Holmes recently spoke at the Agora Financial Investment Symposium in Vancouver where the theme was “Innovate or Die.” His presentation addressed a few cognitive dissonances he sees in the markets these days:
In today’s low-yield environment, those who invest in Treasuries lose money. They are seen as a “safe haven,” but as of mid July, the 10-year Treasury had fallen to less than 1.5%, while inflation burns off at a rate of 1.7%. This leaves investors with a loss of about 0.2%. Better opportunities exist.
Investors have lost more money in Groupon and Facebook than the entire assets in all gold funds. With the endless coverage leading up to the Groupon and Facebook IPOs, the stocks appeared to be positioned to the public as a mainstream investment. Unfortunately, most were unaware of the risks involved when they purchased shares.
The overall market has historically been more volatile than gold. As with any investment, price action over the short term can rise and fall, but what surprises many investors is that gold has had less rolling volatility than the overall market, gold stocks and big bank stocks.
Warren Buffett may bash gold, but Berkshire Hathaway has underperformed it over the last 10 years. Gold has been on an incredible bull run over the past decade, and while Berkshire kept pace for the first six years, it has struggled to maintain since 2006. In his last shareholder letter, Buffett dismissed gold, comparing the rise of the yellow metal to the tulip mania in the 1600s and claiming that gold only “enjoys maximum popularity at peaks of fear.”
There have always been naysayers who question the inclusion of gold in portfolios, says Holmes. However, because the precious metal typically is not highly correlated with other financial assets, holding a small allocation (5%-10%) in a traditional portfolio of stocks and bonds adds diversification and reduces volatility.
To read Frank Holmes article: Challenging the Paradigms of Investing
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