Are 'safe' assets really safe?
Apr 6th 2009 10:00AM
Updated Dec 4th 2009 1:18PM
When the markets tanked, there was a flee to safety. Investors abandoned stocks and bought "risk free" assets in droves. Now that the market is rallying, is this still a good idea?
According to John Roque, a "technical analyst" at Natixis Bleichroeder, investors should keep the bulk of their money in "safe" assets, which include cash, the dollar and Treasuries. Mr. Roque is concerned about the perils of "social unrest" and "anti-capitalist behavior." Should you rely on Mr. Roque's advice?
Technical analysis involves interpreting charts and predicting future behavior based on the past.
There is precious little data indicating that technical analysis has merit. Burton Malkiel, in his book, A Random Walk Down Wall Street, likened it to alchemy. The premise of technical analysis -- that the past can predict the future -- is contrary to hundreds of rigorous academic studies.
Mr. Roque's track record is mixed. On July 14, 2008, he opined that "if the Dow goes to 10,000, it's not crazy that gold can go to 2,000. If the Dow goes to 9,000, gold can go to 3,000." He recommended GoldCorp as the most "attractive" gold stock.
The Dow is currently at 8,017 and gold is at 894.
On July 14, 2008, GoldCorp was $52.65. Its most recent closing was $31.12.
I am not suggesting that Mr. Roque's advice is right or wrong. However, as investors confront these difficult times, they should be wary of "financial experts" who believe they can predict the future.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read and The Smartest 401(k) Book You'll Ever Read. His new book, The Smartest Retirement Book You'll Ever Read, will be published in the fall 2009. Visit his website: www.smartestinvestmentbook.com.