A Golden Moment for Asset Allocation? | Mike Philbrick | #593
Episode
55 min
Read time
2 min
Topics
Personal Finance, Investing, Fundraising & VC
AI-Generated Summary
Key Takeaways
- ✓Gold Risk Premium: Gold has delivered a 7.35% positive risk premium since 1971, contradicting the belief it only preserves wealth. A 20% gold overlay on 60/40 portfolios adds 89 basis points in returns while reducing drawdowns by 3.5%.
- ✓Sovereign Accumulation Shift: Following Russia's 2022 asset seizure, sovereign nations increased gold purchases to 1,000 tons annually, questioning US Treasury reliability. This represents a fundamental shift in global reserve asset allocation away from dollar-denominated securities.
- ✓60/40 Gold Substitution: Replacing bonds with gold in a 60/40 portfolio since 1971 produces nearly identical Sharpe ratios, volatility, and drawdowns. Gold has outperformed US stocks for 25 years this century, challenging traditional allocation assumptions.
- ✓Bitcoin Volatility Management: Equal risk weighting Bitcoin and gold requires approximately 20% Bitcoin and 80% gold allocation, as Bitcoin carries four times gold's volatility. This approach prevents excessive portfolio volatility while maintaining exposure to both scarce assets.
What It Covers
Mike Philbrick discusses gold's 25-year outperformance of stocks, sovereign nation accumulation patterns, Bitcoin portfolio integration, and return stacking strategies that overlay scarce assets on traditional 60/40 portfolios without sacrificing equity exposure.
Key Questions Answered
- •Gold Risk Premium: Gold has delivered a 7.35% positive risk premium since 1971, contradicting the belief it only preserves wealth. A 20% gold overlay on 60/40 portfolios adds 89 basis points in returns while reducing drawdowns by 3.5%.
- •Sovereign Accumulation Shift: Following Russia's 2022 asset seizure, sovereign nations increased gold purchases to 1,000 tons annually, questioning US Treasury reliability. This represents a fundamental shift in global reserve asset allocation away from dollar-denominated securities.
- •60/40 Gold Substitution: Replacing bonds with gold in a 60/40 portfolio since 1971 produces nearly identical Sharpe ratios, volatility, and drawdowns. Gold has outperformed US stocks for 25 years this century, challenging traditional allocation assumptions.
- •Bitcoin Volatility Management: Equal risk weighting Bitcoin and gold requires approximately 20% Bitcoin and 80% gold allocation, as Bitcoin carries four times gold's volatility. This approach prevents excessive portfolio volatility while maintaining exposure to both scarce assets.
Notable Moment
Philbrick reveals that NVIDIA currently exhibits higher volatility than Bitcoin, yet investors hold substantial NVIDIA positions without concern. This comparison challenges the common objection that Bitcoin is too volatile for portfolio inclusion in diversified institutional allocations.
Episode Transcript
Welcome to the Meb Faber show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here. Matt Faber is the cofounder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria's funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com. I've been Doug. Here we have the Limu Emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug. Limu? Is that guy with the binoculars watching us? Cut the camera. They see us. Only pay for what you need at libertymutual.com. Liberty Liberty Liberty Liberty. Savings Bureau. Unwritten by Liberty Mutual Insurance Company affiliates, excludes Massachusetts. What's up, everybody? Today is another fun episode. It feels like the end of summer. So, we had to have our returning guest, Mike Filbrick, on to celebrate, CEO of Resolve Asset Management, founding member of the return stack team. You know, you can go back to episode 17 to hear him on the show, which is almost ten years ago. I didn't even know this podcast is ten years old. It's about to be. What should we do to celebrate? I don't know. Today, we're talking about gold. Obviously, he's Canadian. Getting into a little return stacking, Bitcoin, some other topics. Mike, welcome back to the show. Thanks for having me, Matt. It's been a minute. God. What were we talking about ten years ago? Do you even remember? I don't. I have no recollection of that whatsoever. I've seen you a few times in between. But I'll start off, your two favorite topics, first being gold. You know? I mean, we're we're up here hanging out at all time highs. Spots, what, like, 3,500, somewhere around here today? Yeah. Yep. How's that feel? What are you what are you thinking about? What's the what's the conversation sentiment like there in in in, in your world? Yeah. Well, I I think just globally. Obviously, Canada having that mining background, it's always a sort of an ever present allocation in the index and among investors. And, you know, it's been a bit of a, since 2011, call it till 2023, 2022, it was a bit of a, you know, non starter or a yawn. But what we're seeing, I think, today is is we're at the stage in the adoption curve for owning assets like gold and Bitcoin where it's no longer contrarian. It's just becoming prudent. You've got this scarce asset that behaves a little bit differently than your normal cash flowing assets in traditional finance, and you're looking at respected institutions and sovereigns and allocators really …
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