Survey Results – What is the Best Asset Class to Invest In?

As you have seen on the site, you get a survey popping up when you visit. This is not meant to annoy but I genuinely want to see what my readers think of things in the economy and investing.

On March 28th, I put the question up: What is the Best Asset Class to Invest In?  Here are the results

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I am not going to lie. I was surprised. 48% said Real Estate! So let’s think back to 2009.What would investors have said about this five years ago? Real estate and stocks would have been at the bottom, right?

So my point here is this:  People follow investments usually in the later stages of their big increases in price.  The key is to find these assets when others don’t want them.  Gold, a few years ago, was untouchable! Now it’s only the favorite of 12% of my readers.

Think independently people.  You can’t chase returns.  You have to think and look at true value and not care what others think.  That’s the only way to get above average returns.  If someone tells you otherwise, they are lying to you to get your money and charge you fees or commissions.  Plain and simple.

When Value Buying Can Bite You in the Ass

Ten years ago, I was given the option to buy shares in an IPO for a small company called Google. You may have heard of it.  I looked at the financials and thought, “Jeez, this thing is overpriced.” So I ignored it.  The IPO price for early buyers was $60, I believe.  It currently sits at $1200 per share.  1900% increase.  Drats.

So here is one of the rare examples of when value buying ends up having you lose out in the long term.  First off, I think Google is worth around $650 a share right now.  I know I know.  That’s almost 50% lower than it sells for today…but it does sell for a premium.

But in 2004, Google had $3Billion in sales and last year it had $60Billion in sales.  So clearly they are a growth machine.  They have done a great job meeting expectations and leading the industry in ads and it prints money.  Who would have guessed that back then?  Not many, I would presume.

So do I beat myself up over this?  Yes and no.  Of course I wish I had done this, so I am upset about that, but if I had invested in Google back in 2004 based on what I saw, then I would have lost TONS more money on other IPOs now and in the future hoping for the same result and would have probably given back all of the Google gains over time.

Having a plan and sticking to it…assess your work over years and years and many investments, not the short term and a few investments.  Warren Buffett and Ben Graham and all of the investing greats didn’t beat the market each year…in fact, when years were good for the stock market, they tended to lag.  But they stick to their system and when times are bad, they tend to fair pretty well.

Short Term News Doesn’t Mean Long Term Value

When discussing the current stock market valuation, so many people tell me that since current earnings are putting the market at 15 times earnings, I am off my rocker for thinking it’s overpriced.  What people always forget is that the current profit margin as a % of GDP is at 11%, which is almost double the historical average.  Of course, everyone wants to extrapolate that out, but when looking at profit margin levels in the last 10 years, this 11% rate is even an anomaly.

So I ask this question: Back in 2008, the earnings on the S&P 500 got as low as $13 per share, I believe.  If you extrapolate out a 15X earnings on that, historically, it said the S&P 500 should have been at 195. Instead it bottomed at 666 or so.  So was the 666 level really worth 3.5 times more than the market should have been selling at? Of course not, and no one who I ask that question to says it was. Their response is some variation of “Well, that was an extreme one time situation.”  Why can’t the same extreme one time situation occur on the upside too!?!?!

Every other Friday, I teach a class at my old high school where I teach investments.  One of the analogies I always make is that if you were always a C student but suddenly, you got an A on a test because the teacher let you use an open book, are you going to apply to colleges and say you are a straight A, 4.0, student?  Of course not!

If you are a solid 4.0 student and all of a sudden you forgot, from some fluke occurrence, that you had a test today, and upon taking it, you earned an F, is your high school going to kick you out for poor grades?!?! Of course not.  Yes yes, one test may be too short of an example, so make it 1 quarter of grades…1 semester…1 year.  Whatever.  The bottom line is that if your fundamental study habits haven’t changed, why would your outlook change drastically?

There are good years and bad years in everything in life.  This is why we can’t extrapolate one good year to infinity and beyond and we can’t extrapolate one bad year to infinity and beyond. You have to look at fundamentals of why things are the way they are. If there is a shift in some sort of supply or demand, then I can understand that.

But that’s not the case here. In fact, the thing driving profits is low interest because of massive Fed spending.  We can all agree that that will not occur in perpetuity.  Well, we don’t know that for sure, but every time it does happen, it leads to bad economic outcomes which would then, in turn, drive stocks down.

Please don’t think short sided when things are GOOD or BAD.