This is an open thread to discuss the question I (and others) continually receive many queries about.
What does your portfolio look like? What is the long-term strategy? What are you diversifying into? What are you shorting? What are you bullish about? What economic analysis tools or methodologies do you use? Do you try to take advantage of cycles/booms/busts?
Note: do not construe this as an official stance by the Mises Institute to buy or sell any securities.
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I prefer tactical asset allocation for intermediate-term holdings.
20% AGG, 10% DBA, 10% USO, 10% GLD, 50% cash
It doesn’t make any sense to get crazy right now, but I would be prepared to exit the commodity positions since I’ve held them pretty much all year.
If I ran a hedge fund, I would trade the commodities vs. DBB (industrial metals). I’m convinced they are going to perform poorly compared to the rest. I would long GDX vs. GLD since the miner’s are undervalued relative to gold stocks. If I had enough money, I would buy every muni-bond issue and short a relative amount of t-bills. Just like Wilbur Ross… I also would have entered positions on the CDX back in August or at the latest October and been short the dollar.
I definitely try to get in and out of things. Most people don’t understand economics well enough to do take advantage of cycles. That provides a benefit for people (Austrians) who do. I’m not afraid to use leverage to take advantage of government fueled booms as well. I spend all day looking at the markets, so I use a lot of different things, economic indicators (real monetary base and interest rate spreads are the best long-term indicators of a boom), technical, and fundamental information. It’s more of a synthesis. I would say that value/contrarian investing at the bottom of a recession is definitely a strong strategy and I like that much better than overpaying for growth stocks.
Passive investing with a weekly dollar-cost averaging into a low cost index fund like the S&P 500. Why try to time the market? There has always been ups and down and there will always be. Invest for the long-term and sleep sound:)
For the average investor a low-cost, passive, dollar-cost averaging strategy seems reasonable for long term investments. I’m currently at 50/50 international/domestic. Above what I can legally allocate to a Roth and receive matched funds in a 401k I’m keeping the rest of my savings in an online savings account to try and preserve some purchasing power if the markets are hit hard.
I’m on the fence about buying gold. On the one hand I’m worried about putting too much in an unproductive asset at a young age . . .on the other hand, I’d like to preserve my savings if inflation really gets out of control. What percentage of total assets should I allocate? How should I own it (ETF, bullion, etc.)?
100% silver
John,
quit the DBA? Wow. You don’t expect the rise of food prices to continue in 2008?
I was just thinking about investing in DBA as I think food prices must relatively go up in a recession (people will spend a higher percentage of their income on food than before as simply they don’t have as much to spend, but to eat is a must, to buy an iPod isn’t).
mining company denominated in CHF
And yes, today has been a lot of fun watching the dollar collapse and gold go up! Not just schadenfreude.
In weighted order: index stock fund, investment grade bond fund, precious metals fund, and some individual stocks: natural gas supplier/driller, insurance company, grocery store chain, silver coin
I like the investment philosophies of Warren Buffet and Burton Malkiel. To summarize, macro trends are mostly meaningless; you have to focus on the investment’s fundamentals (Buffett). Further, the market for securities operates freely, ergo, about as efficiently as human frailty will allow, so it is extremely difficult for the average investor to beat the market (Malkiel).
I’m heavily invested in gold and silver mining stocks. I read financial news sites, and it’s amazing how just a year or two ago, most economists (except the Austrians) were saying that there will definitely be a “slow down”, but no real chance of a recession. They patiently explained to us that housing prices don’t go down nationally like stocks…housing prices are a local phenomenon.
Now, it seems everyone has forgotten those predictions. The same economists are still quoted, as though they are merely responding to ‘changing facts’. It would be nice to hear one of them say to a reporter, “Hey, I didn’t forsee any of this mess…why are you asking me what I think will happen next?”
I’m still waiting for that news headline that says, “Mainstream economists apologize for failures, turn to Austrian economists for help.” But sadly, we’re in some sort of wonder-land where no matter how often the mainstream “experts” are wrong, they’re still thought of as “experts” by the media.
anything not involving the greenback
Gold/silver (precious metals) are superior to the U.S. dollar, and in fact, almost all other fiat currencies (that are manipulated by central banks that, in turn, recklessly follow the example of the U.S. Federal Reserve System). According to Jim Sinclair, The currency of a country is basically a vote for or against the financial policies of that particular regime. Owning gold, is a vote
against all such regimes.
I have invested in gold/silver mining and commodities stocks. Thanks to the recent Fed interest rate cuts, and the direct infusion of billions of dollars (of money created out of thin air) in order to bail out Wall Street and the Hedge Funds, in conjunction with news in the “mainstream” media that the U.S. economy is heading towards stagflation, most of these (but not all — especially my investments in Indian and Chinese companies) stocks have been performing very well (gains of about 20%-30% since November 2007). I have purchased shares in Silver Wheaton and Silverstone Resources (both companies are actually royalty, rather than, traditional mining companies; i.e. they purchase silver, that is produced in other companies’ mines as by-products, at set contract prices and then re-sell it at market prices — no exploration/development/operations expenses); High River Gold Mines (mines gold in Burkina Faso — part of West Africa’s “Gold Coast” — and Russia); Excel India Trust (a closed-end ETF fund, that trades on the TSE, and invests in the major Indian companies that trade on the Bombay Stock Exchange); Sterlite Industries (a major Indian copper mining company that trades on the NYSE as an ADR); Agria Corporation (a Chinese agribusiness company); RJA (an ETN that tracks the composite value of the various agricultural commodities invested in the Rogers International Commodity Index – Agriculture); Universal Travel Group (a Chinese online travel/tourism company — should do well with the Beijing Summer Olympics fast approaching); and China Organic Agriculture (sells organic rice in China).
I generally like the advice of Peter Schiff (a fan of Murray Rothbard and an economic advisor to Ron Paul): remain bullish on gold, silver, commodities, energy stocks (anything tied to the rising inflation and depreciation in the value of the U.S. dollar), and prefer stocks related to consumption and growth in emerging Asian economies and avoid those stocks heavily tied to consumption within the United States (retail stocks, investment banks, construction companies, mortgage lenders, etc.). Follow the advice of smart people like Peter Schiff, Jim Rogers, Jim Sinclair, James Turk and the Austrian Economists, and avoid Kudlow et. al at CNBC Bubblevision.
I have long been bullish on commodities, see my review of Jim Rogers book on the subject.
http://mises.org/daily/2773
http://blog.mises.org/archives/007461.asp
And as anyone who has followed commodity price movements in recent months know, that has been a very good bet. And I continue to be bullish on them as the underlying factors driving the boom, the ones that Rogers mentioned in his book and the additional one I mentioned in my review, continues to be in place.
Great thread, Tim. I’ve been wondering about how my fellow Austrians would answer this.
I have a pretty diversified portfolio but I did make some good money in gold and coal over the last couple of years. I’d like to say that I had greater confidence in my Austrian conviction to make bigger bets against the dollar.
Over the last couple of months I have been selling off some of my gold on the assumption that this inflationary policy cannot last indefinitely. I have no idea if I am right or wrong in this strategy.
In my 401K, I am almost 100% money market funds at the moment- I have been slowly cutting the percentage in stocks over the last 2 years from 80% to 10% as of today. At the same time, I have also moved money out of the bond funds in the last 2 months. I expect a crash.
Outside of my 401K, I have also accumulated cash. I have the option ot pay off my mortgage, but am waiting to see what happens in the next year.
The inflationary policy may not last indefinitely, but it (and the consequent fall in the value of the U.S. dollar) will continue through the next two to three years. As long as the Bush Administration and Congress remain unconcerned about reigning in out-of-control federal government spending, and wars in Iraq and Afghanistan that are costing billions of dollars per week, debt will continue to skyrocket, and borrowing from abroad, and using the printing presses to pay off the government’s bills, will not be hindered.
Borrowing from China and other foreigners may not be a given, as they won’t exactly
be too keen to accept these worthless IOU’s at the same rate. They are already stuck with far too many of them, and are frantically
recycling them back into real assets. Some have not fared so well (for example, the Chinese investment in Blackstone Group) but they have also sunk a ton of money into Africa. All Japan/China has to do is stop buying treasuries and we’ll see how high the rates on US gov’t debt go up. They don’t even have to sell. No one is going to pick up the slack in such volume. When you’re the biggest debtor nation on earth, and a
bankrupt one at that, you can’t keep calling the shots.
At this stage, I only invest in Bullion and Precious Metal Investment Coins.
40% Bullion / 60 % Investment Coins
I’ve lost faith in paper. There is also no counterparty risk. As Thomas Jefferson said:
“Paper is poverty…it is the ghost of money, and not money itself”
Click here to check out the graph of the performance of just plain old Krugerrands 1970-2006(prices in ZAR
), and some investment coins.
And yes, I’m a South African, in case anyone’s wondering.
Miklos,
I think the better play is long DBA and short an equivalent dollar amount of DBB. I don’t know what DBA or DBB is going to do, but I know that in a recession the industrial metals will lose money relative to the agricultural commodities. DBA is fundamentally fueled by ethanol and high food (prices and) demand from China. I would only get out of it if there is deflation, an end to the long-term trend in commodities, or I am stopped out.
Be very cautious investing in gold. Hear me out.
The hedgies have massive amounts of gold on their books, and as the credit bubble deflates, and they are forced to delever, they will be faced with a conundrum. Do we go insolvent, or do we dump assets? Well, they can not dump the MBS on their books, as they are likely worth pennies on the dollar. Therefore, they dump gold.
As the hedgies fail, expect a gold tsunami to flood the market. Pop. Pop. Pop. Each time, gold is released and the price falls. I believe that it will take gold to my near-term target of about 700 or less 300 dollars, give or take a hundred or so.
At this point, I will up my portfolio from the 10% I have now, to 40% or so, and ride the wave up as the deflationary flight to cash causes the price to skyrocket to my goal on 2000/oz.
Remember, this is just one man’s analysis, but please take it into account when crafting your strategy. I could be wrong, but for now I will wait.
As for now, yen is where it’s at. I am loaded with FXY June 94 calls to the hilt, and they are now deep into the money. Combine that with massive short positions in BAC and Indian Financials. The rest is cash, gold, and silver.
I have inverse S&P 500 (2X) funds with Prudent Bear and Profunds.
Merk Hard Currency Fund, HSTRX, Vanguard Energy, Vanguard precious metals and mining, some physical gold and silver.
I have only owned gold through ETFs and mining stocks. For those of you who buy coins can you share any best practices?
I’ve been wanting to do this and I’m hoping for a dip to buy both gold and silver.
For core accounts I use an asset allocation strategy that includes: Large Cap (S&P 500 and EAFE), Small Cap (Russell 2000 and EAFE Small Cap), REITs (DJ REIT Index), and Commodities (GSCI and DJ-AIG). Rebalance every year. This strategy produces double digit returns with only 4 down years over the last 29 years. Worst year was 2002 (-5.5%).
I also segregate assets into satellite accounts that are more tactical. I have been overweight GSCI and DJ-AIG since Jan 2007. Recently started to move some from GSCI to DJ-AIG because DJ-AIG has a bigger ag weighting. Underweight REITs since Feb 2007. Long gold and non US$ bonds. Long emerging market stocks, emphasis on Asia. Recently started buying some mortgage REITs. I know it sounds crazy but I don’t think the mortgage industry is going away and low leverage mortgage reits offer some very good yields. Besides I can’t resist a contrarian bet. I”ve also been long 1-3 year Treasuries for most of the last year.
David, I buy gold and silver in bars and coins and here are my only pieces of wisdom:
Shop around for a low commission, here is a site that will help you find coin dealers in your state and you can call and about prices to get an idea, http://coininfo.com/index.php?op=searchdealers
Don’t pay sales tax, go out of state, buy online or something if your state charges sales tax on coins.
If you are unsure about the quality, go with a trusted coin like the mapleleafs, kugerrands etc.
I think this guy is cool because he is a libertarian, but I don’t buy enough quanity to use him, but even so his site has tons of great info, http://www.coloradogold.com/
DBA, GLD, PHO (water treatment I believe), and Nintendo (exited trade).
These are short term trades (only the next 2 years or so). Long term investments will be playing the increasing trade flows between Russia, South America, and China. That trade will explode while trade with Europe and the US will wane a bit. So I would like to try to start a business tapping into that trade flow.
Or you can buy farm land in Nebraska and start growing wheat.
david- bulliondirect.com has a feature called nucleo exchange which is like an Ebay for metals. those are the cheapest prices i have personaly seen.
Today has been a good day as the USDCHF collapsed and gold soared.
Can someone please, pretty please set up an Austrian Fund? I am desperate to give my money to a “Mises Index” or an “ABCT Hedge Fund.” or even a “Rothbard ETF”.
flix- europac is close
I like the idea of an Austrian-friendly fund.
I also appreciate the good advice on buying bullion. I may need to look at online sources since I live in Texas and it is a long way to go to escape sales taxes!
Any opinion wrt gold vs silver. I guess if worst came to worst (or best?) and we had to rely on these coins for exchange would it not be better to have a bunch of silver coins rather than a few hard to divide gold coins?
Has anyone else used Euro Pacific? I just opened an account with them. And to be honest I am a little disapointed in the service. They botched my funding of the account even when I had expressed a concern over it and was requesting confirmation of the status on it before hand.
Perhaps best thing is to just do whatever Mark Skousen says?
Another proponent of Ag over industrial metals here.
DBA and RJA over DBB.
Very distant Oil futures on price pullbacks, the 2010-2015 dated contracts.
Natural Gas stocks and Nat. Gas itself. This one has been a huge winner this year.
Chinese RMB, most won’t be able to do this though.
Of course Gold and Silver on pullbacks.
If I were to set up a portfolio using 10 ETFs, with my admitted inexperience (in both econ and investing), I would think something like the following:
20% For stock (15% VEU/ 5% PID)
15% US stock (10% VTI/ 5% VIG)
= 35% stock
15% For bond (BWX)
5% US bond (BND)
= 20% bond
10% For REIT (RWX)
5% US REIT (VNQ)
= 15% REIT
30% Commodities (DJP or GSP)
This overweights some areas where I’d expect better medium-term growth (commodities and foreign bonds) while underweighting some areas that may experience problems in the near-mid term (US stocks & bonds, real estate). At the same time it remains well-diversified for long-term growth. This would be my passive portfolio. The weighted expense ratios are somewhere in the .46% to boot.
Have anyone considered investing in coal? The F-T plants that can convert it to oil became profitable at about $32/barrel so I think a few of them is being built and bid up the demand for coal.
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