Thursday, September 14, 2006

Put a little cash to work

The only reason I was looking for alternative investments when I started blogging is that I couldn't find any good investments with decent yield.

The environment has changed quite a bit in just a few months. For one thing, I found a 7-month CD yielding 6.45% at a local credit union, so I put 100K into it. I would have put a lot more into it, but didn't because of the 100K FDIC limitation.

I put 50K into a currency trade product offered by Morgan Stanley. It's a capital-protected hedge against a falling dollar vs a basket of emerging market currencies. I don't have the prospectus readily available, but essentially if the dollar falls against a basket of Brazilian, Russian, Indian, and Chinese currencies by 2008, I make ~7.5% APR. The more it falls, the higher my return. Should the dollar rise vs those currencies, I get my original investment back. I had to really think about this vs buying more CDs at 6.45%, but thought it was a decent bet.

The decline in energy and precious metals over the last few months finally enticed me enough to put a little cash to work in stocks a couple of days ago. I targetted yield (REITs and energy trusts), energy stocks, and gold stocks. I am underinvested in these areas but didn't want to put money in when they were at such lofty levels. I expect oil and energy to decline further, so I'm just starting to scale in. One oil stock I picked up is DVN, this company made a recent discovery in the Gulf of Mexico that potentially doubles their reserves, but the stock didn't move. I'm surprised by the lack of interest, since I see lots of media coverage. This is what happens during distribution, and signals to me that energy has further to fall. Energy is still at very high valuations, and could fall for a long time.

I considered housing (KBH, TOL, PHM), because of the extreme pessimism in that sector over the past year. I regret not making some small purchases there (look how it's done over the past week). But time will tell whether this is just a temporary rebound. Meanwhile, I wait patiently to see what happens.

I am also waiting to pull the trigger on buying healthcare funds. I think this is a good sector to be in for the next couple of decades. A lot of stocks in this sector have been moving sideways for years, and action has started to look interesting the last few weeks.

I am still holding a lot of cash, but now that money market yields are all close to 5%, I'm not in any hurry to deploy. I think my cash position is even higher than a month ago despite putting another 250K to work, as I've vested more company options which I subsequently sold, made some huge gains on ESPP, and have been selling off long-term company stock holdings too (it's near an all time high).


Dr. J said...

May I ask where one can get CD's yielding 6.45%?

Rags 2 Riches said...

Yes, the 6.45% yield was offered by a local credit union. It's an introductory offer for new accounts. I saw the ad in my local paper.