According to a New York Times article, Seth Klarman has warned investors of high market valuations and of the adverse consequences of President Trump’s policies. In other news, we look at the prospects for REITs, crowdfunding and other investments.
A Quiet Giant of Investing Weighs In on Trump (New York Times, February 6)
Andrew Ross Sorkin reports that Seth Klarman, the highly respected hedge-fund manager, warned of “perilously high valuations” in a private letter to his investors. Sorkin writes that, “In particular, Mr. Klarman appears to believe that investors have become hypnotized by all the talk of pro-growth policies, without considering the full ramifications.”
Are Crowdfunders Due for A Reality Check? (Forbes, February 6)
Crowdfunding is an equity-funding strategy that transfers the risk from a few major investors to many investors who make smaller contributions. It is also a way for companies to find capital that is not otherwise available. Whether crowdfunding will continue to be an option for entrepreneurs depends on several factors according to the author of this article. Early-stage venture capital is a risky business, despite success stories getting publicity, and many investors face losses. There are also fewer regulations than other investment strategies and success depends on the investors’ knowledge and understanding of the market, industry and overall business proposal. Crowdfunding offers unique opportunities to investors, but requires extensive due diligence.
The Trump Effect: What’s an Investor to Do? (New York Times, February 3)
With the unpredictable nature of President Trump, investors need to prepare for a volatile market. Decisions coming from the White House could affect more than what the market reflects. For example, the possible immigration ban could have long-term effects on the cost of college in the United States. International students “contribute mightily to the revenues at educational institutions; as such, they help subsidize other students who are unable to cover the cost of college, including those from the United States.” Investors should look for ways to reduce risk and make investments that can withstand potential disruptions over the long-term.
Besides Interest Rates, Here’s Why REIT Investments Seem Risky (Nasdaq.com, February 3)
Before investing in REIT stocks, it is important to understand the weaknesses and potential for losses. With an influx of new supply into the residential market, it is difficult for landlords to demand higher rent which impacts residential REIT stocks. Retail REITs are also facing a downward trend as mall traffic decreases and consumer preferences are changing. Technology plays a role in REIT stock values as retailers are moving away from brick-and-mortar shops to online options. Although there are still opportunities for REIT stocks to show positive returns, the risks from the current market are substantial.
This Looks Like a Good Year to Invest at Home (Forbes, February 2)
With all the talk about the volatility of the current market, there are some potential opportunities for growth on the domestic front. Some “positive developments center on a likely increase in U.S. infrastructure and defense spending, the prospect of tax relief for businesses and individuals, and a decrease in burdensome regulations.” Changing global relationships and potential trade policy makes international investment options risky and unknown. Although the domestic market seems inviting, investors need to keep an eye on rising interest rates and the risk of increased inflation.
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