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Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Wealth Building and Wealth Preservation

InvestorEducation / Learn to Trade Sep 17, 2009 - 01:41 AM GMT

By: Andrew_Abraham


Wealth building is one issue…and is hard to accomplish.
Wealth preservation in todays economy is probably much harder to accomplish.

To create new wealth or wealth creation, one needs to have the combination of skill, timing, risk taking, blessings and a great deal of work. Once this new wealth has been created, the security,preservation and growth become a goal. Sadly the reality today is that many fortunes have been wiped out by investors who have not thought a plan. They did not realize the risks they were taking. They did not realize how important liquidity is. They took on too much leverage. They believed what the news told them. They believed that the prices of real estate never go down and that real estate is a safe asset. The fact is there is nothing safe but rather how much risk does one need to take on in order to achieve their desired rate of return. Investors need to think in these terms. This is reality. I know too many people who got wiped out by “Safe’ investments such as auction rate securities or asset backed lending schemes.

The investment world has changed so much that now investors need to fight for their investment survival (This might be a stronger word than wealth preservation.) Throughout the world central banks are flooding the market with liquidity in order to prop up a banking system which is critically ill. We are passed the issue of if some of the worlds largest banks are too big to fall. Any bank can fail. Actually virtually two banks a week are falling in the US alone. Investors need to understand that are risks which we have not seen for decades or even a hundred years. There are hopes that the FDIC will continue to bail out banks and guarantee the deposits of funds. Really how long can this continue? ( I assume just run the printing presses if the FED needs more money). Then there is counter party risk and even custodial risk. So far it has not happen when banks fail but there exist the chance that investors might not get access to their assets when they want or need them (what ever they might be..such as equities, bonds or even precious metals).

Times like these which are unique require other strategies for wealth preservation. In my opinion one of the best way for both wealth building and wealth preservation is trend following a basket of commodities. In times of crisis such as we are experiencing there are dramatic trends. With these dramatic trends there is the case to be made that there exists a time for wealth building through commodity trading. Personally I look at commodity trading as a hedge or as a means of wealth preservation. Last year was an interesting example that there was inflation…stock market crash…and then deflation and that many trend following commodity trading advisors had a very good year in the midst of a crisis. What else I like about commodity trading is that we trade real assets. Not a piece of paper hoping for a percentage of the profits of a company ( stock).

Put this into context, over the last ten years, the Dow Jones index has declined 80% against gold. How many investors purchased index funds and have not seen profits for years. How many investors can continue to be long term buy and hold ( pray) when over a 10 year stretch they did not make any money. In all reality there will be stretches as well in trend following of commodities that one does not make any money. However when one looks at a wide basket of commodities…and they can go long or go short…there is a the distinct possibility for a trend to emerge. One needs to be available for the oppurtunities and over the years there have been. It should be a paramount issue considering todays economy an avenue to use for wealth preservation is trend following of commodities. What if gold shoots to $2,000? What if gold falls back down to $200. Trend following commodity trading advisors will follow the move and stand the chance to make money.

The same can be stated for the US dollar. What would happen if the US dollar crashes? How do you protect your US dollars? Depending on the time frame and methodology most trend followers would benefit if the US dollar would crash. Do you remember how many Billions George Soros made when the British Pound crashed? He was not alone. Trend following commodity trading advisors also made a bundle.

There are other choices other than real estate, stocks and bonds. The reality is these markets can be in a long drawn out period that can last for years. Trend following is non biased… long or short…it does not matter. Some of the other advantages are, investors money is kept in segregated accounts at the brokerage houses. Even if they brokerage fails the monies are not co mingled. Added to this if one has a managed account, the commodity trading advisor only can give orders for buys and sells. He does not have access to the funds.

Everything has risks… ( even doing nothing has risks) however if you are looking for wealth preservation…or possibly wealth security..with a reasonable expectation of risk and reward you owe to yourself to learn more about commodity trading and commodity trading advisors that are trend followers.

Andrew Abraham

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

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© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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