The Best Sector, Asset Class, or investment idea for 2017 (that WSO didn't know existed)

IlliniProgrammer's picture
Rank: Human | 19,677

Now that it's bonus time for many people, I figured it would be a good time to ask an investment question. Since the stock pick question has already been taken, I wanted to throw out best Asset Class or Sector.

As I enter my thirties, I am starting to have more money than ideas. Besides that, asset valuations are pretty darned high, at least in US equities-- we are no longer in the dark ages of 2009 when dinosaurs roamed the earth, analysts walked uphill both ways to work, and equity was trading at 12x earnings. The S&P 500 is at about 26 x earnings today, and small cap value isn't much cheaper than that. Treasury yields are up modestly since the election, but 2.4% on the 10-year still isn't anything to get excited about. A lot of stuff looks expensive, but there are probably still some great investments out there.

To help structure this, don't pick a specific security, but feel free to specify an asset class, a business opportunity, a commodity, a sector, a country, a currency, or a strategy (value, low vol, etc.) Try to explain the rationale behind your pick.

Non-traditional investments are particularly welcome, but we have to make this relevant for the typical Wall Street analyst or associate. So try to pick something with a minimum investment at or below $100K. That said, anything from buying a condo to a food truck to refinancing to a shorter term mortgage to putting money into an alternative investments fund is welcome.

Comments (45)

Jan 13, 2017

Now to fully disclose, I'm in my final year at university studying Physics and am due to start a PM internship at a >PS300Bn AUM AM this summer. But here are my two cents:

As you mention non-traditional investments I would suggest a few options:
- Crowd funded start ups (Specifically - Challenger Banks)
- P2P Lending (Mortgages, personal loans, SME)- P2P Lending (Mortgages, personal loans, SME)
- Microbreweries
- Indonesian food (it will be all the rage this year! especially in NYC/West Coast US)

Challenger banks are growing and fast - in the UK alone the PRA has granted 13 new Banking licenses since 2013 and whilst this currently won't affect the large high-street banks a huge deal - it will in the future. Especially if high street banks products and customer service as well as lending ability remain poor. Challenger banks such as Monzo and Atom are providing a superior personal banking product - the high street banks seem to not have a response. Additionally most challenger banks intend to start lending to SME/Personal once they are at the right point in their business cycle. I personally believe there is a great opportunity to generate high returns, especially because if the company (especially fintech) is crowdfunding they tend to be backed by PE. Full disclosure: I was lucky to be one of the 1000 people that invested in Monzo last year (a small amount but as a student did my best!) - I'd say this is my high-risk high-return option.

I wrote this as a break from revising for my finals, but I will come back and complete it if there is interest :)!

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Jan 15, 2017
Chimp123456789:

Now to fully disclose, I'm in my final year at university studying Physics and am due to start a PM internship at a >PS300Bn AUM AM this summer. But here are my two cents:

As you mention non-traditional investments I would suggest a few options:- Crowd funded start ups (Specifically - Challenger Banks)- P2P Lending (Mortgages, personal loans, SME)- P2P Lending (Mortgages, personal loans, SME)- Microbreweries- Indonesian food (it will be all the rage this year! especially in NYC/West Coast US)

Challenger banks are growing and fast - in the UK alone the PRA has granted 13 new Banking licenses since 2013 and whilst this currently won't affect the large high-street banks a huge deal - it will in the future. Especially if high street banks products and customer service as well as lending ability remain poor. Challenger banks such as Monzo and Atom are providing a superior personal banking product - the high street banks seem to not have a response. Additionally most challenger banks intend to start lending to SME/Personal once they are at the right point in their business cycle. I personally believe there is a great opportunity to generate high returns, especially because if the company (especially fintech) is crowdfunding they tend to be backed by PE. Full disclosure: I was lucky to be one of the 1000 people that invested in Monzo last year (a small amount but as a student did my best!) - I'd say this is my high-risk high-return option.

I wrote this as a break from revising for my finals, but I will come back and complete it if there is interest :)!

Well, I certainly think the rate hikes bode well for finance, at least to a point. The start-ups are obviously a bit better positioned for this as they may not have as much long-term interest rate risk from legacy loans.

I think the end of government gridlock in Washington bodes well for Keynesian stimulus, which bodes well for resource demand. So I'm also betting on resources. To be sure, this doesn't necessarily have to mean oil. Some of the wind or solar yieldcos might work just as well.

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Jan 15, 2017

Indonesian food eh? Is this speculation? where is the proof

What concert costs 45 cents? 50 Cent feat. Nickelback.

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Jan 26, 2017

"Microbreweries"

Warren Buffett's 3 I's of every business cycle - innovators, imitators and idiots.

I think we are approaching the end of this cycle for microbreweries

Jan 16, 2017

Not an idea of where to invest in, but where to divest from. And the answer is ALL EMERGING MARKETS. These countries are going to be facing the backlash from rising populist movements in their key consumer markets aka the developed world. Also nightclubs.

As for an investment idea, I would like to explore investing in premium aged wines and champagnes. Apparently, the premiums commanded are as good as those commanded by artwork.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."

Jan 16, 2017

Look at constellation brand wines.

Jan 17, 2017

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."

Jan 16, 2017

I think as a sector Industrials are set for a great couple of years (granted that's a very giant space and has many subsectors). I'd focus on companies building EOATs and other assembly line type robotics. Also certain manufacturing companies seem poised for growth. Most of the space is dominated by Asia-Pacific countries due to heavy government investment and the adoption of sustainable packaging efforts. I also like industrial real estate. I think it's getting close to its peak, but there are certainly still REITs with heavy exposure to this space offering favorable dividends.

As for any sort of alternative allocation, there are clearly some unknowns ahead in the next 2-3 years and I think positions in Discretionary Global Macro and Managed Futures are a must have. Once again, obviously a lot of funds out there, but from a top down approach I think these are some good areas for portfolio allocation.

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Jan 16, 2017

Biotech.
Going along with the stock pick that I wrote about earlier, the entire biotech sector looks like its developing nicely.
Granted, companies like Second Sight (EYES) are at Penny Stock levels, but that's going to change soon.
Keep in mind this stock (and I've seen others in the sector do the same) opened at $10 and now dropped to $1, mostly because of the incredible instant-miracle mentality people have when a lot of these companies start.
As more and more biotechs get older, and their products get more well known though the price should start to rise rapidly.
I've also been hearing from others that Biotechs are prime A&M candadates for older pharma houses so of course that is good as well.
What to divest from?
Here's a shocker--Apple.
I think the company's creativity has died--I mean, let's face it, they could only think about taking the headphone jack from the iPhone last time--what are they going to take away next?
The Power button? checked
the headphone? checked
the home button? checked
So stay away from Appple as much as you can, and any other computer manufacturer.

The exception to this would be Microsoft, IBM and the other former computer manufacturors that have turned to cloud--I think cloud will be huge this year, specially as products like Watson continue to develop.

Lastly, as your alternative investment--Kick Starter companies. Why? First I think Kickstarter has or is going to add crowd funding for equity, though don't quote me on that. And if not, some of the rewards from the Kick Starter projects might end up doing well on Ebay.
(think of selling your Oculus headset after Facebook bought the firm (if they had released a product),, or selling your first version Pebble as a collectable.
And if you don't think that's possible, I know people who collect Game Cubes, and old Atari systems so why not other random gadgets as well?

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Jan 16, 2017

idk if I'd invest in IBM..

Jan 17, 2017

IBM's doing some cool shit in the tech-for-business space. Have a couple of friends in the Research division, and they're doing the works. Although I would pick Microsoft or Amazon services over them any other day if we're looking at success. They're slow movers, but at least, they're moving forwards.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."

Jan 17, 2017
WannabeBankerr:

idk if I'd invest in IBM..

IBM is an fantastic investment. You're buying a first rate consulting business with the worlds largest patent portfolio and advanced AI technology thrown in for free. Ginny has shown herself to be incredibly shareholder friendly and has gone out of her way to divest low margin businesses.

There's a reason Warren Buffett owns ~10 of IBM.

Jan 17, 2017

The problem with biotech is, if you really want to know where to put your money, you need to know a bit about the drug development and approval process, as opposed to simply throwing Benjamins at everything on the market. Personally, I would stick with traditional biotech giants with steady reputation and solid business models (Amgen/Roche-Genentech/Sanofi), if I did not have the background. Penny biotech is too risky.

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."

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Jan 26, 2017

These stocks also get pump and dumped all the time. You can certainly make profits off these trades but have to know what you're doing.

Jan 16, 2017

Real estate by the new 96th street Q subway stop on the Upper East side of Manhattan. It is a relatively cheap/underdeveloped area and with the new Subway, I would be shocked if the area didn't pick up drastically in the next few years. Wish I had the capital, it's a slam dunk

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Jan 16, 2017
Rags to Hermes:

Real estate by the new 96th street Q subway stop on the Upper East side of Manhattan. It is a relatively cheap/underdeveloped area and with the new Subway, I would be shocked if the area didn't pick up drastically in the next few years. Wish I had the capital, it's a slam dunk

That's a really good idea although I wonder how much the real estate market already reflects this.

I'm also a little concerned about how much foreign capital has bid up the NYC condo market-- and what will happen if China lets the Yuan float.

It's probably worth looking into.

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Jan 17, 2017

Look at London...

GoldenCinderblock: "I keep spending all my money on exotic fish so my armor sucks. Is it possible to romance multiple females? I got with the blue chick so far but I am also interested in the electronic chick and the face mask chick."

Jan 17, 2017

I read some research recently that discussed the fact that the supply level of SFHs (whether houses or condos) is very low by historical standards, a phenomenon that is a byproduct of the multifamily run that we've had over the past two decades. Everyone is renting because no one can afford to buy. Developers have been on a tear putting up rental buildings, but there has been pretty minimal development of new homes in comparison. The result is a shortage of SFHs which continue to drive up the prices of those homes and further pushes more people into renting - a vicious cycle.

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Jan 17, 2017

Yeah I really don't know about the NY real estate market. What I do know from casual observation is that rents in the 90's between 2nd and 1st Ave lag the rest of the Upper East Side. It seems very logical for this differential to decrease simply due to increased Subway access alone.

Jun 18, 2017

What do you think would happen to the condo market (and prices) if the Yuan floats?

Jan 17, 2017

IP, this is more than $100k minimum at most places, but look into private debt (not lending club, I described it in my thread here: alternative lenders...). if you're not worth a couple mil, you could always buy shares of BDCs after doing the due dili. they're very volatile but the story is the same.

disagree on managed futures. the best ones you can't get access to at $100k or less, and I have my doubts about how those will work in the 40 act space. I like them, but not for a large allocation.

couple themes I think will play out over the next several years:

  1. start to have more corrections, at least 2-3 per year, with some over 20%
  2. recession in EU, opportunities to buy non EUR cheaply (sweden, switzerland, denmark, norway, etc.)
  3. US companies will either fragment or acquire, as GDP growth has been anemic so difficult to increase sales organically (particularly pharma)
  4. bond bear market
  5. indexing lags high active share managers

how to play:

look at high active share in global value, you don't want to just buy FEZ, HEDJ, or EFA. there will be large dispersion between winners and losers in europe.

look at small and mid cap, and stick to quality. think of yourself as a private equity investor, maybe looking at a company that has stellar numbers but just can't seem to take it to the next level. one of two things will happen (assuming no big US recession): they'll get acquired, or they'll get financing and grow meaningfully. again, don't just buy the index here, you need to be selective. people rushed into the indices last year on the notion that Trump will be bad for multinationals and since smid stocks export less, they'll benefit more. the trouble is, I believe we're near the end of a credit cycle, and when that happens, you'll see bankruptcies, defaults, higher debt service ratios start coming into play, and the indices don't screen out the crap in small and mid cap, so you'll be left holding the bag if you aren't selective.

two other things I'm playing are the big tech transformation and infrastructure. nearly every big tech company has their cash cow and other bets, and they're all in competition with each other. for example, you could say ORCL, IBM, AMZN, and MSFT are all in the cloud space. well I have no idea who's going to win, but I know that some will win, and some will lose. I like big tech right now, they'll be big beneficiaries of tax reform (cash parked overseas), they have the ability to buy the next unicorn, and if their moonshot bet fails, they have a cash cow to pay you a dividend while you wait.

infrastructure can be played a number of ways, but particularly I like C corp pipelines. lower yield but can retain more earnings and aren't as interest rate sensitive (speaking to my pessimism on bonds).

on emerging markets, I think again this is a case where you have to go active. I hate venezuela, but love india. china is growing slower, but what's to stop indonesia from massive growth? valuation is down, and there's more bad press than good, and the contrarian in me thinks EM is ripe for a turnaround, despite all the noise with trump.

addressing trump & EM, my thinking is the jobs that are "brought back" are small in number, big in publicity. most jobs have been lost due to automation and tech advances. I have to believe that the dealmaker in trump doesn't want to see rampant inflation that would happen if we started making everything in America. I also have faith that he realizes that a trade war is bad, and that trade will continue to happen, if only structured differently. EM will be good, but not if you buy EEM/VWO, you have to go active.

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Best Response
Jan 17, 2017

wanted to create a separate post for this, addressing "other ideas." I'm not well versed on real estate, but my experience has been this. if you want to make money on rentals, a few things need to happen:

  1. needs to be a motivated seller, either foreclosure, heirs, a beater house, on mkt for a while, etc
  2. you need to be able to put in some sweat equity, meaning you and a buddy handle demo, flooring, framing, most non-technical (read: plumbing & electrical) repairs
  3. you either need to be a landlord or have enough properties that you can negotiate with a mgmt co.

otherwise, it ends up being a relatively low return compared with other asset classes that don't require nearly the work/attention.

land is a crapshoot, I'd stay far away

very odd idea but I know it works well: beach rentals. I grew up by a beach and went to school by one, beach rentals are a great business. you can rent chairs, umbrellas, kayaks, bikes, surfboards, paddleboards etc., and absolutely clean up. I'd recommend kayaks, surfboards, paddleboards, and lounge chairs first, umbrellas and bikes tend to get the most wear and tear. if you can work out a deal with a local shop, maybe it's worthwhile. no idea how it works up north, but in the southeast it's a good gig. all you need is to pony up the cash and hire some high school or college kid to work it during the day for you.

stay away from restaurants, terrible margins

craft beer is too saturated, stay away

could look into franchising, but I'd buy something already established, like a boutique gym, nail salon, hair salon, stuff like that. you want turnkey, and the best thing about those types of places is they already have established clientele but may just need some capital.

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Jan 17, 2017

@thebrofessor "2. recession in EU, opportunities to buy non EU cheaply (sweden, switzerland, denmark, norway, etc.)"

That feeling when half of the countries you mentioned are EU countries (Denmark and Sweden).

I guess you meant countries whose currencies are not in Euro? With all the instability / recession / high unemployment / lack of any inflation at all that the EU has been experiencing and still is, the SEK, NOK and CHF (and equities) have already been soaring for the past few years. Not sure how that trend can be sustained any further. As for the DKK, since it is pegged against the Euro, it won't move from its 1Eur: DKK7.5 anytime soon.

But perhaps I didn't get your point right?

Array
Jan 17, 2017

amazing what a difference between EU and EUR means. I should proofread more often.

short answer, I believe there will be a recession in Europe, and I like non Euro countries better, so as we see weakness, I would focus there.

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Feb 7, 2017

Long DKK/EUR might actually be the best trade of all 2017. DKK will repeg to the new German Mark if the Euro breaks up. It's a positive carry put on the Euro.

When old Mr. Partridge kept saying, “Well, you know this is a bull market!” he really meant to say that the big money wasn’t in the individual fluctuations but in the main movements, not in reading the tape but in sizing up the entire market and its trend
Jan 17, 2017

I like where your head is at in terms of investing in BDCs. I would love to be able to start my own internally-managed credit shop (putting aside the obstacle of actually raising the $$$) and invest in similar businesses. Be sure to look at their portfolio in terms of companies that may be cyclical... a lot of BDCs stuff their portfolio with so-so companies that will eventually end up non-accrual once the market dips (think residential construction companies, HVAC, plumbing, etc.). My view is that there will be another recession in the next 18 months.

Jan 20, 2017

Ammo, and I'm not talking about manufacturers

  • Easily convertible to cash
  • Good to use for barter
  • Low, maybe negative beta
  • Win/win wrt to pricing: if prices drop, you can shoot it and buy more for cheaper. If prices increase you can sell for profit$
  • Fun to shoot
  • You're going to wish you had it when the zombies come
  • I've never heard anyone say "Hm I wish I hadn't bought all this ammo" before
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Jan 20, 2017

One of my best friends dads is a huge believer in this. He buys anytime there is any sale and has somewhere around 250k rounds of miscellaneous ammo sitting around- some in calibers he doesn't have a gun for.

Jan 26, 2017

Love the idea man, I do the same. Unfortunately selling large lots of ammo does not put you in a good light with he government-- It's legal but frowned upon. I mostly stock up because I enjoy guns and I live in one of the most lax states in the US (NM) so weekend shooting is a hobby. I don't know how successful you can be selling it by playing market maker because there's substantial liquidity and political risk.

Think about it, who besides a shady paramilitary faction, terrorist group, off-grid looney, or drug cartel will buy thousands of rounds of ammunition at once and be able to move it?

Probably some one who will land you on the no-fly list, that's for sure.

Jan 20, 2017

Nobody throwing out long bitcoin yet? The best performing asset class of 2016. No central bank to interfere, limited supply by design. Big banks investing in cryptocurrncy infrastructure. Volatile though

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Feb 21, 2017

up 22% in a month better to be lucky than good.

Jan 26, 2017

Mid cap US or small-midcap US funds(America First will be the tailwind)

Possibly Russia (an RSX index fund) if Trump keeps cozying up with the Putster and one favors International/Emerging markets. I've heard some good points on Japan as well now that the NIRP crap is over.

For debatably less risk in the FI space, floating rate notes could also be a good choice.

Jan 26, 2017

I have a few buddies playing ball in the residential real estate market and taking advantage of creative lending practices to "flip" properties. They work with a general contractor and realtor, who assist in pitching new ideas, and they are basically only responsible for arranging financing for the project. They source the majority of their capital from a hard-money lender, who provides financing up to 90% of the appraised value after renovations. The principal is due within a year and accrues interest at 10% annually.

For their down payment, they have a network of "gap-lenders," who have similar terms as the hard money lender but, naturally, at a higher interest rate. Their out of pocket costs are essentially legal fees of setting up an LLC and loan application costs on the hard-money loan.

I am not necessarily recommending any of the above, but thought it was interesting enough to share.

I would be curious to explore the prospects of hard-money lending. This would obviously take more than $100k, but assuming you have a trustworthy appraiser, a 10% return on a fully collateralized loan sounds pretty awesome.

Jan 26, 2017

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Jan 26, 2017

your responses never disappoint

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Jan 27, 2017

While people are on the topic of BDCs, I would say that when I still had some exposure to wealth management, I noticed that virtually any portfolio constructed by an advisor at our firm seemed to contain BDCs. Truly amazing to me how much you can increase the yield of a portfolio, even with only a small allocation to them.

That said, I actually think global short-term high yield bonds are the way to go this year. The shorter terms minimize the interest rate risk, while the fact that most of the international ones come from countries that have strengthening currencies and/or are benefiting from higher commodity prices provides a nice tailwind. Best way to invest in them: PGHY

Jan 28, 2017

interesting, we don't allocate to BDCs, we prefer the private credit deals, I've found that while the yield is great, the volatility spooks most people.

Jun 19, 2017

Emerging market, maybe in Indonesia?

-Set up an ib/investment firm prob around $10m; invest short-medium term in high volume, affect market prices etc (1 whole Indonesian public stock market equivalent to around 1 apple company in terms of valuation) you can try and look at JCI index historical returns
-Set up a nightclub in rich areas (too much demand with only a few supplying)
-Create a cryptocurrency provider; make it the largest in Southeast Asia, currently, there's only 1 player here. And it claims to be the largest in SEA, bitcoin.co.id. (I think cryptocurrency will boom in the near future, watched painstakingly ethereum climbed up from $120 to now around $350 in a month or so)
-Indonesian food in NYC/West Coast US, probably possible, but it needs to be an upscale restaurant/lounge (get higher margins) (#1 obstacle: to be the best, you NEED natural spices from Asia, so there's a potential supplier issue)

Many more ideas but these are the ones I've been thinking so far...

PS: 1st WSO Post

Aug 25, 2017
Comment
Sep 2, 2017