One year ago, in a story about novel alternative investment ideas for 2012, we reported on rhodium, rice and Florida timberland as ideas favored by some of the investment cognoscenti at that time. With our journalists’ scorecard in tow, one would have to say that these investment alternatives made for rather dismal investments–though it is important to add the important qualification that one year is far short of true investing, which is inherently long term.
A chart of rhodium prices for the year is a nearly perfect downhill slope; even a steep May spike never managed to reach January’s highs. Altogether, the limited-use industrial metal lost over 40% for the year.
In comparison, rice was nice. Futures contract prices for Asia’s main grain are virtually unchanged from a year ago on the CBOT, hovering in the $14 dollar range.
Florida timberland, in the form of stock of the St. Joe Co. (JOE), fared nearly as badly as rhodium. You can almost hear the warning “Timber …” shouted as the stock lost nearly 35% for the year–a defeat for Fairholme Fund’s Bruce Berkowitz, whose once high-flying fund (FAIRX) fell by a nearly identical 34% in 2011.
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Berkowitz’ loss was a gain for hedge fund manager David Einhorn of Greenlight Capital, who panned the stock at the end of 2010, saying “there’s no ongoing business”–just “a run-down of the assets.”
Investors intrigued with these ideas a year ago might be more interested this year, given their lower prices in addition to the high expectations investment gurus held for them a year ago. And the momentum crowd is surely focused on farmland, perhaps the most discussed alternative investment of 2011 (though not covered in our article).
Jim Rogers and Robert Shiller were among those who sang Nebraska’s praises during the year. And what a year! According to the Kansas City Fed, farmland saw the biggest one-year increase in three decades, rising 25% in the third quarter (compared to 3Q 2010) in the regional Fed’s Midwestern district.
But maybe all this misses the point of what alternative investing should really be about. The asset class is poorly defined, and often encompasses such disparate elements as art, wine (yes, there are actually wine funds and a wine index), postage stamps and antiques, but also include what are now ho-hum commodity investments as well as hedge funds and financial derivatives.
Since the idea of alternative investing is based on widening a portfolio beyond stocks, bonds and real estate in order to reduce risk through diversification, maybe the financial derivatives part of the spectrum–the effort to devise a portfolio that does not easily blow up when stocks and bonds fall together–is more germane to what investors are seeking.
Stephen Hammers, the chief investment officer of Compass EMP Funds, believes he has a solution for that need. In an interview with AdvisorOne, Hammers says both advisors and investors are seeking an alternative to the wild swings the market has been producing of late. “This year has been one of the most volatile years we have seen in a long time, and this volatility is not going away.”