Investment Tips for 2011 from Finance Expert Daniel Shaffer
We should be nervous, says Daniel Shaffer, president and CEO of Shaffer Asset Management, financial commentator and author of Profiting in Economic Storms: A Historic Guide to Surviving Depression, Deflation, Hyperinflation and Market Bubbles.
"We are in the eye of the storm," he told WalletPop in a telephone interview. "We need to be cautious."With New Year's and resolutions to think about retirement, tackle our finances and invest for the future a little over a month away, Shaffer has four tips to help us grow that nest egg. But, he warns, "this is not for everybody. Nor should you do this alone if you can't understand the products. Always consult an expert you trust."
History is repeating itself
Shaffer says we can learn much about what's happening in today's market by looking at what's happened before. And given what we learned about the Great Depression and the Recession of the 1970s, "we are looking at a cyclical low in 2013," he adds. "Based on the velocity of money slowing down and people cutting back, there is an inherent cycle that would continue until over speculation and over credit burns out of the system. We had a 20-year period of that and it will take 10 years to clear out."
As a result, he tells clients to "wake up and realize past performance is not indicative of future results. Future results will not be what the last 30 years have been."
Don't trust those company releases
A certified public accountant, Shaffer says he doesn't trust all the rosy reports that companies have been issuing in the past two years. Creative accounting has become, unfortunately, the industry norm. "The price of the stock is just as important as your interpretation of the company you are either invested in or considering," he writes. "If a stock is moving lower and the financial statements along with comments from management don't agree, then the price of the stock will be your most important indicator."
Play it safe
With the economy in a deflationary period until 2013 or 2015, and hyperinflation hitting in 2020, he recommends clients invest in U.S Treasury bills. If they want to stay in the stock market, he is urging them to short their bets by buying inverse Exchange Traded Funds (ETFs). Another bet: new public non-traded real estate investment trusts (REITs).
"As the economy comes down," says Shaffer, "the brand new non-traded REITs with no legacy assets will become the shadow banking system, replacing the banks because they will be in bad condition and will not want to lend money, whereas the REITS will be flush with cash waiting for commercial real estate prices to come in as refinancing becomes more difficult to get."
Past strategies may not hold
Given what has happened to the markets in the past three years, especially events like the
"flash crash," it's clear that the Efficient Market Hypothesis, which believes that markets trade efficiently and asset prices reflect all available information in the marketplace, does not hold true. Just as problematic is the Modern Portfolio Theory to create asset allocation models as reality did not match results illustrated by computer-generated models. "Be wary of mixing and matching fund investments based on programs that use prior history to develop investment models," adds Shaffer. "Consult a professional that can actively manage a portfolio verses buy and hold strategies. With markets moving so rapidly from day to day, buy and hold may not produce expected results."