Summer is over. The children are getting back to school and the world is getting back to business.  One of the things that caught my eye last week before the long weekend was that Warren Buffet’s Berkshire Hathaway, is down around 20%.  If we were talking about anyone else, I wouldn’t be very surprised in light of the current market.  However, we are talking about Warren Buffett and I think it is a clear signal that we are in unchartered waters when even the best can get pulled down this much.   The most basic market credo is that you can’t time the market, but what happens when you can’t find the market?  Is it possible that the interdependence of sectors and the effects of globalization are obliterating what were once tried and true strategies?  I do believe it’s possible, and the shift of money to the ever increasing interest in alternative investments may help fuel future decline.  Simply stated if money is being pulled out of the global equities markets and then invested into private alternative investments, then you start losing buyers of equities which in turn will put pressure on equity prices.  Let’s be clear. I am talking about a long drawn out process and this is not going to happen overnight in any volume that will be immediately noticed.   There will always be buyers of equities, but I think after the recent awakening to the losses, a proportionate amount of money that used to be invested in stocks will be invested in alternative investments for a long time to come.  In fact, even after a market rebound we may find that alternative investments have a permanent place in even the most traditional portfolios in the name of diversification.  One note of caution here; there are a lot of things that call themselves alternative investments but may not be an alternative at all.  For example: a hedge fund that is either publically traded or whose strategy is based on publically traded investments will not provide much insulation from the market. I wrote about this in detail in “Alternative Investments Need to be Private” and I feel strongly about this principle.  To bring it back to Warren Buffett, I would never underestimate the man and a successful career does not get negated by a bad year.  It is not often that we get to learn from his mistakes so let’s listen up and take note, because any time he has been this far down he has come roaring back.  However, the lesson here is not how he will come back, but more with what he will come back with?

Copyright: Dominic Mazzone, Regent Global Funds 2008