Do We Need to Change the Definition of an Alternative Investment?

With The Dow giving a clear signal yesterday that our troubles have not passed, yesterday’s traders should be becoming today’s alternative investment cheerleaders.  I think we are finding that with so many economic factors being weighed so heavily by traders, daily betting on which way the market is going can be harder than winning at roulette.   I remember the day trading frenzy of the late 90’s and every once and awhile a sane person would come on CNBC (when I used to watch that propaganda machine) and preach about having a long term outlook on investing.  I think that message needs to be delivered again and with that, a message of diversification into alternative investments. With a lot of money pushing in that direction I think it’s time to redefine what and alternative investment actually is.  An alternative investment is supposed to be an alternative from stocks, bonds, and mutual funds, like commodities, derivative, hedge funds, private equity funds, and a whole another host of things that I covered in a previous article “Why Traditional Diversification is Not Diversified“.  Where I am diverting from some of the investment crowd is that I feel it should also be a way to truly diversify your portfolio.  It is because of this that I feel a true alternative should be one that is not correlated to any market that is publicly traded. This point is even more obvious of late due to the volatility we are seeing in those markets.  I believe that packaging up an alternative investment and then listing it as a public security is really defeating the purpose, and it’s like giving someone a life jacket and then making them wear lead shoes.  So the next time you are looking at alternative investments make sure that it really is an alternative, and not just another publicly listed security with a sexy name.

Copyright: Dominic Mazzone, Regent Global Funds 2008