Of all the Charlie Browns in the world, you’re the Charlie Browniest

Many of you may recognize this as a quote from Linus in A Charlie Brown Christmas. The investing world seems to keep getting more and more Charlie Browny all the time. As I write this, treasury bond prices are at 45-year highs … ahem, highs. You don’t want this on anything if you’ve just purchased it. Simply take out “treasury bonds” and how does the sentence sound when you fill in the blank with anything? “_______ are selling at the highest price seen in 45-years … buy buy BUY!!!” Unfortunately, things can be irrationally overpriced for a long time before reality and normalcy comes into the picture. One year ago I could have basically written the same thing, but prices on certain US Treasuries rose by more than 30%. There is a lot contributing to this, but one of them is that many investors are looking at lists of 2011 returns. They see various stocks which were down or at best only slightly up and then “safe” US Treasuries rising at an astronomical rate and say to themselves, “Let’s switch the money here, it looks like it’s doing pretty good.” It’s one of the Charlie Browniest things an investor can do. For one, a 30%+ one year return is rarely followed up with a 30%+ year; more frequently it’s followed up with a negative year. By this, I’m not prognosticating what they will do in 2012, only that if you’re lucky the price will rise again, but this is feeling more and more like a bubble. Let’s go into recent history … what was the best year that real estate prices increase? The year just before the price bubble popped. How about tech? What was their best year in price performance? The year just before the price bubble popped? How about gold in the early 80s? It is simply the nature of bubbles that they have a big price push where people are buying into it for reasons other than inherent value. This is why in principle, the Facebook IPO does not attract much of my attention. Based on the limited amount of information we have, the price is very high. Do I think it’s going to have a big price push upward? Who knows? But I do feel that if there is a big price push it’s not going to be because of the company, but because of the hype. When one sees stocks double in price, does it mean that the underlying company is twice as big? That they are earning twice as much? That they have twice as much in assets (excluding the stock)? This is the furthest thing from long term investing and the average person (which is pretty much all of us) has no business doing this sort of speculation. It’s wisest to have set investing principles in place and to be on a different train all together and to patiently watch the speculation train charge off the reservation knowing that it’s just a matter of time until we hear a collective, “Good grief” from the price speculators.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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