By Michael Weiner
We hear the word all the time. Alternative. But in the world of finance, what exactly does that mean? Alternative to what? Conventional investments like stocks and bonds? Does that include some of the exotic flavors of investments like CMO’s, CDO’s, and an alphabet soup of letters that mean nothing to the typical small investor?
In my mind, Alternative means anything other than the status quo being pushed by the stock and bond brokers. It means investments that may take a little digging to better understand, but like oysters, can yield some very nice pearls. It can also lead to mud and muck. Just like so many stocks and bonds have done.
Alternative: It sure sounds like it is a Choice. After all, one can choose to do the conventional and follow the crowd (bad move), or one can decide to take the path less traveled (scarier but more fun). In the Investment category, it can mean a Private Placement (which is the name for everything that isn’t Public), in such things as oil, gas, commodities, Forex, and the like.
What makes an Investor decide to take the road less traveled? The reasons are as varied as there are people, but there are those who shun the conventional and have a higher risk tolerance. Now THERE’S a funny phrase. Risk Tolerance. A fancy way of saying you are willing to lose your shirt or your blouse, in hopes of greater rewards.
I suppose investing in a child’s education is an Alternative Investment, or lending your brother-in-law money to start a business. But with so many Alternatives, doesn’t that mean the Alternatives are main-stream, and the conventional is the real dangerous territory? We don’t need to look further than the front page of the papers to see what conventional has gotten us. To be fair, some of the exotic Alternatives were guilty of adding to the financial mess. So in what state of mind can that leave an Investor? Confused, of course.
The point is that, no matter who you ask for advice, the best advice you can follow is what your brain and heart are telling you. The Alternative is to do nothing. Which really isn’t a very good alternative at all.
Good Hunting!
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