Diversification matters more than timing in a stagflationary cycle

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 13:21

   long term, if we are seeing a decrease in demand for U.S. debt, if we're also seeing more U.S. debt issuance, if we're also seeing more global conflict around the world generally, these are very, very large forces that are very difficult to sort of wrap your head around. What does it mean for an investor? What is an investment thesis or investment decision that you can make that might protect you from a portfolio perspective? I think the most important thing for most individuals is not to market time a lot of these things. They're not going to be successful of it. They get excited if a war happens and all of that. But the most important thing is to have a well-diversified, well-structured portfolio and to look at the assets in the portfolio in relationship to each other for example um as a as a an inclination i would say um um

2. 14:26

   how much gold do you have in the portfolio you shouldn't have too much and you shouldn't have too little but it is an effective diversifier to um other assets that you probably do have in a portfolio because when you have a bad set of circumstances, gold tends to do well because of either the debt problem or the World War problems and so on and so forth. And not to market time gold, but to basically realize that it's a currency. It's not only a long-term currency, but today it's the second largest reserve currency held by central banks. First dollars, then gold, then euros, then Japanese yen. And to have, for example, somewhere between 5% and 15% of that portfolio in that diversifies the other parts of it. I would worry about debt. And you should understand like cash, which people think is the safest investment, is the most assuredly

3. 15:32

   bad investment in most times, normally, because cash has a lower return, but it's particularly a bad investment in a period of stagflation. So we're dealing with kind of a stagflation kind of environment or an uncertainty. But to achieve and debt has its challenges. So I would say the most important thing is to know how to diversify well. And that also includes local, you know, outside of the United States as well as inside of the United States.

4. 16:08

   That may seem very difficult to people because also right now there's a lot of concentration in the areas like tech, in other words, and particularly AI. And one might figure, okay, that you're going to miss out on that. But still, the diversification is of very much importance because I think a lot of people make the mistake of thinking that because a technology is going to be a revolutionary technology throughout history, so many new technologies have been revolutionary technologies, and it's certainly the case that that'll happen.

5. 16:49

   Such periods have also been periods of bubbles that because people think, I want to bet on that technology, so they buy stocks of that sort without looking really at the price. So to create a well-balanced portfolio, what I call an all-weather portfolio, I think is the most important thing that people can do.