The intended end result of investing is to make and keep money. The investment goals and strategies that one uses in accomplishing this goal are many. However, the first rule, to quote Warren Buffett, is not to lose money and the second rule to continue quoting the Oracle of Omaha is not to forget rule number one. Sound investment goals and strategies should also include fundamental analysis of the investment to ascertain intrinsic value of stock and margin of safety. In the background inflation eats away at the purchasing value of investments so smart investors diversify their investments with the likes of secure dividend stocks, growth stocks, real estate, treasury bills, and even international investment strategies. Looking towards the remainder of the 21st century what are sound investment goals and strategies consistent with the goal of increasing and retaining wealth and purchasing power?
Gold, Fiat Money, and the Price of a Quart of Milk
Investing in gold was a great idea for most of the first ten years of the 21st century. It was also a great idea for much of 1970’s when inflation was rampant. Gold bugs firmly believe that paper money will eventually become worthless and as of a year or so ago were predicting $3000 an ounce gold. In 2011 gold surged over $1,800 an ounce and today goes for around $1,200 an ounce. As the US stock market surges the prospect exists of an ounce of gold going for less than $1,000 an ounce. The demise of the US dollar is a recurring prediction. However, the US Federal reserve promises to cut back on the $85 Billion a month quantitative easing stimulus program. When this happens interest rates will rise in the USA and the dollar will trade higher against foreign currencies. And gold will go into a tailspin. Gold bugs continually talk about the purchasing power of an ounce of gold. Well, the purchasing power of gold has fallen by a third in two years breaking the rule of good investing goals and strategies of not losing money.
How about the Stock Market?
The US stock market has been on a spectacular rise for the last year. Sound investment goals and strategies would have put us into the US stock market early. However, it is always a good idea to take a little profit from time to time because you really do not have profit until you take a profit. Successful long term stock investors look for underpriced stocks, not cheap stocks. They consider the anticipated earnings of a company and compare that to the current price. This is intrinsic value analysis. Your investment goals should be centered on making and keeping money. Having stock in a strong and continually growing and profitable company is a sound practice.
Strategy versus Goals
Set reasonable goals and they will be easier to reach. Stick with basic tried and true investment strategies and you will be more likely to obtain your goals. When investment goals and strategies are in sync, investors profit. Staying ahead of inflation is a time honored investment goal. So is seeing the future. Early investors in American Telephone and Telegraph did well for over half a century as the USA extended its communications system across the nation. There are parts of the world that are going to replicate the American experience in growth of the middle class and development of infrastructure. We have written about how to invest in middle class growth in Latin America, investment and the Panama Canal Expansion, and simply investing in foreign stocks. These can all lead to wise investment goals and strategies to achieve them. But, as always do your own fundamental analysis and sit on the sidelines rather than lose your money in a poorly thought out or timed investment. If you have questions about investment in Latin America, especially Panama and Colombia, feel free to contact us.