My father died in 1972. He left me a bit of money. Not a lot, but some. My mom invested this money, and it's value reach about $40,000 by the time it was turned over to me in 1993. I had some shares in Microsoft, and some investments in mutual funds offered by the American Funds Group. I used the mutual funds to pay for some of my college expenses, and I forget what else. I didn't touch the Microsoft stuff. By 1999, my Microsoft stock was worth over $200,000. Then they lost their monopoly case. Today, my Microsoft stock is worth something like $70,000.
Why do I bring this up? Diversification. Everything was in one basket and when that basket went down I went from well-off to large savings. It could have been worse.
I've been making a point to invest my Expedia stock option dollars differently. Mostly I have it in exchange traded funds (E.T.F.s, tradeable mutual funds). Some in E.T.F.s for international stocks. One is a junk bond E.T.F. One is a real estate E.T.F. Three U.S. index E.T.F.s (S&P smallcap 600, Dow Jones, Amex Intellidex). I only have three individual stocks. The Microsoft, Schering Plough, and some IAC (which is the parent company for my employer). A lot of my co-workers got their stock options and converted it into Expedia stock. I sold most of it and spread it out. Basically, it'll take the entire market as well as the Asian markets going down for me to drop. I lose out on the possibility of buying into the hot stock and seeing my money go up 300% in one year, but I also don't have to worry about IAC getting caught in some sort of Enron/Worldcom/HealthSouth/Adelphia/Qwes
I've been looking at oil recently and gas prices. Demand is going to grow, and world oil production is near capacity. And building up new production capacity takes time. Years. Which means oil prices are only going to go up for a while. So how do I get in on that? Could invest in oil companies. There's a couple of commodity based mutual funds as well. So I'm doing something like that. My broker pointed out the Rogers Raw Material Fund which buys commodities futures, with something like 40% of the commodities being petro. It's not a mutual fund and not regulated like one, so I'm a bit worried about that. But the mutual funds cheated despite regulation. This one is an unregulated limited partnership. I spent two days reading the prospectus and the partnership agreement, trying to decipher all the stuff. Nothing horrible, though they do dispense with some arms-length requirements that would be in place in a regulated environment. For instance, rather than go with the cheapest subscription manager, they use Uhlmann Price Securities which is owned by a manager of the fund. The prices they pay to U.P.S. might be cheapest, they might not. Don't know. I know the limits of the fees the Rogers Fund charges. So I'm covered in that respect. Was looking for the fund to do things like funnel trades through affiliated brokers who give them kickbacks. That's not allowed in the agreement.
Anyway, as I said, it's an attempt to diversify from stocks. But it's relatively risky. I feel like a day trader, or like i'm investing in a hedge fund or something. I stopped at my broker's office this morning to sign the paperwork on it. One of the items in there is something to verify that I am able to take on the risk inherent in a hedge fund or other alternative investment. You can't invest if you are putting in all of granny's nest egg, for instance. On the one hand, I want to run back and get my money back cause it's stepping into something that's not
safe. On the other hand, I feel like a big shot investor for stepping into this world.