With apologies to Yogi Berra, it’s deja vu all over again in Silicon Valley these days. The rest of the country might be mired in never-ending slow growth and high unemployment, but the Valley is partying like its 1999. Just like back in the go-go 90’s, you can’t go two blocks on El Camino Real without somebody trying to get you to invest in their startup.
In my thirty years as a fund manager, I’ve never put a nickel of my clients’ cash into private companies, let alone startups, and I never will. There’s one main reason for this: they are notoriously crappy investments. I should know. I’ve paid with my own personal money to learn this lesson repeatedly.
Last month, I wrote about avoiding “story stocks,” companies with compelling narratives but little or no revenues. As I said, a good way to avoid these money-losers is to stick with dividend paying stocks. Dividends ensure that a business is viable, but they don’t automatically mean that it’s a profitable investment. Dividend paying companies can be overvalued, too.
So how do you separate out the good stocks from the bad and the ugly ones? There’s one trick you can use: inside information.
No, not that inside information, the kind that will get you perp-walked out of your office in handcuffs. I’m talking about the perfectly legal kind.
Despite the unendingly grim economic news out of the euro zone, most major European stock markets have shown robust growth over the last year. The German DAX is up over 32 percent since June of 2012. The Swiss Exchange is close behind at almost 30 percent growth over the same time period, and the Euronext 100 and CAC 40 have both risen by almost 25 percent. Heck, even the Athens Stock Exchange seems to have temporarily risen from the dead. It’s up more than 77 percent in the last twelve months.
So is it time to put aside our fears and jump into this rally? I have three answers: no, hell no, and don’t you dare.
Europe is a dead-continent-walking. These short term gains notwithstanding, European stocks may very well be the biggest value trap in the history of capitalism–though the reasons why might surprise you. It’s not just because of the region’s low-to-no economic growth, crushingly high debt levels, and disastrous austerity policies. Europe is “going to zero” in a different, more fundamental area, as well.
Something very weird has happened to me recently. To my surprise, I have caught the gold bug.
For most of my career, I could never understand why anyone would listen to the wacky newsletter writers that promoted gold. They were almost all rabid conspiracy mongers–people who believed 9/11 was an inside job or that a sinister cabal of Illuminati secretly controlled our government.
And yet, I now think that anyone who doesn’t have gold in their portfolio should buy some, and those that already do own gold should buy some more.*