There is an old adage in the investment business that we professionals "don't have a crystal ball." But what if we did? How would we invest if we knew precisely what would happen in the future?
Suppose that our crystal ball had told us on December 31, 1999 that, for the next 11 1/2 years through July of 2011, the US Consumer Price Index (CPI) would rise at an average annual rate of 2.5%. Would we have expected the price of gold to rise by 465% while the inflation-adjusted S&P 500 fell by almost 32% over the same period?
If our trusty crystal ball imparted to us on January 31, 2006 that the price of gold was going to more than triple from $569/oz to $1,900/oz in the summer of 2011, would we have bet that the stock price of Newmont Mining (NEM), the world's second largest gold producer, would decline by 5.5%?
Market veterans remember the 1973-1974 bear market when the DJIA's earnings rose 50% while the Dow dropped almost 50% in price, or the '87 crash during which stocks plunged 43% even when earnings hadn't missed a beat. In 1999, when the stocks of companies that actually made money declined 2%, profitless tech startups soared 82%.
In 2016, Brazil's senior leadership has been embroiled in a vast corruption scandal, President Dilma Rousseff's powers have been suspended due to impeachment proceedings, Finance Minister Joaquim Levy has been forced to resign, and inflation is in double digits. Brazil suffered its worst GDP contraction since 1990. Who would have predicted that EWZ, the Brazil iShares ETF, would be up nearly 60% year to date?
Even if we had a crystal ball, the investment implications of future events and conditions are unknowable.
That is why we must diversify.
Our diversified MOAR strategy entails investing in the cheapest major equity markets (our "Dogs of the World"), precious metals, and long and intermediate term US Treasuries.
If you or someone you know might like to learn more about our MOAR strategy, please do not hesitate to reach out.