Gold Offers Protection During Market Downturns

Gold is an important asset class that investors should not avoid. Though gold does not produce income such as dividends from stocks for example, they offer many other advantages. For example, gold has low co-relation to equities and traditionally offer downside protection to a diversified portfolio during adverse market conditions. When equity markets crash investors tend to flock safe-have assets such as gold.

During the recent global financial crisis, equity markets worldwide fell in tandem. However gold offered protection and yielded positive return for investors in the 2007-09 period as shown in the following chart:

2. Protection in a downturn

Gold has historically been used to provide potential tail risk mitigation during times of market stress, as it has tended to rise during stock market pullbacks. As shown below, gold delivered competitive returns and outperformed other asset classes during the 2007-2009 Global Financial Crisis. Many asset classes fell in tandem, but gold’s performance was positive. In addition, gold has delivered competitive returns and outperformed other asset classes during a number of other similar Black Swan events.

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Source: The Role of Gold in Today’s Multi-Asset Portfolio, SPDR Blog

For some of the other advantages of owning gold please read the above-linked article.


Related ETF:

  • SPDR Gold Trust (GLD)

Disclosure: No Positons

Why Hold Stocks For The Long-Term: UK Equity Market Edition

Investors should always focus on their long-term goals and hold stocks for the long-term. Building fabulous wealth with equity investing needs patience and those investors that own stocks thru bull and bear markets are usually rewarded well by the market.

The following chart graphically shows the performance of UK equity market over many events since 2007:

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Source: Seven deadly sins of investing, Investment Times, Hargreaves Lansdown PLC

During the peak of Global Financial Crisis(GFC) the benchmark FTSE 100 fell under 3,900 in March, 2007. Since then it has strongly recovered and continues to perform well despite political drama such as Brexit. The index closed at 7,300 on Dec 1st, 2017.

The key takeaway is that investors are better of ignoring short-term noises and events and instead keep their attention on the long-term.

Related ETF:

  • iShares MSCI United Kingdom Index (EWU)

Disclosure: No Positions

The Benefits of Cloud Computing

The benefits of Cloud computing cannot be under estimated. The biggest player in this new technology is the e-commerce giant Amazon(AMZN). Amazon Web Services(AWS) generated over $12.0 in  revenue in 2016. Other companies such as Microsoft(MSFT), Alphabet(GOOG) are also growing their cloud offerings.

The following chart shows some of the benefits of cloud computing over traditional IT:

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Source: Global Technology – Cloud Computing: In Early Stages and Spreading Globally by Paul Greene, T.Rowe Price

Disclosure: No Positions

How Far Have FTSE 100 Index Stocks Fallen From Their All-Time Highs?

Many of the companies in the FTSE 100 index are still down from their all their highs reached before the Global Financial Crisis(GFC) of 2006-07. Despite the index reaching all high records recently these companies’ stocks are languishing. Some of them may never recover their previous highs in our life times. This is especially true with banking stocks. Unlike the US, where swift measures such as the TARP have made most of the surviving banks strong and growing, the UK failed to take meaningful actions due to political and regulatory paralysis. As are result the top British banks have lost their glory.

Investors in banking stocks have seen most of their investment wiped out due to the collapse in share prices and the lack of strong recovery/ The following chart shows the fall in percentage from their all-time highs for FTSE 100 Index companies:

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Note: Data shown above is based on local currency and as of Nov 19, 2017

Source: Stock Market Almanac

A few observations:

  • Royal Bank of Scotland Group PLC (RBS) is still down 96% from its all-time highs. This bank should drop the “Royal” from its name and simply go with Bank of Scotland or BS for short.
  • Another former hi-flier Lloyds Banking Group PLC (LYG) is off more than 75% from all-time highs. Instead of having a horse on its logo, it should revamp the logo and change it to a goat or sheep or a donkey. Or maybe change its name altogether to something else.
  • Firms like Diageo PLC (DEO), British American Tobacco PLC (BTI), Unilever PLC (UL), etc. have performed well and are closer to their all-time highs than the awful banks.

Disclosure: No positions

The Top 25 Financial State-Owned Multi-National Companies 2017

The Top 25 Financial State-Owned Multinational Corporations (MNCs) ranked by Foreign Assets as of 2015 are listed in the table below:

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Source: World Investment Report 2017, UNCTAD

The Royal Bank of Scotland(RBS) is majority(72%) owned by the British state. The state is the largest shareholder in many of the top banks in emerging markets such as Brazil, China and India.


Disclosure: No Positions