Investing, economics, finance and random thoughts.
Posts tagged risk management
Black Monday Anniversary
Oct 26th
A poster on the Diehards forum remarks that today is the 80th Anniversary of Black Monday 1929 – The Great Stock Crash that touched off the Great Depression. In this very interesting video you can hear first hand accounts of the events that led up to the crash:
A New Swiss Gold ETF
Oct 7th
Blog reader Kyle sent me some information on a new gold ETF trading under the symbol SGOL. This ETF is a gold bullion ETF similar to the Street Tracks and iShares gold ETFS (Ticker: GLD and Ticker: IAU).
What makes this ETF different is SGOL’s gold is stored in Swiss bank vaults and not US financial centers. Since part of the Permanent Portfolio concept is to have some assets geographically diversified this could be an advantage. The expense ratio of this ETF is also very competitive as well at 0.39% which is right in line with the other offerings.
Now, some worry about a remote risk of US gold confiscation happening again in the future and this ETF would probably not prevent that (the govt. could simply pass an order requiring repatriation of funds for instance which would accomplish the same thing). However, this does give you a place for your assets that may not be open to the same type of risks as gold stored in the US. Risks such as from terrorist attacks, natural disasters, cyber attack, civil unrest, etc.
On the other hand, I’m not sure how if your US-based brokerage is having problems due to these issues here that it wouldn’t impact your ability to prove ownership in SGOL. Well, it’s a start at least.
This fund is brand new and I’m not one to jump into new financial products so I may give it time to build up some momentum. However, it’s something to consider for those that want to build a Permanent Portfolio and use ETFs for the gold portion but would like to have a modicum of geographic diversification.
Thanks again to Kyle for the tip.
The Fugger Portfolio
Sep 22nd
An interview with Rob Arnott describes the portfolio of Jacob Fugger (“Fugger the Rich”) who lived from 1459-1525. The portfolio that made him so rich sounded very familiar and I wanted to share this part of the interview with Mr. Arnott:
Rob Arnott: Where do we go from here?
Audience Question: It seems you’re simply promoting a diversified approach to investing. How is this different than basic portfolio theory?
Arnott: There’s nothing new under the sun. Questions: How many people follow a truly diversified approach? How many think of their stocks as ownership of an enterprise (à la Graham & Dodd), rather than as some assemblage of portfolio characteristics? In the 15th century, Jacob Fugger (“Fugger the rich”) put his money in shares, in loans (bonds), in property and in commodities. And he’d rebalance when the mix drifted away from one-fourth each. The shares and the real estate did well when the economy was strong; the loans and commodities did well when it was weak; the commodities and real estate did well when the government was debasing the currency; and the stocks and bonds did well when the government and the currency were sound. Old ideas have a lot of power, and keep getting rediscovered.
(emphasis added)
A free lunch?
May 20th
Since I’m on the subject of criticisms at this point, let me add another thought:
If an investment advisor is suggesting something is a free lunch, you are probably going to end up with food poisoning after eating it.
Permanent Portfolio 25% Bond Allocation FAQ
Feb 9th
The Permanent Portfolio allocation is 25% stocks, 25% bonds, 25% gold and 25% cash. In this series of posts we’re going to talk about how to implement each one of these components to take advantage of the economic cycles of Prosperity, Inflation, Recession and Deflation.
This FAQ is divided into two sections: Short Answers and Long Expanded Answers. If you don’t want to know the details then just read the Short section and skip the Long Expanded section. This page will be updated from time to time as more common questions and answers are needed.
In this series we talk about the 25% bond allocation and how it protects you from deflation and helps during prosperity.
Avoid Extremes in Investing
Feb 1st
One of the fastest ways to lose money is to do extreme things with your investment portfolio. Yet, when people get nervous or over-confident this is exactly what they do. They may decide that a certain asset is best and put 100% of their money into it. Whether it’s 100% stocks, 100% bonds, 100% gold or 100% whatever. Whenever you position your portfolio to make extreme bets on the economy you are taking on a very high level of risk. This risk may not be rewarded with profits but devastating losses.
I was reminded of this today when I heard an investment advisor telling people to put their money in 100% gold, silver and gold mining companies. Last week I heard a different advisor telling people to stay 100% in bonds. Then there are some saying buy 100% Treasury Inflation Protected Securities (TIPS). Last year I heard advisors recommending 100% stocks. The year before that they were hocking real estate investments.
Here’s my take:
Never put 100% of your money into any single investment.
Ever.
Period.
All investments have risks. I don’t care what it is or how it’s being sold to the buyers. Whether it’s stocks, bonds, gold, TIPS, real estate, cash in your mattress, etc. There is no free lunch and the minute an investor thinks there is a free lunch is when they get into trouble.
Permanent Portfolio Results 2008 – A Disaster Averted
Jan 1st
UPDATED: This posting now lists (mostly) finalized 2008 total returns information (interest and dividends included) from the listed stock indices. The final numbers won’t change much.
“The best kept secret in the investing world: Almost nothing turns out as expected.”
– Harry Browne
Investors won’t be forgetting 2008 any time soon. Yet as bad as it was, the Permanent Portfolio survived intact with a profit for the year of about two percent.
The year included oil and other commodities going to record highs. Real estate prices fell at a rate not seen since the Great Depression. Century old banks that were leveraged to their eyeballs blew up and vanished. Iceland, a first-world country, went broke. Bernard Madoff, one of the founders of NASDAQ, admitted his hedge fund was a $50 Billion Ponzi Scheme. The Treasury Secretary and Fed Chairman openly talked about The End of The World As We Know It if we don’t “do something”. That “something” of course meant big bailouts for banks, irresponsible home buyers and automakers (and maybe more — to be continued).
By the time 2008 was over, the markets were down by one of the largest single year amounts since 1931.