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Why Concentration in Gold and Silver Assets Will Continue to Trump Diversification as an Investment Strategy
For six years, SmartKnowledgeU has been revealing dirty secrets about the global commercial investment and banking industry and building considerable wealth for our clients at the same time. The key to earning positive returns in your portfolio during a horrible month for global developed stock markets around the world in August was to concentrate, not diversify, your assets. In fact, this has been the key to earning positive returns in your portfolio for years on end now. From the very first day I launched my newsletter in June of 2007, I have chosen to concentrate, not diversify, my newsletter portfolio in very few asset classes for my analysis for the past several years has told me that only a few asset classes will return significantly positive returns and that diversification is not only a waste of time, but a poor investment strategy. The commercial investment industry calls concentration short-sighted, risky, and foolish, but only because this means that the financial consultants that they hire actually have to be able to allocate portfolios intelligently rather than just spending the bulk of their time dialing-for-dollars to bring in the most fee-based income possible. In my world, concentration of assets is not only an intelligent strategy but one that is far more solid and far more rewarding to my clients.
In 2008, I publicly predicted that US markets would crash just 18 trading days before US markets started a slide that saw it lose about 50% of its value. That year, when major developed markets ended up losing 38% to 40%, we still returned positive returns to our investment newsletter clients precisely due to our strategy of concentration and our aversion towards diversification. For six years now, I’ve said that diversification is a sell-side strategy that fattens commercial investment firm executive’s wallets at their clients’ expense even as commercial investment firms continue to sell this rubbish strategy to their clients. My claim has drawn the ire of more than a handful of commercial investment financial consultants. However, convincing clients to believe in the “intelligence” of a diversification strategy that simply has ceased working for years is what puts food on the tables of many financial consultants and keeps food off of yours. Ask yourself, when was the last five-year period that diversification strategies helped you achieve a significantly positive cumulative return? Can’t remember the last 5-year period in which this has happened, can you? Since I launched my investment newsletter, I have concentrated my newsletter’s portfolio in hard assets and commodity-based stocks every single year. Some years, my newsletter portfolio may contain almost nothing but gold and silver based assets while in other years, I may choose to hold some agricultural and energy based stocks as well. This type of strategy is anathema to all commercial investment industry financial consultants and advisers who are trained to believe that diversification is an absolute must. Of course if you choose to concentrate a portfolio in the wrong assets, you will lose the bulk of your clients' money every year. This is precisely why nearly all commercial investment industry consultants and wealth "advisers" choose not to concentrate. Diversification serves as a cover for the fact that the great majority of commercial investment industry employees know little more about markets than you do and are nothing but glorified salesmen and saleswomen in fancy suits and expensive cars, thanks to the large fees their clients pay them every year. Think about it. Did you really need a Private Wealth Manager to lose 35% to 40% of your portfolio's value in 2008? I'm sure most people could have done that on their own and saved the fees associated with being a client of a "prestigious" investment firm. When I used to work for a commercial investment firm before I walked out on the immorality of the industry, I was actually instructed to prime my clients to expect a portion of their portfolio to underperform every year.
I was trained to parrot to my clients that it was impossible to know what sectors would rise and what sectors would fall in the coming year and to support my dog and pony show with charts and data that would illustrate this point in order to legitimize it. But statistics can often be manipulated to prove a point, even when that point is wrong. Of course, in reality it was impossible for me to know what sectors would rise and what sectors would fall every year. Why? Not because I couldn't do it, but because the firm I worked for wanted me to spend all my time meeting with prospects and closing deals. Consequently, where in the world would I actually find time to analyze markets and formulate an intelligent opinion about which assets would rise and which assets would fall? When I worked for the commercial investment industry, I probably spent 95% of my time marketing and 5% of it studying markets. Since I left the industry many years ago to start my own firm, this ratio has completely reversed. Now I probably spend 5% of my time marketing and 95% of my time analyzing markets to ensure my clients stay very profitable throughout this deepening global economic and monetary crisis.
Diversification is the big fat lie that the commercial investment industry desperately needs you to believe in, even as your portfolio size continues to shrink. Even famed investment guru Jim Rogers agreed with me two years ago and publicly declared that the diversification strategy, in his words, was a “scam” designed to bilk clients of money and enrich the executives of commercial investment firms. The job of anyone that works in the investment industry should be to determine what sectors will be up every year, what sectors to avoid every year, and how to maximize our client’s profits. This is what our clients pay us to do. However, this is not the goal of the commercial investment industry. The goal of the commercial investment industry is to maximize their bottom line even if it minimizes yours. This is why my investment newsletter has outperformed all diversified major global developed stock market indexes by 20% to 45% every single year. This is why from the launch of my newsletter until August 30, 2011, my newsletter has yielded a cumulative +226.61% return to my clients while the diversified S&P 500 index has yielded a negative 20.89% loss to its clients during the exact same investment period (in a tax-deferred account).
I realize that the level of brainwashing from the commercial investment industry regarding the "intelligence" of diversification is quite strong. I still, on occasion, receive emails, from a potential customer that chooses not to buy our investment newsletter after reading a couple of sample issues, due to his or her shock regarding our concentration strategy. A typical response from someone that has been brainwashed by the commercial investment industry would be the following: "I can not justify buying a newsletter that is so risky and so heavily concentrates its portfolio. When gold and silver crash, your portfolio will be wiped out. I will continue to diversify. Thanks but no thanks." The lie the commercial investment industry continues to spread about concentration is that it may lead to enormous gains at times, but that the enormous gains are only achieved with great risk. If this were true, then the most positive years I've achieved (a +63.32% yield in 2009) should have been offset by enormous losses in 2008. For if one is taking great risk to achieve very significant gains then during negative years, that great risk should translate into much worse performance as well. Instead, in 2008, when all developed global stock markets lost 35% to 40% for the year, I was still able to achieve positive gains that year as well. So much for the concentration is risky lie.
For four years, I have chosen to heavily concentrate my newsletter’s portfolio in gold and silver assets among a few other very select asset classes. If one looks at the below chart of the AMEX HUI Gold Bugs Index, an index of gold mining stocks, one may wonder how in the world one could ever achieve enormous returns by investing in gold and silver mining stocks.
From June 15, 2007 until August 30, 2011, the HUI, despite all the volatility that is evident in the above chart, the HUI has still returned a positive cumulative return of +81.69%, outperforming the S&P 500 and other various major global stock market indexes by more than 102% over the same time period. Take a look at the chart of the diversified US S&P 500 over the same time period. The commercial investment industry has worked their hardest to brainwash you to believe that diversification equals safety. Does the chart of the very diversified S&P 500 index below look any less volatile to you than the chart of the gold miners index? Furthermore, if you have to endure such volatility, would you not rather endure such volatility and be sitting on a cumulative +81.69% gain (the HUI Gold Bugs Index returns) versus a -20.89% loss (the S&P 500 returns)?
Furthermore, the commercial investment industry fails to inform you that the very firms they work for deliberately create periods of massive volatility in gold and silver to the downside at times for the very purpose of confusing investors and preventing them from concentrating in the only assets that will save their financial well-being. For example, due to my understanding of banker manipulation of gold and silver prices, I have predicted intra-day price declines and rises in gold very accurately on my twitter account even though the information I provide through my tweets is only about 1% of the information I provide to my clients on a regular basis. Because much of the downside volatility in gold and silver is artificially induced and engineered by bankers to scare investors away from this asset, the commercial investment industry fails to inform its clients that one can actually leverage this volatility, as long as it is understood properly, to further enhance gains. Just check my article here, written just a few weeks ago, where I posted the below chart and informed all my blog readers that gold and silver stocks were a great buy because they were heavily undervalued. Since my post, gold and silver stocks have strongly risen.
For example, had you bought any number of gold mining stocks at the point I advocated buying on the chart above, as of yesterday’s market close, Newmont Mining has risen +12.91%, Barrick Gold by +10.89%, and Royal Gold by +20.77% in just the past several weeks just to name a few of the gold stocks that really took off higher in price. And had you entered gold mining stocks at the point I advocated just a few weeks ago, you would now be able to weather any subsequent correction in price in the mining stocks, should it develop over the next week, with little worry. Artificial banker manufactured downsides in gold and silver assets always provide an opportunity to buy assets on the cheap at various points throughout the year. By using the volatility as an opportunity rather than being fearful of it, I was able to produce a +226.61% cumulative return to my clients during the same four-year period that the HUI Gold Bugs index returned a +81.69% return. So please don’t continue to be fooled by the commercial investment industry propaganda about gold and silver. Ensuring that you correctly view its volatility as an opportunity to enhance gains instead of viewing its volatility as a negative, and ensuring that you transform your belief about gold and silver from an erroneous belief that they are risky assets into a correct belief that they serve to protect your wealth may very well save your financial life in the next few years.
About the author: JS Kim is the Founder, Managing Director & Chief Investment Strategist of SmartKnowledgeU, a fiercely independent investment research and consulting firm that seeks to expose the many fraudulent concepts of Wall Street, uncover the best ways to invest in gold and silver, and protect and grow the wealth of our clients.
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Au, Treasuries, what about a $ index close over 76 ??? Could this be another safe haven ?
You trust this administration to switch to a strong dollar policy? Didn't think so. The strength in the USD is truly transitory.
Gold Climbs to a Record 1,367.12 Euros an Ounce in London Exchange Trading
By Nicholas Larkin
http://www.bloomberg.com/news/2011-09-09...
A lesson to all the gold bears: AU will be the last survivor of the worldwide currency fight club tournament. We are coming down to the semi-finals. AU has been back up after every sucker punch.
The word at WhatsamattaU has always been non-diversification, all physical silver and gold. If you don't hold it, you don't own it.
What Central Wank went astray and spoofed in the eye of the gold backed currency God?
His mama.
None that want to survive.
Buy Silver and then Buy Gold... but buy both.
I Agree Completely!
diversify by using both, gold and silver
This guy is spot on about the investment industry. I've worked there.
Diversification doesn't exist when all your assets are denominated in US dollars.
Bingo! I would only add that this applies to ALL failing fiat currencies. Although there are certainly some good currency plays as we all race to the bottom.
I wish your message got out to the average person so that those protected from what's to come won't be only the financial elite and a few people who've listened to you and others making the same point. Unfortunately the mainstream media is too complacent and stupid to consider things from a different perspective that doesn't help them get the coveted invite to that next soiree in DC or the lower east side of Manhattan.
Why is a gold miner any different from GM?
Add some Feds a piece of paper from some unknown judge and presto change-o...... new ownership.
Bond holders get screwed, equity gets wiped out.
"make it real or just forget about it"
All markets, in all time frames, are manipulated, or recovering from manipulation, all of the time. This is so because manipulation is required to regularly make a buck in rational markets. Therefore, you will never see a rational and unmanipulated market.
What Mr. Kim is describing is the only way to trade successfully. You must understand the scam, and not fall in love with the fundamental or technical story. Most people quit before they learn they were not trading in a real market with price discovery. Even the ones that come to the realization that markets are a scam usaully burn through an account or two before they get it. Markets work by luring the public onto one side of the trade. Any method of trading that puts you in a trade with retail is doomed to fail in the long run. If you ony trade where you know the scam, you can regularly make money.
Absolutely. What's really interesting is that technicals do have predictive capability. Whether its from the PTB trying to paint technical patterns onto the charts, e.g. double tops or head and shoulders, or whether human activity in buying and selling follows random yet self repeating patterns like chaos theory would presume. Of course, they are predictive until they aren't, as Mr. Kim pointed out when the HUI painted a death cross about a month ago.
I just sold about a third of my gold stock holdings last night. They've had two solid weeks of non-stop rising while the overall stock market weakens and appears ready for another correction.
I learned from 2008 that gold stocks will follow, or lead, the overall stock market in a bad correction. I'm taking profits now.
Unlike 2008, the USD ain't a safe haven any more. Either is the Swiss Franc. That leaves treasuries and gold. Take your pick. If you have to trade the paper, probably should think Sprott.
Emotion control. One-third may be an okay choice. That way, if HUI continues up, you can be 1/3 mad at yourself, since you sold 1/3. But if HUI corrects some, you can be 2/3 mad at yourself for holding what you held, and 1/3 patting yourself on the back for lessening your exposure. :-) Know thyself.
Its a shame you did that, because this time around it is different. The HUI has reached record highs in the last week or so. Its previous high which isn't far off was back in 2006 when gold was still under 600 dollars an ounce. Today gold is nearly 1900 and the HUI is barely above previous record highs. Where are people going to put their money? Back when gold mining stocks and the markets were falling people were holding cash or buying treasury bonds. With record low interest rates and talks of bailouts, stimulus and QE, minin stocks, gold, silver, oil, energy and commodities are going to be the investment of choice. Inflation is here, and there is more coming. The third you let go is going to be sorely missed in the future.
no one ever lost money taking profit
Until the money you "made" is devalued so much you can't buy back in.
+1 thank you
Great results... so what's your prediction for the next 12 months?