For this month’s Bonner & Partners Investor Network issue, we talked to gold stock investor John Doody. John is one of the world’s most respected gold stock analysts. And he has a unique perspective on this sector. That’s because before founding his research advisory service, Gold Stock Analyst, he was a professor of economics for nearly 20 years. And as you’ll discover in this month’s Q&A, he has an encyclopedic knowledge of what drives prices in the gold mining sector. John is also one of the most successful analysts, of any kind, that we know. His strategy has trounced the performance of gold bullion… and the S&P 500 over the last decade.
Following the Cyprus “bail-in,” which effectively wipes out depositors in the island nation’s banks, we received this note from “Partner Level” member Antony H.: The tragic opera bouffe being played out before our eyes in Cyprus has brought into focus the dangers we run all over the world in leaving sizeable cash deposits in banks and other similar institutions. Although none of us really needed this latest “crisis” to recognize the risks inherent in leaving cash in bank deposit accounts, it certainly has now reminded us forcefully that we hold such deposits at our peril.
A number of you have written in to ask for further details about where to open up foreign bank accounts. Last month, I took a trip to what some are calling the “New Switzerland” to find out if US citizens are able to open up accounts. Turns out they are. Also turns out that this small country…off most people’s radars…has one of the strictest banking secrecy laws left in the world. If you are looking to diversify your accounts outside of the US…and outside of the US dollar…this could be a good starting place.
Academics in the field of finance generally see investing as a coin toss: a game of luck, not of skill. The prevailing ideology of modern finance is that markets are efficient and so there is no point in trying to outsmart them. According to this view, there is no need for judgment when it comes to investing because the markets are perfectly calibrated and prices reflect all known information. Trying to beat the markets by being a “good” investor is futile. There are two problems with the coin-toss theory of investing.
The most important decision you will make as a long-term investor is how much of your wealth to invest in stocks, bonds, real estate, cash, commodities and precious metals. How much you choose to invest in each asset class is called asset allocation. Most investors take a “set and forget” approach to asset allocation. They make one asset allocation decision when they set up their portfolio and stick with it regardless of market conditions. At Bonner & Partners we take a tactical approach to asset allocation. When market conditions change, we change our allocations. This helps us protect against losses and capitalize on profit opportunities.
Only proper diversification can protect you from suffering a “ruinous loss” – one that you may never recover from. Proper diversification is all about managing your portfolio risk. The more diversified you are, the less any single bad event can affect your portfolio. There are three simple steps you can take to ensure proper diversification of your wealth. First, construct a well diversified portfolio. Second, spread your wealth across different banks and brokers. Third, keep plenty of family capital outside the financial system.