Seeking Equity-Like Returns, Outside of Equities

This chart is the U.S. dollar versus the Norwegian krone for the last year. The chart shows the trend of dollar weakness in krone terms.

The blue dot to left is about where I got in last Spring using two year sovereign debt. The move from 6 to about 5.05 is almost a 16% gain in one year. We will take in a little bit of coupon interest in the next few days too.

There are all sorts of things like this that in a given year can give equity-like returns without exposure to equities. I would not expect the "something", like Norwegian sovereign debt, to provide equity-like returns every year, but there is always something (many things actually) that are capable of this.

Finding one of these every year is not a realistic expectation and obviously knowing where to look is difficult. The idea behind this is that, depending on the time you can or want to spend, each do-it-yourselfer can follow a certain amount of things. For one person it might be ten things, and for another it might be two.

When I say "things" I am talking about some of the ideas I have touched on in past posts that I watch - like debt from quite a few countries (we only have exposure to three, mind you, and no single client has more than two of them), hydro funds and the like. These are a couple of things I watch. Perhaps you have a couple along these lines you watch and know a little bit about. If you know a little bit about pulp futures, for example, you might be in touch with when might be a better time to add exposure.

Maybe none of this rings true to you, so this could be something new to seek out and learn about. This ties into the idea that US equity returns might be a little lower than normal for awhile longer. Lower than normal returns from things like the S&P 500 might cause some folks to seek out more exposure to stocks or sectors that are both hot and volatile in order to get their returns.

So maybe instead of relying on 10% into Potash (POT) and 10% into Petrobras (PBR), you could allocate to something you know about that is not a volatile equity but can deliver an equity-like result. Perhaps the benchmark for this concept is getting 15% from U.S. treasuries in the very early 1980s.

Comments

[ETFnerd]

I don't understand who you are addressing in this article. Mainly, it seems to say that you can speculate in different sectors of the economy to gain equity-like returns, but any such investment also has a downside. In addition, people cannot have expertise in every area. Thinking about it is not enough. You need to be able to do fundamental research on the drivers of price app/dep in currencies, which means usually a relative macro analysis on the US and Norwegian economies. I don't know the first thing about the economy of Norway, but there are many on the Street who do and would gladly gather up my "dead money".

So are you addressing hedge fund managers/prop traders and telling them to rotate sectors? or maybe a hedge fund of funds manager rotating investing flavors year to year? With the benefit of hindsight, you can put up any chart. Are there any sector investments that didn't pan out for you last year? These should be disclosed for balance, don't you think?

[RogerNusbaum]

um you could have looked at the archive, i have written about a lot of different things, some which worked and some not. I recently talked about exposure to Iceland which did not work out.

doing research is implied so obviously that I did not feel the need to say it overtly. the point is to encourage people to seek out other areas to follow, learn and RESEARCH.

[rbbrand]

Roger, Since it is hard for average investors to become knowledgeable enough about changing currency opportunities, are there "managed currency accounts," or "currency basket ETFs," or currency-based mutual funds, that you would recommend?

[RichardSchweitzer]

All decisions are made with less than perfect (or even complete) information.

I think something like that was the basis for award of a Nobel.

But, all information is not to be found in "financial" research. There is much to be observed.

For example, what has been the difference in the expenditures or redeployment of oil and gas revenues between Norway and Al Saud?
Does Norway buy arms, does it need to. When the oil is gone, or very much more difficult to extract, what will Norway have in its place?

Most of that extra info would come from general reading, listening or from being sufficiently curious.

It requires being curious enough to read Roger's pieces; to see what others have done and are doing - and - how it has worked out. Then, trying to gain some understanding as to why the results occurred.

A suggestion for reflection: Why should there be rewards for those who "invest wisely?" What service are they providing to some overall economy by virtue of investing?

Took this writer (83) many, many years of reasonably successful investing (and some dank periods) to come to a personally satisifying answer. But, each has to find his own.

[ETFnerd]

I would call this the dilettante's approach to investing. Insight to a degree where you are well armed to compete in markets is not achieved by chasing opportunities as they happen indiscriminately.

Also articles should be balanced. It should not be up to the reader to piece together all of your writings to see a balanced viewpoint. That's like saying if you want to see the conclusion of my novel, please buy my other book. One article was enough to decide that it wasn't worth reading any further.

[CloroxCowboy]

ETFnerd, what should be my course of investing if I don't want you to label me as a dilettante? The degree of insight you speak of would require me to limit the scope of my research, therefore my portfolio, to such an extent that any shred of diversification benefit is gone. And since I'm not a professional investor, but devote a significant portion of my after-work time to staying tragically uninformed (in your opinion), what would be the course for someone else with a non-financial job who is even more pathetically under-equipped (in your opinion) to "compete"? Woe is me... Not to mention someone like Warren Buffet, he's all over the map with his investments. The poor fool...

As to your comment that articles should be balanced, are you bipolar? I'm just trying to understand here. You feel that investors must spend a fanatical amount of time researching a single security before they commit to it. And yet you can only take the time to read one of Roger's articles before committing to an opinion of him? Roger, from now on please post every investment you have ever taken with detailed results for each article. Otherwise I will assume you are trying to trick me.

Disclosure: My comments here and elsewhere on the website are rife with sarcasm. I just can't help myself sometimes.

[ETFnerd]

I don't know what to say if you don't know the difference between balanced and all-encompassing. A sentence like: ""Currency speculation-like" losses are also possible." would have sufficed for balance.

You appear to be in the same intellectual class as Mr. Nusbaum. This statement is neither sarcasm nor a compliment.

[CloroxCowboy]

OK, so bear with me a moment longer. You'd like Mr. Nusbaum to tell you that currency losses are possible? Well I agree, using common sense makes my brain hurt too. D@mn you Nusbaum!!

Wait, I know you! You're the guy that sued McDonald's for not explaining that you might get fat from eating there everyday, right? You stole my idea, but I forgive you. How'd that turn out anyway?