From Porter Stansberry in Stansberry Digest:
In today’s Digest… I’m back on my hobby horse, trying to show you the information I’d want if our roles were reversed.
And… I hope, even if you’ve never read any of my Digests before, I hope you will read this one carefully.
I’m going to share with you a HUGE secret, something that most investors will never understand… something that I believe willdoubleyour portfolio’s total return going forward, whilereducingthe volatility of your investment returns.
This secret, my friends, is the only real “holy grail” in investing. Nothing works all the time. Nothing is a free ride. And nothing is guaranteed to always make big returns. Getting better as an investor means improving your results over time and reducing the amount and duration of your portfolio’s pullbacks.
Today, I’m going to show you a fool-proof way to do that and explain why now is exactly the right time to set your portfolio up in this way. This won’t cost you a dime – except maybe some minor trading costs. And yet… I know most of you won’t do it.
As you know, I generally think my efforts to educate investors are a waste of time. In my experience, you cannot teach anyone anything until they have a genuine desire to learn – thus my general warning about reading the Friday Digest: There’s no such thing as teaching, there’s only learning.
That’s doubly true about today’s topic. You see, today’s topic is about gold…
In this Digest, I’m going to show you one of the real secrets that was unveiled at our meeting this week. Today’s Digest is an examination of why every investor should have gold in his or her portfolio – especially right now.
Generally speaking, there are two kinds of investors. There are, of course, investors who own gold. You probably know some of these folks. These investors typically believe the world is on the verge of a crisis. So they own gold and gold stocks… and almost nothing else. They generally have poor results. Their portfolios are incredibly volatile, and over time, they drastically underperform the stock market as a whole. These investors, however, carry these scars as a kind of badge of honor, proving their fealty to sound money. No matter what I teach here, they will never change.
Then there’s the other kind of investor, the ones who trade stocks and bonds, buy mutual funds or exchange-traded funds (ETFs). These investors drive fancy cars, take exotic vacations, and send their kids to expensive colleges… financed by equity investments made 20 or 30 years earlier. These investors generally regard gold as the “loony” sector of the market. They won’t have anything to do with gold, no matter what I write here.
These investors are, in my opinion, making a huge mistake. They don’t understand the proper use of gold and why owning it (at the right time, not all the time) would be the smartest financial decision of their lives.
I’ve written today’s Digest to show you the way I believe investors ought to invest in gold. I’m going to give you a set of objective reasons why gold can reduce your portfolio’s volatility and increase your total portfolio returns by at least 40% annually. So… please… do me a favor. Just once (nobody’s looking) open your mind and drop your defenses. You don’t need to think of gold as an idol… or a useless relic. It’s simply an asset class with unusual properties. It’s the ultimate financial insurance.
Let me show you why you should always keep an eye on it…
What’s the No. 1 idea I think investors must understand about gold and why they need some exposure to it? It’s not the risks of negative interest rates… It’s not the potential of the Metropolitan Plan… It’s not the madness of our government’s runaway deficit spending… It’s not even the likelihood of a complete collapse of the global banking system (which I believe is happening right now).
Sure, those are all important ideas. And I hope you will spend some time learning about gold’s long history as the ultimate financial safe heaven… But it’s not the No. 1 benefit that investors can gain from gold.
What’s more important than gold’s rule as the ultimate financial insurance? My colleague Steve Sjuggerud explained it in a recent essay for our free e-letter DailyWealth: Gold is the ultimate non-correlated asset. That means when the other major asset classes are going down, gold tends to go up.
Think about it. When investors sell stocks, what do they buy? Most investors consider two choices when they think about their investments. They own either stocks or bonds – or both in some proportion that divvies up their investment “pie” into the two pieces. Standard financial planning says you should own your age in bonds and keep the rest in stocks. So a 60-year old investor setting up his investments should aim to have 60% of his portfolio in fixed income and 40% in stocks. You won’t find gold anywhere in mainstream brokers’ allocation models. And that’s a huge mistake.
Historical studies show that using a basic asset-allocation model that simply includes gold alongside stocks and bonds can reduce “drawdowns” by more than 50%. Drawdowns are times when your portfolio loses value. Portfolios that are 100% allocated to stocks sooner or later experience reductions in value of 50% or more. Those are big drawdowns that most investors find impossible to weather. They panic over the size of the losses and sell out, thus locking in the big losses.
Over 20 years, I’ve seen this happen every five or six years like clockwork. Even when I’ve told subscribers (correctly) that a downturn was about to happen again, most people tend to ignore these warnings, believing they are “buy and hold” investors who can handle the storm.
But they can’t. I know that 90% or more of people who claim to be buy-and-hold investors are really “buy and fold” investors. Sooner or later, things will get bad enough to make them sell. Adding bonds and gold into your portfolio allocation can ensure that this never, ever happens to you… while increasing your average returns.
How should you use gold? Let me show you one simple model.
To study the impact of adding gold to investor allocations, we simply back-tested a “dumb” trend-following system. In this model, investors can allocate their portfolios into one of three “pie pieces.” They can own stocks (the S&P 500 index) or bonds (the Merrill Lynch Corporate Bond Index) or gold (just plain bullion). Our model assumes investors will allocate to any of these three assets if they’re in an uptrend.
That’s why I call it a “dumb” system – it’s mechanical. It involves no extra strategy, no attempt to select better-than-average stocks, and no consideration given to obviously inflated markets.
We’ve defined uptrends as periods when the asset’s 90-day moving average is above its 300-day moving average. When the shorter-duration moving average moves above the longer-duration moving average, then investors would “buy” the asset class. When the shorter moving average fell below the longer moving average, investors would “sell” the asset class. Their allocation could either be all stocks, or all gold, or all bonds… or any mix of the three.
We then measured the results of these assets individually from 1971 (when gold was officially de-linked from the dollar) through 2015. Out of the three assets, it’s no surprise that stocks did the best, returning 9.9% annually. But these results were very volatile, with drawdowns of 50%. Gold, by itself, did the worst – and also had the worst drawdowns. By themselves, neither gold nor stocks produced what I believe are satisfactory results. Both produced results that are simply too volatile for most investors to stomach and gold produced low returns to boot.
Bonds produced the best mix of low volatility and high returns, producing almost as much in gains as stocks, but with far less volatility. (I’ve often said that most investors should never buy stocks, as they’re likely to do better in bonds given their actual risk tolerance, as opposed to their perceived risk tolerance.)
So… is there a better way? Can investors earn more than they would in stocks and have less volatility than they would in bonds? The answer is yes. And the key is gold. Simply adding gold to the typical stock/bond allocation model and using a basic, “dumb” trend-following strategy produced results that dwarfed the standard approaches to investing. The stocks/bonds/gold portfolio produced 13.1% annual returns for the period – better than almost any mutual fund or hedge fund – while having little volatility. The maximum drawdown in our model was a little greater than 20% – a level of volatility almost any investor can withstand.
Here’s what I want to point out about this basic model… It doesn’t include any of the advantages of investing in gold stocks, in addition to gold bullion. During a bull market in gold, certain gold stocks will move 10 times more than the price of gold… or 20 times more… or 50 times more. Sure, these stocks are insanely volatile. You wouldn’t want to allocate a lot of your portfolio to them. But they are a fantastic way to build wealth if you buy at the right times… and in the right ways.
That’s why we’ve built our new publication – Stansberry Gold Investor – by putting together an entire 15-position portfolio of gold and gold-stock recommendations. It’s everything we think you should buy, from major gold miners to royalty stocks to junior miners (whose share prices can simply soar).
My point? Bought at the right time, adding a gold allocation (both bullion and gold stocks) can probably double your average portfolio returns, while reducing the volatility and the size of the drawdowns in your portfolio. If that doesn’t get you interested in gold… then I’d argue you’re ignoring what could be your single greatest advantage as an investor.
By the way, we’re charging $3,000 for a lifetime subscription to this new product or you can get started for just $1,500. You get the entire portfolio upfront, so we can’t offer a refund on this product. Given the decades of experience that we have in the market for gold and the long-standing ties we have with senior management teams in the gold business, I think this product represents the best value we’ve ever offered our subscribers. And compared with what this kind of information would cost you from any other publisher, it’s an absurd bargain.
But… even if all you ever do is simply buy bullion or a gold ETF… I’m 100% certain you’ll increase your total returns and reduce risk from your portfolio if you add gold to your allocation mix and buy it at the right times. The key thing to remember is that gold goes up the most when stocks and bonds are going down.
If you think, like I do, that stocks are generally pretty expensive after a huge six-year bull market and bonds are insanely expensive (who wants to lend money to bankrupt governments for 10 years and earn nothing?)… then it’s not hard to figure out that gold is likely to be the best-performing asset this year… and maybe for longer.
Here’s another timing model I think is useful. I’ve found that gold tends to follow big rallies in stocks. Why? Well, I believe that monetary inflation tends to drive equity valuation. As credit availability increases and interest rates fall, investors are more and more willing to pay up for growth stocks and “momentum” plays.
Sooner or later though… the inflationary nature of these trends is exposed. Investors, fearing the loss of purchasing power then, eventually flee to gold. Think about the big run up in stocks from 1996 to 2000… and then the huge move in gold that followed from 2001 through 2008. Or think about the big move in stocks from 2002 through 2008… and the big move in gold that followed from 2009 through 2011. Today, we’ve seen another five- or six-year move higher in stocks… and now I believe we’ll see gold follow.
Here’s a chart that reflects how I believe gold tends to echo bull moves in stocks. All we’ve done is taken the five-year rolling return in stocks and subtracted the five-year rolling return in gold. As you can see, sometimes gold does much better than stocks. And sometimes stocks do much better than gold. But these trends don’t last long… and they tend to reverse dramatically. We’re now coming off a period (2011-2015) where stocks did much better than gold. I suspect the opposite will be true for the next couple of years at least.
Honestly, I couldn’t believe the overwhelming response we got from the webinar about gold this week. I’m certain we’ve never hosted any event that generated so much overwhelmingly positive feedback about our efforts.
Here’s just a few of the hundreds of positive notes we received:
The gold briefing the other day was the best presentation I ever listened to. Why? Because of your emotional involvement. The ‘sanitized’ version that’s now being circulated, sounds like just another boring sales pitch. Like soup without salt. Can you make the original available, I would send it to a handful of friends. – Paid-up subscriber P.P.
I thoroughly enjoyed the recent broadcast and don’t think I have laughed so much, in a long time, regarding anything that had to do with a computer. Some of your responses to the “not so informed” questions were priceless! As someone once said “you can’t fix stupid”… I like your style! – Paid-up subscriber Mike D.
Thank you very much! I was very impressed with your presentation. I really enjoy listening to you “help me learn” about the concepts and strategies that you expound. I only wish that this type of information was available to the “common man” about 30 years ago.
The Q&A portion of the webinar was extremely entertaining as well as educational…
I have been hoping, for a long time that YOU would get into the gold space with a newsletter. I am one of the “little guys” that subscribe to your work… Just wanted to let you know that the presentation was great. Thank You for all the hard work you and your team do for us (me)! – Paid-up subscriber G.S.
I’m a Vietnam Vet (US Navy, “Tonkin Gulf Yacht Club”, ’67-’71) and have made some very bad financial decisions in the last 15 years. However I am recovering slowly, but steadily…
To the point, by way of feedback, I thought this presentation was exemplary! Your presentation was spot-on and your intense passion for the material,andfor helping “us” was very evident! Steve Sjuggerud and the two other individuals were excellent, too. I thought the content was incredibly pertinent and the timing of this news makes perfect sense. Thus, the credibility of your Gold Investor program, as well… Thank you again for an outstanding presentation! – Paid-up subscriber John S.
The feedback we’ve gotten was so overwhelming, we’ve decided to do something we’ve never done before. We’re going to make our presentation available to the public. It will be hosted on our public (free) website, so you can access it here.
If you can think of anyone who should have joined the meeting but didn’t, please feel free to forward this copy of the Digest so they can hear and see what was discussed. Likewise, if you missed the meeting… please feel free to listen at a time that’s convenient for you.
Finally… I just want to reiterate how much I hope you will give gold a place in your portfolio. Whether you do so using our portfolio approach in Stansberry Gold Investor or not hardly matters. Yes, I’m certain we can outperform bullion with our recommendations, perhaps even by dramatic amounts. But that’s not the point of today’s Digest. I hope you’ll simply open your eyes and realize the powerful role gold plays in our world today and the role it should therefore play in your own investing.
Regards,
Porter Stansberry
