The investment bet: third quarter, second year.

October 31, 2013, by

hunters cocktail.jpgAt this month's dinner at their favorite restaurant Guy, Lars is going over the September 30 results in his investment bet with rich Uncle Nils. When they started this at the beginning of 2012 Nils was excited about gold's then-recent performance so his money is on a mix of metals. With family trust money Lars is diversified as he should be, with equal portions of US stocks, international stocks, bonds, a REIT fund, and Nils's concoction.

It has been a very bad year for Nils's precious commodities. He's down 23% for the year, although he's recovered by about 6% this quarter. Lars is up 4% for the quarter and 3% for the year, with stocks (US stocks up 21%!) carrying the freight. The leader gets to choose the drink at each quarterly review. Nils has done a little better for the three months, but he's feeling down over his losses and also a little off physically, having tests recently. So from lack of energy he defers to Lars who orders a couple Hunters: whiskey and cherry brandy. Neither one of them is a hunter but it seems fallish and manly.

With his own money, much of it in his self-directed retirement plan, Lars is predicting that bonds will do badly, and stocks will come off these giddy highs. He realizes he's not an expert but he is holding to simple thoughts. Don't interest rates have to move toward the historical mean at some point, and undermine the price of bonds? And haven't stocks been doing just too well? So he has a lot in short-term fixed.

The markets have been slow to recognize his wisdom. His guess right now is that stocks will go higher before they fall. If they do rise further, he'll just pull out a little more gain. That wouldn't be the worst of results.