With every bear market come the assertions that currently held philosophies about the market’s behavior are no longer valid.  Those who raise the question believe that the prior investment methods are, if not completely but certainly partially, responsible for the market’s ‘bad behavior.’  As a result of this thinking, a number of investment professionals have called into question whether or not long term (strategic) asset allocation remains a prudent investment philosophy.  They point out that all asset classes and markets declined as the real estate and credit bubbles burst.  Their premise is that diversification across all asset classes didn’t work since everything went south.

In the previous two newsletter issues, we discussed gold investing and its more recent historical performance.  In this issue, we compare how gold has performed relative to the S&P 500 index over the same time period.

In this month’s discussion, we’ll put the numbers to the “gold bugs” claims for the advantages of owning gold.  They say that gold is not correlated with the other financial assets, is a safe haven in times of distress, and it’s an inflation hedge.  Let’s see...

The ‘gold bugs’ are out in force.  You’ve certainly heard the call.  The people who believe you need to own gold, and preferably a lot of it, have been aggressively advertising that now is really the time to buy.

Last month we discussed the academic research of Brinson, Robinson and Beebower who examined what factors most influenced investment returns.  In this final article, we look at the “fallout” from their research.

Summarizing my August article, the investment process is usually considered in the following way:

 Probably none of us were taught anything about investing during our school years regardless of the grade level we completed.  What knowledge we did gain likely came from friends, relatives, business associates, or a financial salesperson. Yet, nothing is more important to our long term financial security than sound investment practices.

It’s hard to call this the inside story as it has already been published in the Wall Street Journal, Barron’s, Investor’s Business Daily, and many other financial publications.  More likely, you’ve only heard President Obama blaming the Chrysler bankruptcy on “speculators.”  What’s the real reason?  While Chrysler should have filed for bankruptcy months ago, the bailout money kept the doors open.  The real reason for filing now, is that the government’s plan to reorganize Chrysler gives too much to the unions and stiffs the creditors.

Following are interesting quotes from some of the world’s most successful investors:

It is a poorly kept secret within the mutual fund industry, but a well kept secret from the investing public - not all of the charges and fees subtracted from your mutual fund’s returns are disclosed.  There is nothing illegal about this behavior by the mutual fund companies, the insurance companies and most of the securities industry.  The rules do not require the disclosure of all costs charged to the mutual funds.