My Investing Strategy for the Next Decade

I try to take a longer term approach to investing and if you read my post on Kondratiev and the follow up post on K-waves, then you know that I give some credence to his theories.  It only makes sense that bubbles arise out of human emotion and the bust that follows would cause those same individuals to swear off investing in that particular asset class for several years.

In fact, I read an article last night about the lack of interest in stock mutual funds following this recent “lost decade” and someone made the comment that investors were leaving the market and not coming back.

Because I believe that K-waves are real and the description of winter corresponds to the situation that is occurring now, then looking toward assets that do well in spring would seem to be the logical choice.  Also because the K-waves are typically 40-60 years in length, it would seem that most of the seasons would be about 10-15 years in length as well.

The gold bull (gold does well in Kondratiev’s winter) started in 2001 so I would estimate that we are more than halfway through the gold bull at this point.  I will be offering further comments about gold in a future post.

Preparing for Spring

Since it is a little late to really be thinking about winter, I think the best thing is to begin thinking about spring.  So what investments do well in spring?  Well, think about the bubbles that burst in the last decade.  Stocks and real estate come to mind.  These are the investments that should do well as the business cycle begins to spring to life and gather momentum.

Personally, I think I have about 4-7 more years before these investment classes begin to take off.  So I plan to pay off as much debt as possible as quickly as possible to improve my balance sheet in order to purchase more real estate when prices are low.  I already have some rental houses from the past decade and would like to own several more but credit is tight so I will need to have a pristine balance sheet when credit begins to loosen up.

In my area, there is still quite a bit of real estate supply available so I think it will take some time to work through it all.  If interest rates increase, that will only make it more difficult for those who would marginally be able to afford to purchase in the first place.  My market will always have renters so I don’t think it will be a big issue.  I just want to make sure that the real estate I purchase will have positive cash flow.

As far as stocks go, I will continue to invest in stocks through my retirement plans since I have a long term horizon of almost 30 more years.  I suppose there isn’t anything fancy of magical about my investment thesis over the next decade.  My plan is to continue to save as much as possible in order to pay off some debt and add to my real estate holdings while continuing to invest in stocks through the 401(k).

I do not, however, plan on investing in bonds since interest rates have almost nowhere to go but up.  Bonds have done well for 20 years so it is time for their season to end.  Will it be this year or next or maybe 2013?  I can’t be sure but I do know that when interest rates start to rise, bonds will fall and the $1 trillion that have flooded bond funds over the last decade will begin to leave and need a home.  I believe that home will be stocks and real estate.  And spring will be just warming up.

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