Editor’s Note: In this special interview, two longtime PBRG friends (legendary gold investor Doug Casey and top analyst Nick Giambruno of Casey Research) share their favorite investments today… pull back the curtain on their personal asset allocations… and reveal the single most important thing to do when you retire…
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Question: Over the next 10 years, would you be comfortable having—in addition to gold—some high-quality, dividend-paying stocks in your portfolio? Like Coca-Cola, Procter & Gamble…
Doug Casey: Yes, but at the right price. Because people forget that, when stock markets get cheap, they can get really cheap. And the classic example I always like to share is how, in the mid-1980s, I was recommending the Belgian, Spanish, and Hong Kong stock markets; in all of them, the indexes were yielding 12%–15% current dividends. They were all selling at about three times earnings and selling for half to no more than book value. That is how cheap things can get.
Nick Giambruno: I think that buying iconic blue-chip companies that have been around for decades at crisis-driven bargains is a great idea.
If you can spot these opportunities, you can make gigantic returns without taking big risks. We’re often told that there’s a close relationship between risk and return. According to Wall Street, to earn big returns, you must take big risks.
But it’s not true. Buying elite businesses for pennies on the dollar is one of the least risky investments you can make.
To find the best time to buy, we watch dividends. Dividends are the most reliable simple indicator of true value. You can trust the cash payments landing in your pocket.
Reported earnings aren’t as reliable. It’s too easy for a company’s management to pump them up by choosing the right accounting formalities.
Book value is just as susceptible to manipulation. Stretching facts (or ignoring them) can push book value toward whatever management wants it to be. Plus, accounting and reporting standards vary widely across the world. Dividends, on the other hand, are cash in your pocket… and you can’t fake that. It’s astounding what you can get in dividends alone when a market reaches bottom, something a lot of people have forgotten.
When an elite business with a consistent dividend starts to yield more than 6%, that’s when I get interested.
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Question: What is your personal asset allocation?
Doug: I’m heavily in gold, to preserve capital. I own a lot of speculative resource stocks because they’re very cheap now; I’ll sell them when they, too, become a bubble. I’m moving into commodities—grains and cattle are both quite cheap. And a lot of rural real estate, especially outside the U.S., because political risks are at least as great as market risks today.
Nick: I own a lot of precious metals-related assets, some dividend aristocrats, some cash, and some foreign real estate.
I am particularly fond of foreign real estate. I think of it like a diversification grand slam. Like a grand slam in baseball, owning foreign real estate is the most potent move possible in a single play. It accomplishes four goals at once…
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Move Savings Abroad
Though it’s illiquid and has carrying costs, foreign real estate can function as a hard asset with diplomatic immunity. It’s an asset outside the immediate reach of your home government. It’s highly unlikely they can seize it.
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Create Other Diversification Options
In most cases, owning foreign real estate in a country provides a valid justification for you to open a financial account in that foreign country (whereas you may not have been able to before).
Obtaining real estate in a foreign country usually gives you some sort of residency, sometimes a shortened path to citizenship, and, in the case of certain countries like Dominica and St. Kitts and Nevis, immediate citizenship and a second passport.
Owning foreign real estate provides you with a second home, potentially a place to retire, and an emergency bolthole that you could, in an instant, always escape to in case of trouble in your home country.
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Portfolio Diversification
Foreign real estate is a tangible hard asset that has diversification benefits for a traditional portfolio of stocks, bonds, precious metals, etc. It has the potential for capital appreciation as well as the ability to generate rental income in a currency other than the U.S. dollar.
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Privacy and Tax Benefits
Owning foreign real estate is one of the very few ways that Americans can legally keep some of their wealth abroad while retaining their financial privacy. If the foreign real estate is held directly in your name (i.e., not in a trust, LLC, real estate fund, partnership, etc.), it is not reportable (although any rental income must be reported).
I’ve personally invested in Colombian real estate.
I also think Argentina is very attractive right now. With the election of a pro-market president, Mauricio Macri, there’s a good chance Argentina is also turning the corner to a brighter economic future. That, along with the incredible lifestyle, is why I’m now happily an owner at Doug’s La Estancia de Cafayate.
I consider both Colombia and Argentina to be good examples of crisis investing in action.
Question: What’s the single most important thing a retiree can do?
Doug: Well, first of all, don’t retire. Find something both productive and enjoyable you can do so you can keep yourself busy and earn some money. It’s good for your health. And it’s unwise to rely on conventional pensions or Social Security.
Nick: It’s no secret that governments strapped for cash commonly turn to stealing retirement savings from their citizens. They are a juicy, irresistible, low-hanging fruit.
In recent years, this has happened in Poland, Portugal, and Hungary, just to name a few. The truth is it could happen in any country drowning in debt and financial troubles—the U.S. included.
Governments usually accomplish the seizure by forcibly converting retirement assets into government bonds. Governments claim it to be “helping people manage their risk.” This just isn’t the case.
Anytime any government claims that it wants to help you manage your retirement savings, I believe the best course of action is to run as far away as you possibly can.
A few years ago, Obama announced the myRA program, which supposedly helps people save for retirement (though it offers no benefits over existing options).
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In short, the program was designed to corral retirement savings into U.S. Treasuries and therefore help the U.S. government finance itself.
I think it’s a harbinger of things to come. What should you do?
I’d suggest reading Casey Research’s Handbook for Surviving the Coming Financial Crisis, which Doug and I put together. There’s a detailed chapter on how you can make your retirement savings a “hard target.”
Reeves’ Note: Investing in crisis markets can be scary. At times, you might feel like you’re running into a burning building. But if you can control your emotions and buy when others are selling, you can make a fortune. After all, that’s how Doug Casey, Warren Buffett, Jim Rogers, and John Templeton got rich…
Learn more about profiting through crisis right here.