Monday, July 26, 2010

Are such returns achievable?

We will just have to wait and see how real estate will stack up against other investments. The 'new' world of greying populations, deleveraging and declining consumerism may look quite different from past investing environments. Neither do we know whether the critical attitudes regarding the environment will persist (e.g. resistance against new oil pipe lines from Alberta to the West Coast or opposition to NE Alberta's heavy oil). How will we fare in a world of high oil prices and limited economic growth?

There are currently too many uncertainties at the horizon to identify major investment and economic trends. We're living in an energy revolution and although we have a low inflation environment, investors may feel that current risks do not warrant low returns and they may decide to rather stay in cash. It seems that cash will be king again and with a possible deflation scenario, just holding cash may be the best way to ensure you'll retain your purchasing power.

I have been selling questionable investments, i.e. those that will only perform under optimum circumstances or whose investment story has gotten muddled and unclear. I tried to offset capital gains with losses in order to reduce taxes and preserve cash. This is the time to get rid of dogs and build up cash for upcoming opportunities.

2nd Quarter earnings reports are, in my opinion, quite decent and a second recession (double dip) is not likely. But the 'wall of worry' we're currently climbing is steep and big; one misstep and... So this is not a time to take risks - I'll be waiting to see what happens in September and October. Knowing myself, the real problem will be 'being able to restrain myself' and not to spend my cash too early in the game. So, unless I see the returns I want, there won't be any movement. I suspect many other investors think similarly right now - hence we're in this nasty trading range.

I will insist on the previously listed returns otherwise, I'll prefer to hold on to cash until the skies clear. In other words, it's my way or the high way for those who want my investment dollars.

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