Friday, September 30, 2016

Capital preservation vs Risk Rewards

I think holding all your assets in cash is very dangerous. I want to be diversified; I hold some cash, bonds, equities, some real estate, and some precious metals. 

The moment you diversify, your returns are suboptimal, but it’s likely to preserve your capital.

Tuesday, September 20, 2016

Central bankers are NOT smart people

I don’t have control over the manipulation of central banks. Haruhiko Kuroda of the Bank of Japan expressed the view that there is no limit to monetary inflation. That they can keep on buying assets and they can keep on buying equities and real estate.

Janet Yellen

They could essentially monetize everything, and then you have state ownership. And through the central banking system, you introduce socialism and communism, which is state ownership of production and consumption. You would have that, yes, that they can do.

The BoJ owns more than 50 percent of Japanese ETFs (exchange traded funds), which own large parts of the underlying companies. So indirectly they may own 20 percent of the Japanese companies, and they can go up to a higher level.

So the madness in the present time may go on. In a manipulated market, it won’t end well, but you don’t know when it will not end well, and how far the manipulation can last.

I don’t think the central bankers are intelligent and smart enough to understand the consequences of their monetary policies at present. They focus on inflation but in my view they shouldn’t do anything. They don’t focus enough on what it does to the average standard of living of the people, to the average household income.

Tuesday, September 13, 2016

No economic growth in US, Europe and Japan

Today, Britain is completely irrelevant for the world economy. It contributes less than 4% of the global GDP and is a very small manufacturer. What is relevant for the world are growth rates in China and India. 

We don't have any growth in Europe and Japan. If we were to measure the GDP correctly in the US, there would be no growth. And we are talking about a demographically attractive population. 

Tuesday, September 6, 2016

Control your emotions during trying times to improve your investment returns

My regular readers know very well by now that I consistently recommend investors to hold a diversified portfolio of different assets consisting of equities, bonds and cash, real estate and precious metals. The purpose of this diversification is to reduce the risk of heavy capital losses. Since nowadays, most assets are grossly inflated I am not so sure that this diversification is full proof anymore, but what I am sure of is that the strategy of owning different assets is the best option for the average investor. It is nonetheless pretty clear to me that if becoming ultra-rich is the objective, diversification is simply not an option.

A friend of ours, Charlie Bilello who is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts and who is the co-author of four award-winning research papers on market anomalies and investing was kind enough to share with us a paper entitled, Big Winners and Big Drawdowns. The paper is very interesting because it shows that people like Steve Jobs, Bill Gates, Jeff Bezos, Eric Schmidt, and Larry Page became incredibly wealthy by having almost all their wealth in just one business, which however, experienced repeatedly huge drawdowns.  

Bilello rightly says that, “All big winners have big drawdowns. Accepting this fact can go a long way toward controlling your emotions during periods of adversity and becoming a better investor.”  

I fully agree with Bilello that controlling one’s emotions during periods of adversity can go a long way toward becoming a better investor. The successful investor should also be aware that the mind-boggling long term performance of stocks such as Apple, Amazon, Microsoft and Alphabet are the exception and that they are not at all representative of the returns investors should expect from their portfolios. More so, as I explained above, diversification – well-understood disciplined diversification – can help investors to better control their emotions.  

There is a point that is important: We investors will not only experience higher volatility and lower returns on our assets in the next few years. We shall also have to endure vicious interventions by governments and central banks, which are nothing else but an increase in taxes on private property or, as I believe, a form of hidden expropriation. The right choice of the custody and geographical location of your assets will be increasingly important. Concerning the custody of your assets beware of massive fraud everywhere – see following link:

Following last month’s discussion of Mrs. Stutzman I received quite a few comments. The majority of the comments condemned the behaviour of Mrs. Stutzman, which I actually support.          

With kind regards
Yours sincerely
Marc Faber