Realistic Investing

"Treasury Sells Bonds With a Negative Yield"
- headline in the N. Y. Times - Oct. 25, 2010

For the first time ever, inflation-protected securities are selling at negative yields. I, for one, am relieved and I’m hoping this is the start of a new trend. Given my fiscal history, I’d prefer to stop pretending my investments are going to make money and just get the bad news over with right off the bat.

I’m anticipating that Wall Street will take the next logical step and start getting companies to issue shares with built-in, guaranteed losses. Rather than delude myself into thinking that my equity purchases will actually turn a profit some day, this new type of share would guarantee me a capital loss right from the start. Then, if by chance, I should make a small gain here or there on any of my older investments - presto, I’ve got an instant capital loss to write it off against.

Not only would this benefit my meager portfolio, it would also serve to help the share-issuing corporation. It could later buy back the shares at less than their original value and use the resulting gain to ensure that its executives do not have to suffer with only six-figure salaries.

Hopefully this would also lead to another new vehicle: anti-dividend shares. For decades, some of us have relied on so-called blue chip stocks that reliably pay a small dividend year-in and year-out. Sadly, over time, whatever net dividend we might accumulate is usually eroded by the decline in the share’s underlying value.

That’s why I’d prefer to have it spelled out right up front when I buy one of these new anti-dividend shares. For a guarantee from the company that the share’s value will not fall over time, I’ll be happy to pay them a small annual dividend of two or three dollars per share. I may not make any money this way but at least my initial capital outlay will still be there.

Let’s face it; the stock market is not for the faint of heart. But with more loss-guaranteed investment vehicles, at least we’d know where we stand. Plus, we’d have the satisfaction of knowing that stockbrokers, investment bankers and the like would not have to risk taking a cut in their all-important annual bonuses.

Maybe this new trend can spread to the housing market as well. In return for taking on a long-term, fixed-rate mortgage, I, as the new homeowner, would be willing to immediately absorb a twenty percent drop in the value of my new house. That way, I’d know just what I have to pay per month for years to come and I would no longer have to worry about borrowing against some illusory increased equity in my home.

If we are to protect our great American way of life and ensure that capitalism continues to thrive, loss-guaranteed investments is clearly the way to go. They’re about the closest thing to a sure bet that you’re ever going to see.