Six Months Later

In April, I wrote about a call from a friend who’s in the investment business. The short version of that blog is that he was moving his clients into cash, advising them to ride out a downturn in not just the stock market, but in other investments, and positioning them to re-invest when a major bear market was over.

Some asked, ”What about commodities and alternatives like gold?”

“Cash!” was the answer.

Well, there have been ups and downs since then, and, as always, if your timing in day-to-day trading was perfect, you might have done all right, or better than all right.

But if you don’t work at it all day, every day, you make occasional “big moves” like this one, or none at all.

So, what would have happened in you had put everything into cash (dollars, in this case)? And how would a range of investments have done?

Let’s assume – for round numbers – you had $1,000 when I wrote Peninsula Pen on April 14.
If you took my friend’s advice, you sold whatever else you had and kept your money in dollars. Dollars, of course are a commodity, too, traded on world markets, and their value goes up and down. In this case, up. Back in April (if you wanted to go to Paris, for instance) the dollar would have bought 633 Euros. This weekend, 703 – a 16% increase, an annualized return of over 30%.

Your $1,000 would have bought 167 bushels of corn; that investment would have lost $85. Gold? A 14% loss.

What about crude oil? Well, had you bought in April, then been smart enough to sell at its peak, you would have made big bucks. But if you had bought and held, right now you’d be upside down by $70.

Most of you are in stocks, a “basket” of equities known as a mutual fund. The Dow Jones Industrial Average is a pretty good proxy for that investment (it does better than most mutual funds); if you’d put your $1,000 there, you’d be pretty unhappy, because you’d have less than $900 left.

Sometimes the sideline is the place to be.