It's time to diversify

[DanielG]

AS everyone here knows, Ive purchased 3 Ip's in the space of 3 years..and no regrets. I am already cashflow neutral on 2 and slightly negative on my latest purchase, even on these current mid-high interest rates.

I have a lot of cash stashed up and was going to buy a 4th, perhaps even a 5th, but I look at whats happening around the world and I don't like what I am seeing.

Ive now purchased ten's of thousands of gold and silver bullion in anticipation of massive inflation around the world over the next 5 years. Davos meeting had all central banks planning an additional 100 Trillion dollar injection into the world economy, which is all debt. I dont think thats sustainable.

I am seeing cotton, wool, soy beans, sugar and other commodities take off, and I believe we are at the beginning of this massive inflation, and so I buying stocks in companies for these commodities.

I just dont have the appetite to concentrate all my wealth into one asset class, not in this economic environment. I guess I am wondering how many ppl on this forum have grown bearish on IP's and are looking elsewhere? I guess at the end of the day, if one is a true investor, one hedges its bets.

 

[redwing]

Hi Daniel,

Just curious as to whether you've purchased physical gold and silver or certificates off the mint?

Have you invested in gold mining companies?

Also, with regards to the agricultural play how have you invested there?

 

[zed_kid]

Isn’t property a natural hedge against inflation? Or am I way off here?

 

[tobe]

Last time I tried to diversify was 2007. Went swimmingly for about a year, then not so good.
Now Im happy to have all my eggs in one basket, which I watch very carefully.
I havent purchased anything since 2009, more because of borrowing capacity restraints brought on my GFC lending restrictions than any feeling about the market tanking.

Im not aware of anyone getting very wealthy with a well diversified portfolio.

Good investors back their numbers, and invest everything they have in one or another asset at a time. They might change investment vehicles, but they are not 'diversified'.

Average investors diversify, and hopefully get market returns. (nothing wrong with that!!)

Bad investors are ones that think they are good investors, and put all of their investments in the wrong assett.

Which one am I? jury is still out.

 

[hobo-jo]

Ive now purchased ten's of thousands of gold and silver bullion in anticipation of massive inflation around the world over the next 5 years.

That certainly seems to be what we are seeing, rampant inflation as prices of commodities soar… but how long does it last? So far it just seems to be inline with US QE programs, what happens when these stop? As you mention this is all a result of debt creation, so at some point this has to end. In a hyperinflationary depression as is expected by some? Or a deflationary collapse where these debts are repaid? Or do we eventually just seen an equilibrium where the US is able to get their deficit back under control and they struggle along with the burden of a large national debt?

Either way Gold (and potentially Silver) will perform superbly in my opinion. I don’t see Gold as an inflation hedge so much as it is a crisis hedge, it has been known to perform well both in inflationary and deflationary environments. Also it is a potential hedge against any unrest/geopolitical issues (such as those sparked in the middle east currently).

While our own RBA hasn’t gone mad on money creation like the US Fed, Gold could also hedge against a downturn in the Australian economy, as we would likely see our dollar fall (which would cause Gold to rise assuming the AUD dropped against the USD).

Can’t say I condone your property purchases , but well done with the metals purchase. I suspect they won’t disappoint as long as you hold through any volatility and you’re prepared to sell when the time comes. Have an exit plan.

Isn’t property a natural hedge against inflation? Or am I way off here?

Have a look at real property prices over the 1970s (e.g. while they rose, prices did not keep up with inflation). I would not say that property is a good inflation hedge. I would say that if you have borrowed heavily (and survive high interest rates e.g. via longer term fixed rates) then you could still benefit via high inflation even if prices don’t rise that much.

 

[daniellee]

I have a lot of cash stashed up and was going to buy a 4th, perhaps even a 5th, but I look at whats happening around the world and I don't like what I am seeing.

Ive now purchased ten's of thousands of gold and silver bullion...

Hi DanielG,

I guess in your position, you have to look at diversification as your asset base is large enough for 'subdivision'. Most investors on the forum, I doubt, will be in a position to purchase tens of thousands of bullion.

Would be interesting to hear from other investors in similar financial circumstances.

 

[VYBerlinaV8]

Purchasing tens of thousands of bullion is one thing.

The benefits of doing so to diversify a portfolio that contains over $2.5M of property I'm not convinced of, however.

 

[Reality Cheque]

AS everyone here knows, Ive purchased 3 Ip's in the space of 3 years..and no regrets. I am already cashflow neutral on 2 and slightly negative on my latest purchase, even on these current mid-high interest rates.

I have a lot of cash stashed up and was going to buy a 4th, perhaps even a 5th, but I look at whats happening around the world and I don't like what I am seeing.

Ive now purchased ten's of thousands of gold and silver bullion in anticipation of massive inflation around the world over the next 5 years. Davos meeting had all central banks planning an additional 100 Trillion dollar injection into the world economy, which is all debt. I dont think thats sustainable.

I am seeing cotton, wool, soy beans, sugar and other commodities take off, and I believe we are at the beginning of this massive inflation, and so I buying stocks in companies for these commodities.

I just dont have the appetite to concentrate all my wealth into one asset class, not in this economic environment. I guess I am wondering how many ppl on this forum have grown bearish on IP's and are looking elsewhere? I guess at the end of the day, if one is a true investor, one hedges its bets.

I think you've got the right idea.

Personally, I wouldn't be too comfortable if all my properties were bought in the last 3 years though. For the last 3 years I've been gradually reducing my exposure to property and reducing debt.
I sold an IP about 12 months ago and put a lot of the money into silver. Turned out to be a very good move and silver is still yet to really shine.

I've also bought wool as well.

RC

 

[whatever123]

If we get high inflation as per the OPs suggestion (which incidentally, I agree is a high possibility), that will also push interest rates up even further.

In that case I would not want to be holding IPs that were only bought in the last 3 years.

 

[oc1]

If we get high inflation as per the OPs suggestion (which incidentally, I agree is a high possibility), that will also push interest rates up even further.

In that case I would not want to be holding IPs that were only bought in the last 3 years.

Tell that to the folk who just wanna accumulate accumulate accumulate with high LVR's

 

[DanielG]

If we get high inflation as per the OPs suggestion (which incidentally, I agree is a high possibility), that will also push interest rates up even further.

In that case I would not want to be holding IPs that were only bought in the last 3 years.

Hey, sorry I don't understand...why not?

 

[Andrew_A]

Isn’t property a natural hedge against inflation? Or am I way off here?

Without going to far off topic, it's a great theoretical hedge and over longer time frames, strange things can happen to asset classes over years and decades though.

Two multi-century European studies I'm aware of have property tracking inflation and wage growth, which would make property a great inflation hedge, there is also the benefit that you have some yield as well while you hold the asset, something that can't be send for other hedges.

Also farm and timber land have had good reputations for this kind of thing historically, pick a stable country and wait a few centuries to find out the wisdom

 

[Sunfish]

Purchasing tens of thousands of bullion is one thing.

The benefits of doing so to diversify a portfolio that contains over $2.5M of property I'm not convinced of, however.

Nor am I. One should have over 25% in "hard assets". Un-mortgaged property is one. Can't get my brain around mortgaged property though.

Daniel is concerned about high inflation and if that was assured then zed_kid would be right: Isn’t property a natural hedge against inflation? Or am I way off here? But debt only "inflates away" if you have negative real interest rates and your incoming cash-flow increases with inflation. As a retiree, that is not assured for me so I do not use that tactic, but that is a personal matter.

I have spent many hundreds of hours listening to Jim Puplava, King World News and read many others who are both smart AND rich (they meet Daz's criteria ) and I still don't know about inflation or deflation. Sure, the crazy levels of money printing around the world SHOULD lead to high inflation but all this new money has no velocity. To stoke the fires of inflation it needs to be borrowed and spent, but that's not happening. The banks are reluctant to lend to that once great "middle America" because it has been decimated and they can no longer afford new debt. One could wonder if the banks are frightened of high inflation too and would prefer hard assets to loans on their books. I see no evidence of this though, or they would be taking title to property and precious metals.

But all this is the US of A! Ordinary inflation is like a runny nose at kindergarten: It spreads. But HYPER-inflation is different in that it is contained within borders. Zimbabwe hyper-inflation has not even spread to it's poor, near neighbours.

I reckon that around the world a little more deflation/depression will come BEFORE any run-away inflation and that Oz will not be greatly effected by either. But remember the words of John Maynard Keynes: The market can remain irrational longer than you can remain solvent.

I'm planning for "muddle through" here but have a lot of gold mining shares which, although they would fall in a depressionary period, they are unencumbered and will thrive during high inflation.

This is a link to a site Of Two Minds which is somewhat thought provoking:

http://www.oftwominds.com/blog.html

Enjoy!

 

[Reality Cheque]

I am seeing cotton, wool, soy beans, sugar and other commodities take off, and I believe we are at the beginning of this massive inflation, and so I buying stocks in companies for these commodities.

Interesting that you mention wool.

I believe Ultrafine wool will be the next big thing.

Pre GFC prices were around 15000 to 30000 cents per kg.

Prices crashed after the GFC and have not recovered. Currently an oversupply of stock and greatly reduced demand.

Current prices around 2500 to 3000 cents per kg.

The rest of the wool market is now well above pre GFC levels.

There is no room for ultrafine wool to fall as, 1) it is already at rock botom. 2)superfine wool is worth almost as much after current rises.

Whilst there is a current glut of ultrafine stock in the pipeline, production is dropping very rapidly due to unprofitable producers exiting the market and seasonal conditions making wool broader.

When the current glut has been absorbed and demand improves we will see prices jump back to at least pre GFC levels. Anyone that follows ultrafine wool prices knows that this can happen almost overnight.

The only thing I'm not sure about is the timeframe, but when you look at the potential returns it wouldn't matter if it takes 5 years to turn around.
If the rest of the wool market is anything to go by it will probably be sooner.

The only way to take advantage of this is to buy physical wool.By the time the rest of the chain is profitable prices will already have risen.

There's no surer bet to my mind.

RC

 

[Ed Barton]

Sunfish;760999]Nor am I. One should have over 25% in "hard assets". Un-mortgaged property is one. Can't get my brain around mortgaged property though.

third in property, third in shares and a third in cash.

 

[Intrinsic_Value]

thats a great post Sunfish