Biggs on Finance, Economics, and the Stock Market: Barton's Market Chronicles from the Morgan Stanley Years

Section 2D: Alternative Investments

Filthy Lucre

March 28, 1989

Last week, a very rich, elegant man asked me to design a global portfolio for his family, using all the various real and financial asset alternatives, with the dollar as the currency of reference. His objective is to enhance the family's fortune at least four percentage points a year above inflation, which incidentally is no modest goal, since it means his real wealth doubles in 18 years. He added that he is interested in net returns after carrying costs and that although he is a long-term investor, risk in terms of both volatility and liquidity should be considered.

Is not art a better investment than real estate? he asked. What about venture capital and real estate in modern times? He has a bias toward holding some gold as insurance, he said, but what would be the opportunity cost? His questions, many of which I couldn't answer, sent me back to our database, and the table here shows the returns I came up with for the various asset categories in modern, post–World War II times. I excluded junk bonds and leveraged buyout funds because of lack of history. All return numbers are approximate orders of magnitude. For volatility and liquidity, 10 is best and 1 is worst. (Standard deviations were the benchmarks for volatility, but liquidity is a pure judgment call.) Transaction and market impact costs (10 is the cheapest, ...