There are always lessons that can be learned from the “smart money”.
Unlike regular investors, billionaire money managers like Ray Dalio and Stan Druckenmiller are professional investors. They have entire institutional teams at their disposal, dive deep into the nuances and complexities of the market, and spend every waking moment of their lives thinking about how to get more from their investments.
They want to make money – but they also want to execute on strategies that will protect their wealth and build robust portfolios that can withstand any type of macro event.
Turning to Gold
In recent months, some of these elite investors have turned to precious metals like gold as a part of their overall investment strategies.
In the following infographic from Sprott Physical Bullion Trusts, we explain why these investors are adding precious metals to their portfolios, the underlying tactics, and the best quotes each investor has on assessing today’s market.
Why are these billionaires buying precious metals?
Their cited reasons can basically be summed up with six categories: wealth preservation, store of value, inflation hedge, portfolio diversification, future upside, and investment fundamentals.
What Billionaire Investors are Doing
1. Lord Jacob Rothschild
In late summer 2016, Rothschild announced changes to the RIT Partners portfolio because he was worried about very low interest rates, negative yields, and quantitative easing, saying they are part of the “greatest monetary experiment in monetary policy in the history of the world”.
His solution? Buy gold to help preserve wealth, and as a store of value for the future.
2. David Einhorn
Einhorn has a similar assessment. He believes that monetary policy is becoming increasingly adventurous, and that this – along with the policies of the Trump administration – will eventually lead to large amounts of inflation.
In February 2017, he shorted sovereigns, and bought gold.
3. Ray Dalio
Ray Dalio is the founder of the world’s top hedge fund, Bridgewater Associates, but he’s also no stranger to gold.
If you don’t own gold, you know neither history nor economics.
– Ray Dalio, Bridgewater Associates
More recently, in 2016, Dalio is quoted as telling investors to own a well-diversified portfolio that is 5-10% gold.
4. Stanley Druckenmiller
Druckenmiller, some people argue, is the best money manager of all time.
Lately, he’s placed his bets on gold as well, but for different reasons than the above managers. Druckenmiller has always placed big trades with lots of conviction, and in February 2017 he put his money in gold because “no country wants its currency to strengthen”.
Animation: How Billionaires are Preparing for the Next Bear Market
No one likes to lose money, even if you have billions to spare. See how the world’s most elite investors – like Ray Dalio – are protecting themselves.
How Billionaires are Preparing for the Next Bear Market
No one likes to lose money, even if you have billions to spare.
It’s why the prospect of a bear market – a prolonged downturn which sees stock prices fall by at least 20% over two months or more – is something that keeps even the world’s most elite investors awake at night.
To hedge against this concern, the world’s billionaires use a variety of strategies and tactics to protect their wealth, including setting up their portfolios with specific asset allocations that can help soften any blow caused by an extended market downturn.
Today’s animation comes to us from Sprott Physical Bullion Trusts and it highlights a strategy being used by billionaires ranging from Ray Dalio to John Tudor Jones II.
Because market sentiment can change so quickly in the market, these elite investors protect themselves by having diverse portfolios that include uncorrelated assets.
While this sounds complicated, uncorrelated assets are simply investments that don’t move up or down in the same direction as the other asset classes in the portfolio. A small allocation to these uncorrelated items can help protect the value of a portfolio when market sentiment changes.
The King of Uncorrelated Assets
What kind of asset classes can be used for this kind of purpose?
While options like real estate, commodities, and cash can contribute to a more diversified portfolio beyond traditional stocks and bonds, many experts say that gold is the undisputed king of uncorrelated assets.
The price of gold doesn’t usually doesn’t move with the wider stock market – and often, because of its history, the yellow metal can even increase in price during the course of a bear market.
Here are some of the reasons billionaires turn towards an allocation in gold:
- Gold has acted as a store of value for thousands of years
- Gold can lower the volatility of a portfolio
- Gold can act as a hedge against inflation in some scenarios
- Gold is a traditional safe haven asset that investors flock to when the market goes astray
To kick off 2019, a new billionaire jumped onto the gold bandwagon – along with previous advocates such as Ray Dalio, David Einhorn, John Paulson, and John Tudor Jones II.
The newest entry to the club is Sam Zell, the pioneer behind real estate investment trusts (REITs). He bought gold for the first time in January, citing that it is “a good hedge” and that “supply is shrinking” as new mine discoveries dries up.
With market volatility back in the fray, it’ll be interesting to see how many more of the world’s elite investors also jump on the bandwagon.
A Brief History of Jewelry Through the Ages
Jewelry has been coveted for centuries by many different cultures. Here’s a look at the history of jewelry, and how it’s evolved into a $348B industry.
Jewelry has been an integral aspect of human civilization for centuries, but it was the discovery and subsequent spread of precious metals and gemstones which really changed the game.
In today’s infographic from Menē, we visualize how the uses and symbolism of jewelry have evolved across time and space to become the industry we’re familiar with today.
Antique, Yet Ageless
There isn’t a single corner of the world that’s untouched by the influence of jewelry.
- Ancient Egypt
Gold accompanied the affluent into the afterlife – the famous 1922 discovery of King Tutankhamun’s tomb was filled to the brim with gold jewelry.
- Ancient Greece and Rome
Jewelry was used practically, and as a protection against evil. The gold olive wreath design was highly popular during this time.
Both men and women in the Sumer civilization wore intricate pieces of jewelry, incorporating bright gems like agate, jasper, or lapis lazuli.
The aristocracy in Aztec culture wore gold jewelry with gemstones to demonstrate their rank. The jewelry also doubled up as godly sacrifices.
- Ancient India
The Mughal Empire introduced the combination of gemstones with gold and silver. Today, pure gold jewelry is often gifted to new brides for financial security.
- Ancient China
Both rich and poor wore jade jewelry for its durable and protective properties. Pure gold jewelry is making a fashion comeback, doubling as a form of investment.
Modern Jewelry: At a Crossroads
Today, jewelry is at once the very same and vastly different from what it used to be.
The industry is worth upwards of $348 billion per year, and it’s not hard to see why. As an alternative asset, jewelry has grown 138% in value over the last decade – only outperformed by classic cars, rare coins, and fine wine.
However, perceptions of jewelry vastly differ. It’s not a stretch to say that Western jewelry buyers are enamored with diamonds, given their enduring association with special occasions – but it’s interesting to note how that ideal was fabricated.
The Invention of Diamonds
The De Beers Group is well known for making diamonds great again. In the early 1900s, the company had already monopolized the diamond trade and stabilized the market, but they faced the challenge of marketing diamonds to consumers at all income levels.
The average American considered diamonds an extravagance, preferring to spend money on cars and appliances instead. The concept of engagement rings existed, but weren’t widely adopted. The #1 slogan of the century – “A Diamond is Forever” – transformed all that.
Even as more companies like Tiffany and Co and Cartier entered the playing field, De Beers had set a successful industry standard. But there’s a catch – diamonds are actually:
- Not all that rare in nature
- Intrinsically low in value
- Easily replicated in a lab
- Decreasing in sales
Despite these caveats, the popularity of diamonds illustrate how Western consumers do not approach jewelry in the same way as Eastern economies, where its function as a store of wealth persists.
The Eastern Gold Standard
In Eastern economies, jewelry often takes the form of pure gold. The reasons behind this difference are surprisingly pragmatic: gold is considered a secure and innate store of wealth that maintains its purchasing value over decades, allowing families to pass wealth from generation to generation.
The rich history of the precious metal has made it a sought-after commodity for centuries, and China and India drive more than half of global gold jewelry demand every year:
|Year||Share of Demand (India + China)||Total Global Jewelry Demand (tonnes)|
Source: Gold Hub – Values have been rounded up to the nearest tonne.
Why are Eastern cultures so attracted to the properties of pure gold?
Part 2 of this series will show why gold is the world’s most incredible metal, and why it’s coveted by billions of people.
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