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Play the Annual Invest Lazy Man’s Money Game and Win $25

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It's that time of year again. With tax time rolling around again, I get clarity on how much I can invest in my SEP-IRA for the previous year. (There's always a difficult calculation depending on my income from the previous year.)

Some years, I have a very good idea of where I want to invest the money. I typically look for an industry that's fallen on some times, but one that isn't going away. For example, 7 years ago or so, energy stocks were beaten down. I didn't believe that energy was going to go away any time soon, so I invested in it. Call me a bargain hunter everywhere, even in the stock market.

In contrast, I get very nervous with equities that seem to reach new highs every day. I feel that can be a recipe for a bubble. (Side Note: That's not to say that some things don't deserve such evaluations. Apple is an example of a company that seems to hit new highs everyday, but they back it up with billions and billions of sales. I don't want to invest in one company like that anyway.)

I would say that I generally believe in a regression to the mean. With major indexes, the high-flyers come back to earth and the low-fliers catch up in valuation.

This year when I look for things that are beaten down, I'm not seeing much. The Dow continues to march higher and higher to the point where I've actually pulled out about 8% of my Vangaurd Total Market Index (NYSE:VTI) money to leave as cash to either invest elsewhere or buy back in at a lower level. (And if you call me out for timing the market, you'd be exactly right.) I'm nervous about the high indexes in US stocks with the national debt as high as it is. I'm not sure that interest rates can stay low forever either.

So I ask you, the reader, what sector has been beaten down? I'll put one out there to chew on. Banks - the most beaten down of investments in 2008. I'm looking at a financial sector (NYSE:XLF) and seeing that it is far off of its highs of 38 in 2007 - currently trading around $15. However, that's in line with banking profits since then when the big sub-prime mess. Even with XLF, it seems like it is up nearly 25% in the last 3 months. I'm not sure if that qualifies as beaten down anymore.

Leave your suggestion in the comments. The one that I like the best, even if I end up not using it, is going to be emailed $25 via Paypal or a $25 Amazon gift card. (I'd take the cash, but not everyone has a Paypal account). I'll put a deadline of Thursday, March 22nd at 11:59PM PT for entries and announce a winner on Friday.

Posted on March 15, 2012.

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Investing

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16 Responses to “Play the Annual Invest Lazy Man’s Money Game and Win $25”

  1. Kosmo says:

    Tangent – this isn’t a sector that has been beaten down, but simply an easy opportunity to make millions.

    Set up an apocalyse insurance company.

    If the world doesn’t end on December 21, you keep the premiums.

    If the world ends on December 21, you have to pay the claims … but nobody will be around to make a claim.

    It’s a win-win!

  2. Andrew says:

    I really like investing in the Australian dollar against the US Dollar in the Forex Market over the long term and just sitting on the accumulated leveraged interest. Even with 5 to 1 leverage you will be earning 20% in interest alone. Careful buy backs can increase this further.

    That’s my idea. If you’d like some further plans I can certainly e-mail you.

    • Lazy Man says:

      Kosmo,

      I’ll go in 50-50 with you on that idea. I’m a little Lazy, but I love the idea.

      Andrew,

      I’m not sure that I can get into Forex trading with my SEP-IRA at Fidelity. I’m mostly restricted to equities that your standard brokerage offers. Even if it was available to me, it would probably be a little more risky that I’m looking for.

  3. Tommy Z says:

    Do not invest in the banking sector. Interest rates are at all time lows and if you really believe in a return to the mean, rates will go up. When rates go up, the banks will be in trouble again. Many consumers are locked into fixed rate mortgages at all time lows (their income) and when interest rates rise, they will have to pay their depositors (their expenses) more. It’s a disaster waiting to happen.

    What’s something that is overvalued right now? Paper money! It’s backed by…well…paper. Just think how crazy this is…yet we all believe in the con, so it goes on. We live in a world where our government can stamp the words $100 on some paper along with the picture of Ben Franklin and actually multiply the value of that note.

    As a result, you will see paper money return to its true value = 0. Instead, invest in something that goes up as the value of our paper money goes down.

    My favorite right now is GDXJ. It is an ETF that buys a diversified group of junior gold mining companies. As paper goes down, gold goes up, as does the value of these stocks and the values of the mines they own. To boot, it has an awesome dividend at 4.2%. You can’t even get that at a bank with a long-term CD!

    • Lazy Man says:

      I don’t believe in investing in gold. It’s similar to paper… but instead of being thin wood, it is a pretty colored rock. I’ll give you that it is a good semi-conductor, but the value of gold is based on an economy from 500-1000 years ago (or more).

      This is why I’m stepping up the commodities like oil and agriculture. They tend to have a lot of practical uses. Unfortunately oil is pretty high right now, and I’ve already got a good amount of agriculture.

  4. garry says:

    How about Fairhomle funds. Berkowitz seems to go against the odds and is real good about picking up beaten up banks. With AIG BAC and MBIA as some of the major holdings I think FAAFX would be along the lines you are talking about.

  5. Kosmo says:

    Iowa farmland is up 11% this year, to around $9400/acre. That’s roughly 3-4X the price in 2005, when my mom sold the farm.

    In theory, you’d think it would correct at some point, since 9400/acre means you’d have to lay out 1.5M even for a small farm (a 160 acre plot).

    I honestly don’t see how anyone starting out is making a go of it. Having said that, the bigger farms to have a significant advantage with economies of scale.

  6. Kosmo says:

    @ Lazy – I agree with you on gold. I think a big reason why people feel that gold is a good investment is because it has tended to increase in value in the past.

    However, that’s counter to the traditional wisdom of “past performance is no guarantee of future results.”

    You need to dig deeper than the thought of “I’ll be able to trade gold for good and services in the future because people will value gold.” WHY will they value gold? What can it do for them? If it’s merely used for trading, then by definition it’s a currency, albeit not a fiat currency.

    At some point, the rubber hits the road and you need to make productive use of an asset – finding a way to turn it into food, fuel, clothing, shelter, etc.

    • Lazy Man says:

      Thanks Kosmo,

      To play Devil’s Advocate against myself, I’m using a SEP-IRA to buy what is for all practical purposes a few digital bits. I know that I could get stock certificates and or other pieces of paper representing the bits, but it isn’t like I’m buying a barrel of oil. That said, I have little confidence in the underlying asset of gold.

  7. Tommy Z says:

    @Lazyman

    Just to clarify, I’m not advocating investing in gold, my suggestion is to invest in a diversified group of gold mining companies. Gold is not an investment – gold is money. A gold mine is an investment.

    When you look at the run up in gold prices (which I would argue will continue to go higher), the mining stocks have lagged behind. The result is that the mining companies profits are going through the roof, but their stocks have not adjusted for this yet.

    This is akin to oil prices jumping and the drillers not moving up in tandem. This is all about reversion to the mean. Even if you don’t want to buy gold, other people will, and you will make money in the process by owning the company that sells gold.

    There are a few factors that give real value to gold:

    1. It cannot be re-produced by man (like paper fiat money).
    2. It is rare.
    3. It is used in jewelry.
    4. It conducts electricity very well.
    5. It has historically been used as money and never failed as money, whereas paper money never lasts much more than 40 years (1971 USA went off the gold standard).
    6. There is no counter party risk with gold.
    7. Also check:
    http://geology.com/minerals/gold/uses-of-gold.shtml

  8. Contrarian says:

    My recommendation: Stay in cash and short the market. Put options on the SPY would be a good choice.

    The reason for my recommendation is the market is not investable at this point. Our economic recovery and subsequent rise in stock prices has been on the back of a toxic brew of $7 trillion in reckless government debt, ZIRP, Bank bailouts, QE1, QE2, Operation Twist, periodic massive liquidity injections and ultra low interest rates. No lessons have been learned from 2008 crisis, nothing has been fixed, the too big to fail banks are even bigger, systemic risk has been increased, and on Wall Street it’s back to business as usual. Meanwhile the fuse on the end of the ticking time bomb keeps burning.

    The policymakers in government and the wizard at the Fed are trying to keep the flying monkeys away and stave off deflation but all they’ve done is poured more debt into an unretractable debt hole. They are doing everything possible to seduce us into drinking the cool-aid and buy risk assets (stocks, real-estate, etc). They are forcing savers and fiduciaries off the sidelines (with their zero interest rate policies) and seducing them into going long risk assets. So far their strategy is working with the stock market rising to over 13,000, but it’s totally unsustainable, held together with duct tape, paper clips, bandaids, massive stimulus and empty promises.

    We must resisting the immoral temptation offered up by the Fed’s fiscal insanity. We must ignore the crowd, the cheerleaders, the talking heads in the mainstream media, and everyone else who has a stake in the debt-based Ponzi scheme. Most importantly, we must ignore the BS coming out of the Fed and the government because they are full of shit. Instead, pay attention to the debts, do the math, and cherishing the numbers only

    If you think debt doesn’t matter, then go ahead and lever up – buy stocks, buy houses, and buy stuff. If you do think debt matters, then you’d better be very careful with your asset allocation … because the fuse is still burning.

    “At times like this is it more important to survive than to try to get rich.” –George Soros

    – Contrarian

    • Lazy Man says:

      I don’t think I replied back to Contrarian’s comment, but I should have. I have very much the same view as he does, especially with the national debt. This is one of the reasons I’ve been shifting to cash.

      I don’t believe my SEP-IRA account allows for options trading, so I won’t be putting options on SPY. My thought was to invest in an ETF that shorts the market. However, that seems counter-effective to my overall long strategy. For the most part it would balance out my long position for a net gain of “surviving” using your Soros quote. Or I could sell my long positions and take up a largely short position, but that seems risky.

  9. 1. It cannot be re-produced by man (like paper fiat money).

    You mean, other than being mined? And certainly no big untapped mines are out there. Well, maybe the Pebble Mine? And others that we’re unaware of? And perhaps some mines that were abandoned when prices were lower will be reopened because now the cost of extraction is lower that the price of gold – much like old oil wells are reopened?

    2. It is rare.

    True, but certainly not the rarest of metals.

    3. It is used in jewelry.

    Yes, it looks pretty. And because of these, we should trust our financial future in it?

    4. It conducts electricity very well.

    True. So do a lot of other metals. Not as well as gold in many cases, but there’s a limit to how much you can pay to use gold. At some point, it’s less costly to simply use the worse conductor and lose the efficiency.

    5. It has historically been used as money and never failed as money, whereas paper money never lasts much more than 40 years (1971 USA went off the gold standard).

    Gold has always been valued, and thus will continue to have value in the future? Interesting argument …

  10. Jocelyn says:

    Okay, here’s one – a big insurance company (ie. Manulife.) If you don’t like that one, big energy company Enerplus (ERF) which is down about 25% in past year but pays a very substantial monthly dividend.

  11. “Thanks Kosmo,

    To play Devil’s Advocate against myself, I’m using a SEP-IRA to buy what is for all practical purposes a few digital bits. I know that I could get stock certificates and or other pieces of paper representing the bits, but it isn’t like I’m buying a barrel of oil. That said, I have little confidence in the underlying asset of gold.”

    That’s true, but at least the underlying assets have practical value. If you’re investing in an oil company, for example, you have ownership of derricks, pipeline, oil rights, etc.

    If you own gold, you likely have digital bits to a shiny rock. If you own the actual shiny rock, you need to make sure you don’t own pyrite :)

    What’s also a bit interesting is how many gold investor seems to insist that you should push all or most of your money into gold (Note: I’m not suggesting that Tommy is in this group, but many gold investors/speculators are). Not only does this fly in the face of the the conventional wisdom of diversification, but it makes me questions motives.

    Think about this for a moment. If you have your money in a security or commodity that that think has great underlying value, do you tell everyone you know, or do you keep your mouth shut? You keep your mouth shut, of course … so that you can continue to buy at a bargain price. Buy and hold, since the underlying assets are undervalued.

    Why are people telling the whole world to invest in gold? I wonder if it’s to keep the hype in place, in order to keep pushing the price higher (so that they can exit the market at a high price). I think people are buying a shiny rock with great marketing behind it. If the hype ever dries up, there will be problems.

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