As my clients would know; especially those of you who have been with me over the last 6 months; we have not held any positions with stocks over the last 6 months. Yet as of date; we are up 30%+
A lot of folks don’t understand that you can still make money by not being in stocks. Their measure of performance and timing is based on stocks.
“I want to wait for a few more months to invest; and get in when stocks are cheap”
Wrong thing to do. Some of the best returns that Midas has delivered have been when stocks are going down!!
Take a look at the diagram below:
Now for another of my analogies. Imagine the stock market to be like a runner. A runner who when he runs too fast, has to slow down and catch his breath. If he runs too fast too long; he may have to stop; before running again. The stock market and the economy work in a similar manner. Up and Down cycles are an important part of how the economy works.
80-90% of the time; the economic engine runs within its boundaries. Inflation is under control; in the 2-4% range. In this scenario, stocks do exceedingly well. Bonds and Gold are expected to do ok…
In the 10-20% cases that the economy takes a shock; investors take money out of the stock market. Now they have only two choices….keep it with banks or hoard it. Banks by law are expected to keep a percentage of their capital with the government; or bonds.
End result, when the stock market goes down, flight to safety will result in either bonds or gold going up.
In the current economy; the FED is printing money. We have a huge deficit. How do you think they are going to take care of their debt? By devaluing their own currency.
Simply put; if as the FED I owe my citizens $100; a very easy way for me to do so is to say buy Gold worth $10 today. Now devalue my own currency so that the same block of Gold is worth $100 tomorrow. I then sell the block of gold and repay my debt. Magic!!
That is what inflation does!! When growing up I used to think that i could retire with $100K in my bank account. No longer possible; thanks to inflation.
Thousands of people have retired thinking that their pension of $1000 will cover them in retirement. The $1000 that they envisaged then does not have the same buying power now; does it?
Going back to the original question. Why am I not in stocks? Stocks may go up or down; depending on how the FED is able to come in and save the economy.
Gold or Bonds on the other hand have no choice but to go up; because of the printing of money that the FED has to do. I have no choice but to make money!!
Returns may be higher in Stocks; but so are risks. Returns are lower in bonds and gold; but risk is also lower.
Right now; Midas my AI model is saying that the probabilistic adjusted return is higher for bonds and gold!!
Question to all of you reading this blog….
