Alternative Investment, Should We Flee Or Welcome Them??
On one hand, Fear of the unknown not only keeps you small it keeps you broke when it applies to the alternative investment.
But on the other, Neglecting due diligence and putting all your eggs in one basket is “playing with fire” -even more so with the alternative investment.
Let’s look at Warren Buffett as the classic alternative investment example, most investors would consider his “style” alternative, he does not just find good deals, he makes them, take his latest bailout deal for example, he lends 5 billion dollars at 10% -thats interest of 500 million per month! 2 years later he is going to get paid back in full… but he also has stock options as part of the deal… that he could use right now and make another 5 billion dollars! (He says he’ll wait to exercise them because he will make more if he does) In this case you have the master of due diligence and one who seems to have an endless supply of baskets to put his eggs. And so, he is a master of the Alternative Investment.
But let’s take on someone who does not use these two tools but decides to break away from the normal bank investment, he decides he is going to move over into alternative investment (much to his friends and families dismay). He is looking for the highest pay out or return he can find. he knows nothing of balancing Risk to Reward, he’s got no-idea what a REAL alternative investment even looks like – how he could do proper due diligence. And then he puts all his eggs in the one basket… he loses his money. People then cry out that they have been scammed and turn and invent a protective group like SEC or CFTC and instead of being protected they are kept out of any alternative investment.
Managed Accounts in the PAMM format are an answer to that in my opinion, they are safe in that the brokerage takes care of the monetary dealings, no trader will ever have access to your funds. The due diligence is simple; how long have they been around? What is the Risk to Reward ratio? And there are better and better managers coming into the field -already there is a wide selection. try this brokerage for example.
This “alternative investment” manager has just hit my radar:
50% gross gains in 3 months of history with a 5% draw down (losing period) Not bad!
Or if you are looking for higher gains, see this post.
SO in conclusion to the Alternative Investment question, “Friend or Foe?”. I have to say, friend, if you know a few rules :)
But I also have to say that the whole idea is actually fluid, once upon a time, options were considered alternative investments. Now your crazy as a fund manager if you don’t hedge your stock with them.
And soon, I think we will find the Forex Managed Account falls into the norm and out of the alternative investment category.