Capital Markets Review: Advantages of Liquidity and Flexibility With Equities

Posted on Posted in Cerebral Detours

The core capital markets continuously capture my passion and imagination. They are represented by equities, fixed income/bonds, cash/currencies, commodities, and real estate and depending upon which phase of the economic business cycle we are in or the type of monetary policies being implemented by major central banks, they can be positively or negatively impacted, thus providing investors with opportunities.

Normally, I prefer not to engage in hindsight analysis but sometimes its exercise serves a useful purpose. Today’s rear view of the real estate market should make investors ever more mindful of the liquid and flexible advantages that securities potentially offer as they have the ability to mimic or represent different asset classes and capital market themes.

Most of us are familiar with the real estate bubble which precipitated the Great Recession beginning in late 2008 or early 2009. During the real estate boom many fortunes were made and many were sadly lost as well. Assuming you were fortunate enough to preserve your capital gains, if you doubled or tripled or quadrupled your money, you were regarded as savvy in just about any professional or social setting. Yet, quiet as kept, the real money was made investing in the indexes or individual publicly traded companies which were highly correlated to residential real estate.

Of course, no one can time the market, but if you can identify an investment theme and invest your capital accordingly, then both the odds and the market gods will tend to favor you with financial prosperity as well as liquidity for a timely exit. There is always a good time to invest in equities or their hybrid offspring, i.e. ETFs (exchange traded funds). Using a core capital markets paradigm and selecting the right asset class is a simple place to begin and end for effective investment strategies and portfolio management.

Security Value @ 2/1/2000 Value @ 7/1/2005 Chg % Chg
Dow Jones US Home Construction Index ($DJUSHB) 108.66 1120.47 1011.81 931%
Lennar Corp (LEN) 8.25 68.86 60.61 735%
D.H. Horton Inc. (DHI) 3.07 42.82 39.75 1295%
Pulte Group Inc. (PHM) 8.59 48.23 39.64 461%
Toll Brothers  Inc. (TOL) 8.94 58.67 49.73 556%

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