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December
03
2018

Asset Allocation Made Easy
Larry LaBorde

To every thing there is a season, and a time to every purpose under the heaven. Ecclesiastes 3:1

Last month Bill Bonner wrote an interesting article about trading the Dow/gold ratio. He recommended selling the Dow and buying gold when the ratio was above 15 (the Dow is too high compared to gold) and selling gold and buying the Dow when the ration was below 5 (the Dow is cheap compared to gold). I did a quick back test and found that simple strategy yielded an 8+% yearly average over the last 100 years with only 6 swaps. I then back tested trading the gold:silver ratio back and forth (from a ratio of 75 high down to 50 low) during those times that you held your gold position. (See my article a couple of years ago regarding trading the gold : silver ratio.) With only 13 trades over 100 years the final yield was over double the above at 9+% yearly average over the last 100 years. Not a bad return over the long haul for doing little or nothing over 4 generations. (6 of the 13 trades were during October!)

The problem is that most people cannot sit back and let time work for them. They just have to twist the dials and pull the levers and try to get rich quickly. Unfortunately this usually results in a loss.

Finding an investment strategy and sticking with it for a couple of years is difficult. Trying to stick with one for 4+ generations is downright impossible. Perhaps a tattoo on the back of each child’s hand as a reminder on his 18th birthday might help but even that may not work. Try framing the strategy and hanging it on the wall. During the 100 year interval studied the longest time period with no activity was 27 years!

Maybe there is an answer to the problem of wanting to trade too often. A couple of years ago I recommended a sample portfolio as follows:

20% real estate (income producing)
20% stock index fund
20% cash held inside & outside of banking system
20% gold & silver
20% corporate AAA bonds (short term only for now as interest rates are likely to go up)

This could possibly be modified somewhat playing the Dow: Gold ratio and still maintaining a fairly balanced portfolio.

When the Dow: Gold ratio goes below 5 then:

20% real estate (income producing only)
30% stocks (index fund with a few select individual stocks)
20% cash
10% gold & silver (trade back and forth according to the gold:silver ratio)
20% corporate AAA bonds

as the Dow: Gold ratio goes over 15 then:

20% real estate (income producing only)
10% stocks (index fund with a few select individual stocks)
20% cash
30% gold & silver (trade back and forth according to the gold:silver ratio)
20% corporate AAA bonds

In both instances use 25% of your cash or 5% of your total portfolio and go shoot for the moon. Invest in anything that catches your interest be it crypto currency, mining stocks, real estate speculation or anything at all that interests you in the short term. When you liquidate that position put the funds back into the cash allocation. This allows you to move into and out of speculative positions with a portion of your cash. If you loose it all you have lost no more than 5% of your total position. If you are good perhaps these investments can boost your overall portfolio significantly. This will allow you to scratch that certain itch so you can do something while you sit back and wait for time to do its job with the bulk of your investments. If you are feeling lazy or do not see anything interesting then just leave your speculative funds sitting in the cash allocation and wait for a nice slow fat pitch to come along.

Semper paratus

Larry LaBorde

Larry’s interest in precious metals originated at age eight, when he made his first trade after learning that the new 1965 coins were made with far lower silver content than earlier coins. He promptly exchanged new coins for older, more valuable coins that he gathered from the tellers at the bank where his dad was a board member and from the lunch ladies at school. He was thrilled at having spotted such a rich opportunity because of a stupid move by the government, and his fate as a metals broker was sealed.

In high school, recruiters from MIT and the Naval Academy came calling, but Larry had already made the decision to marry his sweetheart and follow in his father’s footsteps in the water well drilling business, so he went to Louisiana Tech University and trained as a civil engineer. After college, he returned to Shreveport and took over operations of the family business. He is active, along with his four brothers, in both the water well drilling business started by his father and a water well supply business.

Larry enjoys traveling with his wife of 35 years and racing dinghy-sized sailboats. He is active in the Shreveport Lions Club and the McNeill Street Pump Station preservation effort. An avid student of monetary history and U.S. history and politics, he is the author of Libertorn: Hope and Heartache for America’s Future (in press).

Larry and his wife, the lovely Miss Puddy, have two grown children and live in Shreveport, Louisiana (USA) with Gracie, a border collie who likes to bark at the second hand of the wall clock, and Abbie, a golden retriever who looks sweet and innocent in between stealing treats. When not traveling, studying or playing with the dogs, Larry occasionally goes on mini-adventures with Miss Puddy to do things like jump out of a perfectly good airplane.

Larry LaBorde sells precious metals through Silver Trading Company LLC. Since 2001, Silver Trading Company has offered high volume sales of gold, silver, platinum and palladium to serious investors around the world. It also offers guidance about storage options for metals. Please visit Silver Trading Company’s website at www.SilverTrading.net. 

 

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