Interview Question: Where would you invest today?

Chinese Infrastructure/Utilities (Think water treatment): Govt pouring billions into increasing standard of life (and this is only the start), not nearly as deeply involved in the credit crisis (bank-wise), meaning that I feel they'll be out of this mess long before the rest of the world (they=budding asian economies). I find it funny that the Chinese economy ONLY growing 6.4% considering world economic conditions was made to be such a big deal, especially as most of the world contracts. It doesn't matter relative to former growth, it matters more relative to other region's economic growth.

best short term ROI i could possibly imagine

The world has changed. And we must change with it.

TIPS

I would avoid like all hell treasury bonds. Their duration is ridiculously long.

Places to invest I would say natural gas for commodities and healthcare for equities. There are an insane amount of people set to retire and the need to provide medical care for those baby boomers will be a boon for big pharma and med device firms.

Avoid like the plague: financials. Still no clarity; I challenge any investor to really try and understand the business model of a company like Citi and properly value it. Just really hard to know what's on their balance sheets even now.

Paper, heard the govt is printing a lot these days

In what proportion would you allocate your money amongst the various sectors mentioned above?

POT

Short treasuries (ETF) Long TIPS Long investment grade and more so high-yield corporate bonds Long S&P, DJIA Long international indices Long EM indices Long commodities index (GSCI)

Any particular stocks in these sectors?

Infrastructure Some say that even banking is undervalued....

Small/Mid Cap Biotechs. The Pfizer/Wyeth deal is a foreshadowing to the active M&A we are going to see to replace the patent losses hitting the large cap pharmaceuticals in the next 3-5 years. GSK CEO Andrew Witty has specifically said that they are looking to go ahead with smaller acquisitions vs. acquiring a large firm. Premiums paid to acquire these companies are typically in the 30-50% range. My 2c.

Long S&P?? i will take other side of that all day for next few months...i do agree w/ short treasuries though (i am long TBT)

btw, what's "TBT"?!?!

Also, longer term, I am super long on anything related to agriculture. There is going to be a squeeze on food. The world population is rising and many nations that fed off low-expense foods like rice and beans are looking for more complex food choices, and thus more expensive. Couple that with a very limited land mass to cultivate the crops and cattle/chicken/pork and you're going to see a big uptick.

That and a demand for clean water. It's getting scarcer and scarcer, although mainly the people suffering have no voice in the world political sphere and the big industrials aren't going to go out of their way to supply clean water to 3rd world countries unless they're pretty certain they're going to get paid handsomely.

As water is obviously not commodotized I've been wondering how one should invest in it. There are some companies that deal with it, but they are mostly third world firms and I don't feel they'd have the capability to explode in a market. I know some companies like GE are doing work on water, but it will be a long time before water becomes a reason to be long a company that big. Anyone have recommendations?

As for my 100k, I'd distribute it like this: -25% in high yield convertible debt, reasonably diversified, assuming most of these companies are simply dealing with a tight credit market that I can profit from, but recognizing that nominal interest rates will have a limited upside in the high inflation that seems to be coming, so being able to convert bonds to equity would give a chance to avoid the trap of nominal returns. -15% long oil, as that has to rise soon -20% in some sort of financial sector index fund -20% in chinese national debt (if foreigners can buy that, I have never actually invested in it) -20% on infrastructure and producers of infrastructure related intermediate goods

That's all assuming I'm not going to be at all active in the money.

Of course, the easy answer is: "I'd invest it all in equities in (firm that is interviewing me)"

short treasuries / long corporate bonds (target companies with >10% yields, with expected steady positive fcf, (somewhat) positive industry fundamentals, and low levels of debt maturities in the next 5 years).

the spread between treasuries and corporates is absurd, all do to risk aversion in the market. institutional investors are sitting on the sidelines with $ parked in treasuries, bringing yields to absurd lows. once risk comes back into the market, this spread should narrow considerably.

tbt is the ultra short 20+ yr treasury index (just type the ticket tbt into yahoo finance).

drex- an interesting water play is nalco (nlc). the largest water service and treatment company (and the only public pure play of my knowledge). GE water services is the #2 water service provider btw.

Water, obvi -- haven't you seen Quantum of Solace?

Cash

1/5 euro 1/5 sterling 1/5 Chinese Yuan 1/5 silver & gold bars (physical ones not futures or certificates)

1/5 Japanese REIT (well not Cash but...its cheap value wise)

Easy answer

Commodities Railroads

LAWM, please elaborate...commodities are generally some of the last ACs to recover and with decreased global demand and possible deflation on the horizon I would be interested as to why you think commodities are a good play right now...

I would also like to know why you chose railroads...Buffet, Obama/Coal, price of oil?

Long tips is going to be a painful trade in the short term as is short Treasuries due to the very real prospect of continued deflation.

I would say some solid plays in the fixed income markets would be select leveraged loans, mortgage backed cdos, relative value plays (i.e. steepener trades, going long the back end of the curve and short the front end) or even just long the back end as deflationary environment in the medium term will keep yields low. As for my distressed plays, I should stress that this would not be an indexed approach and each investment would have to be selected on a 1 off basis.

I also like the dollar, played however you see fit, thanks to the fact that the US Fed has been quick to respond to the crisis relative to other central banks.

Commodities will see a bear market for the next 10-12 months, however I do see value in certain plays i.e. rolling forward spot oil and relative value plays due to the lack of props desks and failure of hedge funds i.e. brent crude versus WTI.

Many of my friends had interviews today at a MM investment bank and this was one of the questions. I guess this is becoming a popular question or maybe employers read this website and are desperate for questions.

dosco449A lot of my friends interviewing for i-banks nowadays have been getting this one: Where would you invest $100,000 today?

My answer:

Some in corporate debt (read a Bloomberg article that some corporate debt is now paying 18% return and not all these firms are going to go out of business)

Infrastructure (think Obama economic stimulus; companies like Alcoa have lost ~60%)

Oil (currently at $35 - demand will eventually rise and in the meantime OPEC/mideast will drive prices up - Jan, 2011 futures are currently trading at $60/barrel)

Any other suggestions? Also, how would you allocate amongst your choices? There are no right or wrong answers, but please justify your suggestions!

Thanks.

...corporate debt isn't as good a prop as it looks. Some estimates have as much as 30% of publicly listed companies going under...

...5 out of 12 billionaires recently polled by forbes thought that oil would be trading around 25$ at year end.

dosco449A lot of my friends interviewing for i-banks nowadays have been getting this one: Where would you invest $100,000 today?

My answer:

Some in corporate debt (read a Bloomberg article that some corporate debt is now paying 18% return and not all these firms are going to go out of business)

Infrastructure (think Obama economic stimulus; companies like Alcoa have lost ~60%)

Oil (currently at $35 - demand will eventually rise and in the meantime OPEC/mideast will drive prices up - Jan, 2011 futures are currently trading at $60/barrel)

Any other suggestions? Also, how would you allocate amongst your choices? There are no right or wrong answers, but please justify your suggestions!

Thanks.

...corporate debt isn't as good a prop as it looks. Some estimates have as much as 30% of publicly listed companies going under...

...5 out of 12 billionaires recently polled by forbes thought that oil would be trading around 25$ at year end.

i would invest in strippers. Today's traders, and bankers are stressed, so they turn to blowing cash on strippers.

Real Estate. Assuming:

1. You can rent the property you purchase consistently
2. You have reasonable credit and can put up 20-30% of the down payment
3. You get a favorable rate

A leveraged buyout of a home. Pay down the debt with interest income, sell the house in 10-15 years. even if prices haven't gone up, you can still make money by gaining equity assuming prices don't fall (or they recover over whatever your investment horizon is) and that you can get in on some of the best long term mortgage rates ever.

60-100k condos on Miami beach?! How can ya' lose (well...you could, but still). Looking for GARP and I think houses can deliver.

I was just down in Ft. Lauderdale and Miami and didnt see any condos on the beach or the inter-coastal for those prices. Home prices will continue to fall as people de-leverage and unemployment remains high. Deflation will lead to unaffordability and belt-tightening which will constrict home price increases as a glut of inventory sits on the market. I do agree though that if you can rent the place for enough to cover your mortgage and common charges (even without home price appreciation)the equity build may be worth it. I plan on renting out my current condo and buying a new one shortly after I surpass the 2 year ownership time frame so that there are no tax consequences when I sell and doing the same thing every 2 years (based on the 2-5 rule).

maybe in miami beach, the incorp'd municipality, but they will be old small and shitty. miami beach condos dropped from 2mil to under a mil in some places... nowhere close to 100k. sorry buddy.

Answer: In myself by putting the time and effort into getting this job (or any job).

A family member of ours is a real estate broker down there and my uncle just closed on a studio in the south beach area for 85k. Most of the smaller studios are older and have been on the market for over a year. Good fixer-uppers. The condo I refer to went for twice that much two years ago. I'm not quite sure whether you agree or disagree, because you just admitted I am probably right, and then said "not close to 100k, sorry buddy".

Are you armchair posturing, or did you just have some extra time in between your online classes at Phoenix?

A good way to go is MUNIs. Municipal debt has a ridiculously low default rate and is currently very cheap. The interest on Munis is tax free and yields are currently higher than Treasuries (only a short term phenomenon). It may be a good idea to buy up some fixed rate munis at high yields, especially if there are no call features included.

In terms of equities there are a few promising areas among a wide array of pure garbage. Don't waste your time with retail or capital goods. MF Global is looking into some large cap growth stocks... Microsoft, Google, etc. Companies that can, at worst, weather the the storm.

I'm long TIPS also. I also think regional banks have very attractive valuations right now (in Specialty Finance M&A), like BTC for example.

why not sell covered calls? not sure exactly what company i'd make this play on, but it's a nice way to stay long equities (for the long run) and make money off of vol in the meantime.

I'd go into HY Corp Debt, Bank Loan, and MLPs. When the spreads start to tighten you'll see HY debt post great returns in the BB/B class. Bank loans are higher in the cap structure, and MLPs pay great distributions with and equity kick. the Alerian MLP index was up 14% in January alone.

but those are just my thoughts.

bump

The better option now investing-wise would be to stay in cash. It's always an alternative, and from the risk-management perspective it would be a very wise decision. Keep funds on ST deposits until there are signs of recovery.

bump