doing so well, but who cared, as long as you owned them and they kept going up, up and away.
Well, maybe it's not exactly like the tech bubble, since IPOs aren't the hot ticket today. But new equity is nonetheless being printed at a record pace... According to a recent Bloomberg story, more than 150 companies raised $82.2 billion in new equity last quarter – a faster pace of equity issuance than at the height of the equity bubble in 2000.
All the new shares have diluted corporate earnings by a little over 3%, using the S&P 500 as a benchmark. The widely watched index's total shares have grown 3.4% since March 31, meaning earnings are now divided by a larger number... making earnings per share into a smaller number. Standard & Poor's has reduced its 2009 earnings-per-share estimate to $57.23. With the S&P 500 around 940, it's selling for over 16 times earnings. That's historically about average.
Jeremy Grantham, the 70-year-old-plus legendary investor was interviewed by Morningstar Research at its conference on May 28th, 2009.
Mr.Grantham, who is the Chief Investment Officer and founder of $150-billion Boston-based asset manager, GMO, gave Morningstar an eloquent and quietly gripping interview.
As usual, the super-modest, irrepressibly shy Grantham struggles to look up at Morningstar’s Pat Dorsey, and for that matter the camera. What comes through instead is the soft-spoken, and truly understated genius, known for his prescient calls on the market.
These are not to be missed. And the first of these interviews where Mr. Grantham refers to a "Market Neutral" investing approach is definitely tried-and-true investment wisdom.
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.
Disclosure: Of the fund and stocks I've mentioned in this article, UNG, SLV, and GLD are the only ones I'm currently long in.