Friday File: “Greatest Innovation in History” solved, plus a new fund holding

by Travis Johnson, Stock Gumshoe | June 3, 2016 8:38 pm

A few things to blather on about for you today — a teaser, a new mutual fund I’ve been following that has some appeal (and some of my money now), and some quick updates on my portfolio.

First, though, I want to call attention to our discussions here at Stock Gumshoe.

Most readers will never submit a comment on Stock Gumshoe, and most folks who look at articles on the internet will never even read the comments that follow those articles. That’s largely because comment sections on financial sites are generally populated by mindless “this stock is awesome, shorts suck!” posts, angry trolls or, more commonly, by spam (try to find an online news article where the first comment isn’t, “I make millions working from home, it’s so easy I want to share it with you at!”)

Some of that creeps through here at Stock Gumshoe as well, of course, though we fight it every day (our software rejects at least a couple thousand spam comments on a busy day, though so many are about Viagra that it’s fairly easy to sift them, and we have to manually monitor a few dozen others that trigger our stop words or contain a bunch of links, and we try to screen out pointless personal attacks or profanity)…

… but for the most part, we have a good and participatory community here of readers who like to comment on matters of substance. And I think there are still many more readers who could benefit from the wisdom and insight that can sometimes come when you spend a little time in our discussions threads — whether it’s just a back-and-forth with a like-minded reader hashing out an idea over a day or two, a bit of debate back and forth over something I’ve written about, or a sustained community of folks who are interested in particular stocks or sectors, as our contributor Dr. KSS has coalesced around his biotech investing ideas. That doesn’t mean all of the discussions are always to everyone’s taste, and certainly there have been flare-ups of poor behavior and anger from time to time, and a lot of things get posted that I personally disagree with… but there’s a wealth of information, only slightly hidden, for those who have the time or inclination to participate more actively.

So here’s my sales pitch: Feel free to start your own discussions[1] and see if you can get a group of interested folks to follow along and participate, or post your own opinions or analysis in response to my articles or the articles posted by other readers or our guest columnists. Keep it civil, of course, read a few pages of comments first so you can get an idea of how people like to communicate, and don’t take it personally if people chafe at your perceived tone (or you chafe at theirs), since this is all written communication and it’s a lot easier to offend or irritate with typed words than it is in a personal chat where body language, winks and nods take away much of the uncertainty… but disagreement is always welcome.

Disagreement and debate is what might make us all better investors, a community of people who always agree with each other is not terribly useful and won’t make you question your assumptions… and questioning your assumptions is the most important thing you can do as an investor. Don’t think first about how rich you’ll get, think first about what could go wrong.

We’re working on making new discussions easier to find in our next redesign, which should start leaking out in a few weeks, but I do want to point out one big success story among our reader-started discussions of late: Longtime reader jbnaples started up a “gold is moving higher, what should we buy if there’s a new bull market coming” [2]discussion three months ago, and later passed along honorary “shepherd” duties for that discussion thread to hendrixnuzzles, another longtime reader, and that discussion has flourished (1,000 or so comments so far, and a few dozen folks who have subscribed to the email notifications for new comments).

That success is largely because hendrixnuzzles got things rolling with a lot of regular and thoughtful posts with specific information about stocks he’s interested in, and it’s been good stuff. I’ve participated in the discussions from time to time as well — maybe you have similar strong feelings about a stock or a sector, or want to post regular commentary on your strategy or ideas… there are folks here who might well listen and want to join you, particularly if they notice that you’re participating actively and consistently posting interesting things… sharing your thoughts and analysis can often inspire other people to join in, so give it a try[3]. The more you give of your opinions, the more you’re likely to get in return.

OK, sales pitch for discussions over. What have we got to look at for you today?

First, a teaser solution — that is, after all, why Stock Gumshoe exists, I wanted to build a place where we could take apart those ads that promise the moon and find what’s hiding underneath the hype… we’ve grown to a nice community of thoughtful investors, many of whom participate in great discussions, but solving teaser ads, deflating hyped-up marketing, reviewing newsletters and encouraging investors to think for themselves is where it all started and where I spend most of my time.

This pitch, which a few of you have asked about already, is from Paul Mampilly in an ad for a service called Profits Unlimited — and it’s another “Internet of Things” spiel… which is actually a little bit refreshing. The internet of things is a big deal, it is important, and it will have a substantial economic impact over the next decade even if the consumer part of it (the smart home, wearables, etc.) doesn’t take off as much as we expect or in the precise way that we expect. The increasing “sensorization” of the world, with remote monitoring and sensor networks checking on bridge integrity and jet engine performance and traffic and everything else you can imagine is going to proceed apace.

So it’s nice to be able to look at something like this with a genuine and powerful business trend behind it, instead of something like virtual reality that I think is much more uncertain, and much further from widespread deployment (outside of video gaming, at least). Whether that means there’s a great stock idea coming from Mampilly, well, that’s another question entirely — the newsletter marketing industry thrives on the power of big ideas, and on the ability of a crafty copywriter to go from that big idea to the “one stock that will rule the day” without stopping in the middle to consider competition, margins or other boring and distracting things like that.

Or as I like to put it, the promises are often akin to “Rain coming, you will get rich by buying stock in Acme Umbrella.” There’s an appealing logic that rings true, but when you think it through things are rarely that simple. There are other umbrella companies, to say nothing of ponchos and raincoats, and maybe it won’t rain for as long as you thought, or new umbrella companies will cut their prices and try to take share once they realize it’s going to rain for years.

But anyway, at least it’s a real trend that’s already pretty well established, and there’s little that’s faddish or particularly speculative about a lot of the projections of growth. More stuff is getting connected to the internet, we’re collecting more important data about more stuff in the real world, and that is going to continue.

Paul Mampilly has been a newsletter guy for at least several years — he started out at Palm Beach Letter, I think, and pretty quickly moved over to run the FDA Trader for Agora Financial, then ran Professional Speculator for Stansberry during that letter’s very short life… and now he’s running this Profits Unlimited service, which appears to be a new “entry level” newsletter for the Sovereign Society. That’s a lot of moving around, which typically seems to happen when newsletters are unsuccessful at building readership (which is not necessarily the same thing as having an unsuccessful investing record).

So what’s Paul Mampilly’s stock now?

Here’s a bit of the ad, to give you a taste:

“The Greatest Innovation In History… 7-Times Bigger Than Computers, Tablets And Smartphones … COMBINED!

“Experts Predict 50 Billion Devices Will Utilize This New Technology By 2020. Early Investors Stand To Reap Tremendous Rewards As Its Growth Surges 8,000%…”

And he repeatedly shows the photo of a tiny little doohickey on top of a dime, to emphasize the teensiness. That little doohickey is some sort of sensor, though it’s not particularly specific about what kind — and, as you can imagine just by thinking about the number of chips and sensors that are in your phone, or in smaller stuff like a fitbit or Apple Watch, being tiny enough to fit dozens of them on a dime is not that shocking and doesn’t really narrow it down.

The pitch is, of course, hot and heavy:

“Insiders are calling the science behind it ‘the greatest innovation in history,’ ;the future of technology’ and the breakthrough that will ignite the ‘second Industrial Revolution.’

“That’s because this tiny invention is predicted to ‘rival past technological marvels, such as the printing press, the steam engine, and electricity’…

“Ushering in ‘a period of economic nirvana.'”

I don’t know about that “economic nirvana” bit, but otherwise I generally agree — with the caveat that the world has grown far more complex, and this is far more complex a budding network than was the internet or the railroad int early days, and could be far more distributed and chaotic in its development, so I think there’s a huge amount of guessing that’s taking place about exactly how it will evolve and who will benefit most.

I’ve already gone on for probably too long in chattering to you today, so you can check out his ad[4] if you want to see the rest of the breathless lead-in, but let’s just jump to the specific clues about Mampilly’s current favored stock:

“In a moment, I’ll tell you about the one little device that’s at the forefront of this technological revolution, and who makes it.

“Most importantly, I’ll give you specifics on how you can personally profit from it. In fact, if my analysis is correct, you could potentially see thousands of dollars turn into hundreds of thousands of dollars in a short amount of time…..

“It reminds me of one of the biggest stock market successes in modern history … Microsoft.

“If you were to invest in Microsoft back on March 13, 1986 – the day Microsoft went public – a $1,000 investment would be worth $838,833.

“I think this opportunity could do the same for you … without having to invest in an IPO or take on unnecessary risk….

“On the cutting-edge of this breakthrough technology from a well-positioned company that’s begun massive production of this little device….”

OK, so that gives us some idea… a company that’s already producing these little sensor chips, or something similar that’s an important part of the evolving “internet of things” ecosystem. But which one?

More clues:

“The Internet of Things is the future of ALL technology.

“The time to take action is NOW.

“And at the epicenter of it all is a tiny device made by a cutting-edge company that could hand early investors 5, 10, 20, even 50 times their money….

“… a remarkable – yet overlooked – company is at the forefront.

“This company is literally at the pulse of everything shaping the new Internet.

“If you were to make only one technology investment in the next decade, this should be the one.

“I have absolutely no doubt.

“Here are the details…

“As I mentioned, the Internet of Things is going to connect 50 billion devices by 2020.

“And the absolute best way to capitalize on this phenomenal opportunity is to invest in the one component that makes this technology possible…

“It’s the same component that’s behind the biggest tech stocks in history.

“I’m talking about software.

“Software is the secret to technology riches.”

Huh? I thought he was talking about those little sensor chips, and the company that makes them. Do they also make software? Maybe. Perhaps some more hints will clear things up….

“You see, in order for the Internet of Things to work – every device must have one piece of software.

“A tiny piece of technology called MEMS, which is short for microelectromechanical systems.

“MEMS are tiny low-power sensors … so tiny that 100 of them can fit on a dime … some versions are just a thousandth of an inch in size.

“The Internet of Things will be able to sense, think and act, but only with these sensors. They are, quite literally, the eyes and ears of the Internet of Things.

“That’s why investing in the right sensor company could mean life-changing profits in the next year.”

And yes, he is talking up a sensor company, not a software company (though obviously data collected by sensors is worthless without software of some kind)… he gets more specific and actually does talk about some of the competitors, which is admirable:

“So, to get in on the action, you will want to own a company that makes these sensors.

“A few leading sensor producers are Texas Instruments, Hewlett Packard and Bosch.

“Each company has strong profit margins … and when demand surges, profits will skyrocket….

“I’m not recommending you buy shares in any of these companies.

“For the folks who follow my research, I prefer recommending smaller companies that are well-positioned for this type of growth and that have less exposure to other risks….

“Formed in the mid-‘90s, this European-based company’s CEO is a 40-year high-tech pioneer, and he’s using his industry contacts to lock in some stellar contracts…

“Investing in this corporate pioneer today will position you perfectly to enjoy a ride on the greatest technological wave history has ever seen.

“In the last few months, Apple, Samsung and Bosch have already signed on to his firm’s sensors.

“Fact is, even if only a small portion of the $19 trillion flows toward this $5 billion firm, the growth will be through the roof.

“8,000% growth is being conservative.”

Ugh. Know who this is? He’s hinting about STMicroelectronics (STM), which has been a slow-motion train wreck of a company for most of the past 20 years. Here’s their chart since the 1994 IPO:


The CEO, Carlo Bozotti, is indeed a 40-year veteran of the chip business (I don’t know if he’s a “high-tech pioneer”), and his entire career has been at STMicro and, before that, SGS Microelettronica, which was one of the companies that merged to create STMicroelectronics — an intentional creation, with government backing, of a “European Champion” in the semiconductor business (the other was Thomson Semiconducteurs).

And yes, the company has a market cap of about $5 billion (according to YCharts, it was a $25 billion company at the IPO in 1994… over the past five years it has fluctuated between $4-9 billion). And it is trying to reorganize and restructure (as it has seemingly done almost continually over the past decade) to focus on some growth areas in chips, including their strong MEMS division and other “internet of things”-related chips (you can see how they describe themselves here[5]).

And I’m not kidding when I use the phrase “trainwreck” — that doesn’t mean the company can’t get growth going, but it means it hasn’t done so for a very long time. The last time they posted sequential revenue growth on a trailing twelve month basis (as in, the revenue for the past twelve months in the March quarter was higher than the revenue for the past twelve months in the December quarter) was 2011. That’s a long time to have gradually stagnating revenues in an industry like semiconductors, where price competition on margins is relentlessly painful for even the strongest and most innovative companies.

As you might guess, given the slow collapse in the share price over the past decade or so, it’s not just revenues that have been falling — profits have been weak as well. They have been reducing costs along the way, on R&D as well as general operating costs, and they’ve shed divisions and sold stuff, but it hasn’t been enough. In five of the past ten years, they have lost money — they have also bought back some shares, and some years they have made a profit, but there’s been no particular trend of improving performance that I’ve seen (other, arguably, than the gradually “less bad” years of 2012-2014, when revenues declined but they were gradually improving the bottom line… that string of small hopes stopped in 2015).

If you try to take any near term impact out and guess at the long-term earnings power, making no assumptions about booming growth in their sensor business, then the average adjusted net income per year for STMicro is about $230 million (“adjusted” mostly takes out one-time costs like restructuring, which they’ve done a lot of). The company has a market cap today of $5.3 billion, so it’s trading at 23X their average adjusted earnings over the past decade.

That’s not completely wild, though I think it’s an awfully high number for a company that’s not growing. So… will they grow?

Analysts are ready to be optimistic about STM — they expect that the company will have revenue growth next year for the first time in six years, and that this will turn into earnings growth and bring 41 cents (a number that’s come down slightly in recent months) in earnings per share in 2017, and that they will then post 50% annual earnings growth for five years after that. Which is a pretty remarkable turnaround after average annual declines of 20% for the previous five years.

I’ve written about STM a few times over the years — it was very aggressively teased as the maker of the “one device to end all disease” by Michael Robinson[6] back in 2013, and before that it was pitched as far back as 2007 as the company of “Geneva tech wizards” [7]who would dominate the next tech boom (chips that would enable smart houses, the Wii, the first iPhone).

At both of those times, Wall Street analysts were just about as optimistic as they are today. In 2007 STM had a forward PE of 15 and expected growth in the 20% range, and those forecasts turned out to be way too high (to be fair, 2008 wasn’t a great year for anyone, but most of the other years weren’t so hot, either)… in 2013 analysts were expecting about 38-40 cents per share in earnings by 2015 (STM actually earned 12 cents, or 17.5 cents in “normalized” earnings last year) and about 60 cents in earnings per share by 2016. 2016 forecasts today are for 16 cents a share, and even in 2017 analysts are now expecting just 41 cents… and, obviously, we should have learned by now not to put much faith in those analyst estimates.

So… will STMicroelectronics turn around? It’s not going to be easy — partly because the “activist investors” they’ve had to deal with are the French and Italian governments, which together still own large stakes as far as I can tell (Italy was planning to sell some in their debt crisis, but the last news I saw was that France and Italy combined still owned 27% of the shares). Those “activists” don’t much like restructuring or layoffs, and they definitely don’t like the continued poor performance.

The CEO has been in place for 11 years, presiding over many of the strategic errors and bad luck and weak sales and losses, so it’s hard to see why he still has a job, frankly — let alone why we should be convinced of his ability to turn the ship around. Maybe he can, and maybe the weakness has nothing to do with him (I’ve heard many folks blame the mismanagement on government interference, though I don’t know the details). Recovery is far from being impossible, and STM does have an admirable manufacturing capacity in MEMS chips, as well as a large amount of probably valuable intellectual property regarding those sensors and the other broad areas of business STM participates in within the semiconductor industry… but I have a hard time considering it to be likely without becoming an expert on the company and their strategy. Maybe Mampilly is an expert and has some insight that I don’t — but, as he also notes, there are several much larger companies who also make a lot of MEMS chips… and lots of smaller ones as well, many of which have also been struggling in this hypercompetitive environment.

Few of those companies have numbers that look as weak as STMicro’s if you just skim through the top-level financials. NXP (NXPI), which I wrote about last week[8] and which focuses on a lot of the same end markets with somewhat similar product offerings, has gross margins of 45%, as does Bosch (BSWQY), Texas Instruments (TXN) has gross margins in the mid-50s, even little Invensense, which itself has struggled thanks to overreliance on Apple and Samsung, has gross margins above 40% (their performance over the past three years has been even worse than STM’s).

So believing in STM, even at what looks like a horribly depressed price compared to their 20 year history, means believing that they have some way of fixing things and righting the ship, and that they really can get to revenue growth and earnings growth again, perhaps on the strength of their focus on MEMS chips that will be used in the internet of things, self-driving cars, etc. The problem with that picture, as I see it, is that all the other strong companies in the space know about these trends, too, and they’re all working toward dominating those same markets. I’m a lot happier betting on a strong, profitable company going into a competitive growth phase than I am betting on a company that’s counting on external growth to help them fix problems they’ve had for more than a decade.

I might be overly critical because of STM’s history, so in that case the possibility is that STM isn’t getting enough credit for the potential of their turnaround, and for the rising tide that might lift all ships. In that case, I can live with being wrong and missing that opportunity, partly because I don’t think STM will do dramatically better than the companies I’d feel more comfortable buying. STM might work as a turnaround, and the assets are valuable and they do arguably have a leadership position in some MEMS chips… but I’d much rather go with NXPI, TXN or other somewhat related stocks like Broadcom (AVGO) that are showing some underlying business strength. It’s possible that I’d pick STM over Invensense (INVN) or Qorvo (QRVO), two other relatively weak competitors who are suffering some in comparison with the leaders, but I haven’t looked at those in detail of late… and, thankfully, I’m not forced to pick one of the laggards today. I have a lot more faith in NXPI’s growth potential as an internet of things play, despite its larger size, than I do in the perennially disappointing STM.

Moving on… a new mutual fund position I’ve added:

The mutual fund that I’ve been watching for a little while, and which I invested some money in this week, is the DoubleLine Shiller Enhanced CAPE fund (DSEEX), and it’s an odd bird… but I think it’s set up well to provide some “value” exposure to my portfolio, and it has done as well as “growth” stocks over the last two years (much better than “value” stocks) but still provides a strong value exposure that’s immune to both a single sector collapsing (lack of energy exposure is one reason it has outperformed lately) and to my personal assessments about future prospects.

Which is part of one of my core tenets: Diversify away from yourself. Don’t let the future of your retirement funds be solely determined by your expectations about where the market’s headed over the near term and what the next hot idea will be, because you’re almost certainly going to be wrong.

This fund is one of the “smart beta” funds that have started up over the past five years or so — most of them are expensive or based on algorithms that I don’t understand, but DSEEX is relatively inexpensive (though still far more costly than an index fund) and pretty easy to understand.

DSEEX uses the DoubleLine bond analysts to build a core portfolio of bonds, right now that portfolio has a very short duration but that might not be the case forever (and, as DoubleLine head Jeffrey Gundlach noted in some interviews today[9], the risk of rising interest rates might not be so high after a shockingly weak unemployment report, and DoubleLine — though not necessarily this fund — recently bought some 49-year agency bonds). They use that portfolio to provide some cash income and collateral, and the income is designed to cover the carrying cost of the equity exposure that they’re getting through index swaps and futures. That equity exposure is readjusted monthly into the four “cheapest” S&P sectors that have the best price momentum, so you’re forcing yourself to buy whatever’s cheapest every month.

The “price momentum” bit is designed to avoid what most of us call “value traps” — sectors or stocks that are in permanent or persistent decline. They don’t do this by judging which sector has the best prospects (since that would mean letting your brain into the system, and that almost always screws things up), but by starting with the five cheapest sectors and then removing the one that has the worst price momentum. That’s why the fund hasn’t been exposed much to energy, despite the cheapness of the energy sector — that sector has also had terrible price momentum, so it often gets bumped out.

Here’s a description of the index from Barclays, which also offers an exchange traded note (ticker CAPE)[10] that tracks the index (and might be an investment option if you like the CAPE idea but don’t want the DoubleLine bond exposure):

“The Index aims to provide a notional long exposure to the top four relatively undervalued US equity sectors that also exhibit relatively strong price momentum. The Index incorporates the CAPE (Cyclically Adjusted Price Earnings) ratio to assess equity market valuations of nine sectors on a monthly basis and to identify the relatively undervalued sectors represented in the S&P 500®. The Index then selects the top four undervalued sectors that possess relatively stronger price momentum over the past twelve months and allocates an equally weighted notional long position in the total return version of the S&P Select Sector Indices (each, a Sector Index) corresponding to the selected sectors.”

There’s certainly risk in this fund — even though they’re paying for their leveraged equity index exposure with the income from the bond portfolio, it is still leverage, and that can bite in surprising ways. This is the least worrisome variety of leverage, in my opinion, since they’re not trying to get twice the exposure to an index (they just match the exposure to the size of their total portfolio), and it’s exposure to large sectors that’s rebalanced every month so that reduces the risk of exposure to a real blowup, but it’s still leverage.

The managers seem to me to be worth the management fee, Jeff Gundlach is in the masthead of every fund at DoubleLine but the fund manager is Jeffrey Sherman, a math whiz who was just named Gundlach’s deputy CIO at the firm and worked with him at TCW (where Howard Marks also got his start) before Gundlach was fired (in a crazy soap opera story[11]) and started DoubleLine.

And the larger risk is that their strategies could be wrong — either the value-based strategies that they use to build their bond portfolio, or the Shiller “Enhanced CAPE” strategy could deliver poor returns for a considerable period of time. It has been backtested and beaten the market since 2002, but that doesn’t mean it will beat the market (or provide positive returns) for the next five or ten years.

DoubleLine has not proven that they’re any good at stock picking, and indeed their stock picking mutual funds have all been closed — but this is not a stock picking fund, it’s a way to use the strength of DoubleLine’s bond investing to fuel a very rules-based and sensible value investing strategy based on the rigorous backtesting done by (nobel laureate) Robert Shiller and his colleagues. The bond portfolio has an extremely short duration, less than two years, so they’re not making big bets on long-term changes in interest rates, but DoubleLine and Jeffery Gundlach have an admirable record of “value investing” on the bond side and have easily earned more with the bond portfolio than it costs them to pay for the index swaps, so the bonds also contribute to the fund’s total return.

“Smart beta” funds come in many different flavors, the one that’s probably most similar is PIMCO’s RAE Fundamental Plus fund (PXTIX) — that fund has a similar basic strategy, use a good bond portfolio to fund derivatives that give exposure to a value-based equity index… but their bond management was shaken up pretty dramatically when Bill Gross left, and the index is more complex (this is the Research Associates Enhanced RAFI US Large Index, an index that weights by fundamentals — book value, cash flow, dividends, etc. — instead of company size). That fund has been around longer, but over the past couple years it appears that the relative weakness of their bond portfolio has dragged long-term performance down to roughly equal the S&P 500 (it has beaten the market over ten years, but trailed the market and the pretty much just tracked with the “large value” sector of mutual funds over the past two years)… and it’s a bit more expensive (0.79% expense ratio versus DoubleLine’s 0.62% — the CAPE ETN, which just tracks the CAPE index without any bond involvement, costs 0.45%).

May or may not work for you (and me), but I find the CAPE strategy compelling as a way to offset some of the “growthier” parts of my portfolio, I like the relatively low-cost exposure to DoubleLine’s bond portfolio as a small bulwark against weak equity markets, and it has provided solid returns so far (the equity positions are what drive the performance primarily, so a big fall in equities would NOT likely be compensated for by the bond portfolio, but it could soften the blow a little bit).

As you would expect when you combine two superstars like Robert Shiller and Jeffrey Gundlach, there was a lot of coverage of the fund when it was launched in 2013, including articles about the strategy and the back-tested success of the rebalancing enhanced CAPE strategy (like this piece[12] or this one[13]), and the good performance kept coverage coming in 2014 and 2015 (like this piece from a year ago[14])… but it hasn’t gotten much attention over the past year despite the fact that it has continued to outperform both the index and its peers in the “large cap value” camp. The fund has gotten investor dollars, as most funds that perform well attract money — they’re managing about a billion dollars now, so it has grown quickly over a few years but is still quite small (DoubleLine’s biggest bond fund is more than 50X larger), but it hasn’t been a “hot” fund in the press of late.

So far this year, for the first quarter DSEEX returned a bit over 4%, far more than the 1% or so of the S&P 500. Both the equity index exposure and the bond portfolio contributed to the positive return, you can see their quarterly commentary here[15]. That wide outperformance is not consistent month to month, of course — for May the fund just about tracked equal with the S&P 500, and over the three months March-May the fund lagged the S&P (8.4% versus 9.1%). I think “value” as measured by CAPE is a worthwhile exposure for my portfolio now, particularly since the market is at historically high valuations, and that’s primarily what will drive this fund’s performance — but I’m going into this thinking of it as a long term position to help improve my diversification…. I’ll let you know if I change my mind.

And as far as small updates go, here you are:

I sold a bit more of my riskier gold holdings — today, with prices jumping up again after the weak unemployment number drove the dollar down and gold back up, I got rid of some more of my Brazil Resources warrants and some little pieces of other derivatives on little gold stocks. These aren’t core gold-related holdings, they’re very much tied to timing so I feel compelled to take profits along the way — warrants and options aren’t things that you can hold on to for a long period of time without taking on extra risk, and I’m accepting of the fact that I can’t time the top and what seems to be a logical rise in gold for the next couple years could quite easily fail to materialize. I continue to hold exposure to both the indexes (SGDM and GDX) and I still have a substantial position in Sandstorm Gold (SAND) as well as some (much smaller) continuing exposure to warrants and similar positions that I tend not to write about that are effectively highly levered gold plays.

And I continue to hold some physical bullion, I buy a bit every now and again and just stuff it away in a safe deposit box — mostly I buy gold to keep me from squandering the money on something else, since I consider it to be a very illiquid savings vehicle that it’s a pain in the neck to cash out, but I also consider it to be a bit of insurance against a real currency collapse. I’m not predicting a collapse, and it would surprise me and probably be terrible for my portfolio and my lifestyle even with my gold allocation, but holding a bit of gold seems like a reasonable precaution… and like most forms of insurance, it will probably be a drag on my financial returns most of the time. Plus, it’s pretty and shiny.

Man, that was a lot of words. Thanks for reading, and have a great weekend!

  1. start your own discussions:
  2. “gold is moving higher, what should we buy if there’s a new bull market coming” :
  3. give it a try:
  4. check out his ad:
  5. see how they describe themselves here:
  6. teased as the maker of the “one device to end all disease” by Michael Robinson:
  7. far back as 2007 as the company of “Geneva tech wizards” :
  8. I wrote about last week:
  9. Jeffrey Gundlach noted in some interviews today:
  10. exchange traded note (ticker CAPE):
  11. crazy soap opera story:
  12. this piece:
  13. this one:
  14. this piece from a year ago:
  15. see their quarterly commentary here:

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