Making money: What the experts say

Betting on pricier food

As the economy improves, so will people’s appetites, said Thomas Anderson in Kiplinger’s Personal Finance. An increase in domestic demand, on the heels of reduced output in 2009, makes food inflation one of the year’s surest bets. “A moderate amount of food inflation tends to be good for grocers,” and Safeway, with more than 1,700 stores, seems “best-positioned” to profit from Americans’ belt-loosening. Meanwhile, higher demand for meat and grain bodes well for producers of potash, a “key fertilizer.” Canada-based Potash Corp. and its rival, Mosaic Co., are the leading producers, but Agrium Inc., which sells both seeds and fertilizer, may be a “more diversified bet.” Seed giant Monsanto is also promising—if you can stomach the risk of an antitrust investigation.

Funds: Don’t look back

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Too often, mutual fund investors get stuck in the past, said Pat Regnier in Money. They base their fund choices on recent performance and neglect to consider the factors that actually influence future returns—manager experience, risk profile, and expense ratios, to name a few. It’s not just that past returns are a poor indicator of a fund’s prospects; the emphasis on them unfortunately “gives managers an incentive to seek short-term glory at the expense of long-term strategy” by investing outside their category or dumping promising stocks before their time. “If you just can’t ignore performance numbers, make it a rule to look at them last.”

Stocks: The long and short

Investors can mitigate the risk of investing in some sectors with a two-stock investment tactic known as “paired trading,” said Jeff Opdyke in The Wall Street Journal. Consider someone who thinks that Exxon is undervalued relative to, say, Chevron, or that Lowe’s prospects are better than Home Depot’s. Rather than simply betting that one stock will go up, “paired trading” calls for simultaneously selling (or shorting) a similar one. In theory, even if oil prices collapsed, an investor long in Exxon but short in Chevron could still break even. Be warned, though: Since a paired trade is “essentially a bet that the relative valuation between two particular securities will converge,” it has the potential to backfire with losses on both ends of the trade.