The Money Show - Three Investments to Avoid?

Last Updated May 18, 2010 5:46 PM EDT

I've been attending the Money Show for a few years now, primarily because it's the world's largest organized gathering of investors seeking to get rich. Nowhere else can one see hundreds of people under one hotel roof, pitching their investment wares to thousands of investors, mostly seniors, who are willing to fork over their money for a trendy investment vehicle that worked well over the last year or two. In short, it's the world's largest behavioral finance laboratory.

Now I'm not a fan of forecasting what is going to perform well or poorly over the next year or two. But if I were, I'd stay away from these three hot areas being pitched last week at the show.

Gold Glitters
Not too many people were pushing gold in 2002, when it would have been a great investment. Now that it has quadrupled in price, it continues to be the hottest thing at the money show. Granted, it was also hot at last year's show, but its modest gains over the past year paled in comparison to the great gains that stocks made.

Unfortunately, I remember the last gold rush in 1980, driven by an uncertain economy and a lack of confidence in the dollar, that I poured my college graduation money into. It was near its all time high in real inflation adjusted dollars. The real return from that investment was the valuable lesson I learned . . . that I'm not as smart as I thought I was. I was merely following the herd.

Oil is hot!
Oil and gas were smokin' hot items at the show a couple of years ago, but were greatly reduced last year after the prices of oil and gas plummeted. With oil prices are recovering while gas gluts remain, private oil partnerships were well represented.

What's not to love with the pitches of "proven reserves" and "great track records of success?" Imagine my popularity with these peddlers when I asked, "with proven reserves and a great track record, wouldn't the investors of your previous partnerships be upset if they knew you were offering it to others?" Common sense would dictate that if their previous investors were getting rich, that they would expect to have "dibs" on investing more. And with that sure thing in their pockets, why pay to get a booth and send a sales force to the show to get new investors?

Real estate is the real deal (this time)
Perhaps the biggest surprise for me, were the number of real estate offerings from individual houses to partnerships. Though it bears mentioning that there seemed to be far fewer than a few years ago before the real estate bubble burst. Between the resurgence of the price of REITs, up 73% over the past year, and the vulture capitalism of making money on the foreclosure market, real estate is again sizzling.

What this means
Clearly I'm not willing to get out of oil, precious metals, and real estate based on the high presence at the Money Show. Sometimes performance chasing does work in the short-run, and any or all of the three may do well over the next year or two. But the fact that low cost, diversified approaches, such as broad index funds and ETFs, were conspiculously absent at the show, sure makes me feel as if it's the right thing to do.

Next week, I'll write about the three best emotional sales pitches from the show, and why following them could cost you a bundle.

The Money Show - How to Lose Your Shirt on Trendy Investment Ideas
Bear Markets Suck, But Don't Give Into The Pain
Roth on Roth IRAs and 401(k)s

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.