I can’t start today’s mailbag edition of The Daily Cut without doing something very important…
I want to thank the hundreds of people who joined us in person or online for the second annual Legacy Investment Summit in Carlsbad, California, this week.
There was more actionable investment advice than I could keep track of. But what really made it a spectacular event for me were the folks we got to share that advice with.
If you couldn’t make it, Cut editor Chris Lowe will be sharing some of the highlights with you next week. For now, let’s get to your questions…
And apologies in advance to anyone hoping to hear from Jeff Brown and Teeka Tiwari in today’s special edition. I know they have a ton of fans out there, but that’s the problem…
Jeff and Teeka were mobbed like rock stars every time they appeared. I couldn’t fight through the throngs to ask them any questions.
But I did manage to steal some time with a bunch of our other Legacy experts, so let’s get to that now…
Our first question is for E.B. Tucker.
I was lucky enough to catch up with E.B. several times during the Summit. And I got to watch his presentation about the investment opportunities with e-sports companies. I have to say… it completely changed my opinion of e-sports. I no longer think they’re just a fad.
E.B. also shocked the crowd during his appearance on our panel discussion titled Your Roadmap to Profits as Gold Shoots Higher…
E.B. was one of the biggest gold bugs on the panel. And that’s saying a lot when you share the stage with precious metals legends Doug Casey and Rick Rule.
But while E.B. agreed that gold prices will shoot much higher, he made me gasp when he said miners are not the best way to play gold right now… There’s actually another type of gold stock that’s a much better way to play what he sees coming.
But your top question for E.B. was about real estate, not gold. We’ll talk about gold later in today’s issue. But for now, let’s get to E.B.…
Reader question: I know you’re a serious real estate investor. I was at last year’s Legacy Investment Summit in Bermuda, and I remember you recommending eight-plex apartment buildings. So my question is, are you more bullish on real estate now that the market has come down a bit and interest rates are on the floor?
– Jim (Legacy Research member)
E.B.’s answer: I do like real estate over the long term. It’s an asset people will pay you to use.
However, real estate depreciates over time. Paint, roofing, appliances, floors, etc. all need to be replaced periodically. I estimate over a 30-year period you almost rebuild a house through repairs.
That said, you’ve got to account for depreciation expenses when you look at real estate returns.
In my view, yields need to get a little higher before they’re exciting.
Next up, we have Jason Bodner…
After giving last year’s Legacy Investment Summit audience the names of five stocks that have returned 10%, 36%, -52%, 57%, and 57% since the recommendation, Jason did it again this year…
He revealed another five stocks – his so-called CRASH positions – that are poised to do just what the reader below asks about…
Reader question: Big fan of Jason. Would you ask him my question, please?
I’ve heard you say something like, “Bad stocks bounce like rocks, while good stocks bounce like fresh tennis balls.” What do you mean?
– J.R. (Legacy Research member)
Jason’s answer: Stocks with great solid fundamentals bounce faster and higher when a market rebounds from a fall.
All markets ebb and flow. When an entire market eventually falls under pressure, the selling eventually abates. Eventually, sellers get out of the way, and the inevitable snapback happens.
This is when great stocks bounce back quickly. Stocks with poor fundamentals will fall down and stay down.
Think about it: When a market sell-off happens – which do you think would rebound faster? A company that earns boatloads of money, continues to grow, and has a fat profit margin and no debt? Or one that is drowning in debt obligations, not profitable, and struggling to make ends meet?
Healthy stocks are like fresh tennis balls. They bounce fast and high. Crap stocks are like rocks. When they fall, they might bounce once. If they’re lucky.
Our next question is for Jeff Clark…
I caught up with Jeff several times during the Summit. He’s just a great guy and a fellow baseball fanatic. So I always grab any chance I can get to chat with him, especially when he gives me pointers on coaching my son’s Little League team.
But as our master trader here at Legacy, baseball isn’t the only thing Jeff knows a lot about. He had just finished a run in his bright green sneakers and “Phoenix Baseball” shirt when I got him to carve out some time for this Q&A…
Reader question: One question I’ve been wanting to get an answer to is the rule about selling half our position when it doubles. I understand what that accomplishes, but why is it part of the system, and how did it come to be developed that way? Thanks.
I [didn’t attend] the Legacy Summit this year, but I have it on my radar for next year and would expect to meet Jeff then.
– Ken H. (Legacy Research member)
Jeff’s answer: Selling half of a position once it doubles in value eliminates the risk of taking a loss on a trade, AND – this is the most important part – it eliminates the amount of second-guessing we do as traders, and as humans in general.
Think about it… we spend hours searching for just the right trade to make. We take a position. Then we watch it and hope that it moves in our direction. Once it starts moving our way, we then start the “what if” game.
What if it reverses, and I give back my gains? What if I sell now, and then it keeps moving higher? What if I have to step away and can’t watch the position for a while? What if… etc.
Selling half of a position once it doubles in value allows you to put your original capital back in your pocket. Then you can hold the rest of the position in anticipation of it achieving your original objective – when you made that decision without any emotional concerns.
By doing this, you tend not to second-guess yourself so much. And, you can relax knowing you’ve minimized your risk – which is the whole point of trading options in the first place.
Moving on, we have a question for Bill Bonner.
Unfortunately, Bill was not with us at this year’s Legacy Investment Summit.
Bill has an Irish passport, so the feds put strict limits on how many days he’s allowed to be in the U.S. So we had to “beam” him in from Ireland on the big screen instead.
But I did manage to catch up with Bill’s protégé and coauthor, Dan Denning. Dan helped Bill create The Bonner-Denning Letter asset allocation guide, so he’s the man to answer the question below…
Reader question: Hi Bill, what is your suggested percentage of one’s total wealth that should be held in precious metals and cryptocurrencies? When I speak of these items, I am also including some leveraged exposures to things like mining stocks and precious metal ETFs like GLTR. How much of the physical metals and mined cryptocurrency should one hold vs. levered equity exposures of mining stocks? My overall portfolio contains equities, bonds, real estate (home and unimproved ranch land), oil and gas, and precious metals. I currently hold roughly 7.5% of my total wealth in precious metals and mining equities.
– Ross W. (Legacy Research member)
Dan’s answer: Great question. In The Bonner-Denning Letter, we recommend a 1% allocation to cryptocurrencies. Like everyone, we’re intrigued by the idea of decentralized money with no government interference. But we’re not entirely sold on the idea that there’s a new “digital asset class.” Cryptos can deliver massive gains but are also volatile and still inherently speculative (in our view).
Our allocation to precious metals is included in our “Real/Tangible Assets” section. It’s large, at 34%. A big chunk of that is obviously real estate. But the rest is precious metals. We haven’t yet broken them out separately. If we did, though, it would likely be greater than 7% toward precious metals (more like 15-20%).
Please note, this allocation to gold and silver is a lot bigger than most portfolio managers or financial advisers recommend. But it reflects our view that financial assets are due for a big correction and that precious metals are a “safe-haven” asset with no counterparty risk (their value doesn’t depend on someone else’s ability to pay you).
We have a 25% allocation to stocks, which would include any gold and silver mining stocks that give you leverage on the gold price. However, we don’t pick stocks and leave that to our colleagues like Dave Forest and E.B. Tucker.
We also have a 30% allocation to cash (storing up for after the crash to go shopping) and a 10% allocation to bonds. Our view is that government bonds are becoming riskier by the day, while some corporate bonds could do quite well by comparison.
This next question is the one about gold we mentioned earlier…
Reader question: Hello. In some recent newsletters you have been saying, “Buy gold,” and in some other newsletters you have been saying, “Wait, don’t buy gold yet; it is coming down and has been a little volatile.” I’m confused. I was ready to buy and then stopped because of the conflicting info. Please clarify. Thank you.
– Nicole M. (Legacy Research member)
Since I work with all the Legacy experts, I’m in a good spot to help clear up any confusion…
Believe it or not, this is a simple question to answer.
One of the greatest things about Legacy Research is that we have lots of different experts with lots of different ideas and lots of different investing strategies.
When you hear one expert advising readers to buy gold stocks now… then another expert suggesting that readers should wait because gold is going down… it’s easy to think that we’re talking out of both sides of our mouth. But that’s not the case.
All our Legacy experts agree that gold is heading higher in the long run. But no investment goes up in a straight line. And gold is no different.
No matter how long it continues going up in the long term, there will be short-term pullbacks. And that’s where the seeming contradiction comes into play.
You see… not all of our experts are long-term investors. Some, like Jeff Clark, are short-term traders.
So when he cautions that gold seems headed lower, he’s speaking only about short-term trades. Over the long run, we all agree that gold is headed higher.
It’s easy to get confused by that. But if you take note of the type of investing each expert is talking about (short-term versus long-term), it’s easy to follow along with their recommendations.
Our last question wasn’t addressed to a specific Legacy expert, but it really got me thinking.
So I jotted down my thoughts when we ended the last day of our Legacy Investment Summit. (Full disclosure: It was after cocktail hour.)
Reader question: A recent Daily Cut said that crypto is the future and gold is the past, but in a societal breakdown, can access to crypto be guaranteed? Best regards.
– Ronald M. (Legacy Research member)
Now, let’s assume we’re NOT talking about a total societal breakdown… One where the rule of law has gone out the window… the electrical grids are shut down… and anarchy reigns…
In a situation like that, there are 100 other critical things you’ll need to worry about… Like access to safe water, food, and shelter. So let’s toss that scenario out the window.
Instead, let’s assume we’re talking about a breakdown in the monetary system. That’s really the crux of the big debate between crypto enthusiasts and gold bugs anyway.
So the monetary system collapses… Cash, banks, and credit cards are useless… Gold/silver and cryptos are the last men standing…
For gold and silver to be any good, you’d have to have them stored at home. You sure as heck won’t be able to get them if they’re in a bank. But, as gold investing legend Rick Rule warned the crowd here at the Legacy Investment Summit:
Do not keep this stuff at home. And if you do, for God’s sake, don’t tell anyone, because they will be all too happy to show up uninvited in the middle of the night and relieve you of it.
On the other hand, cryptos can be easily and safely held at home in a hardware wallet. They can also be held online – safely outside the monetary system – in a digital wallet.
But if you like to live dangerously… and you do, in fact, hold a bunch of gold and silver at home… how do you expect to use it?
Are you qualified (and do you have the proper tools) to confirm that any gold and silver you accept is real? And who’s going to convince the person on the other end that your gold and silver are real?
That’s not something you have to worry about with cryptocurrencies. As we’ve been explaining over the last few years, all crypto transactions are verified by multiple, independent parties on the blockchain. That means that even if the global financial system grinds to a halt – and access to cash and credit disappears – cryptos will be the simplest, easiest, and safest game in town.
And that’s all for this week’s special mailbag edition, brought to you from the 2019 Legacy Investment Summit.
But before I sign off, I’ll let you in on one of my favorite moments at this year’s event…
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That’s Legacy Research cofounder Doug Casey chatting with our keynote speaker, Anthony Scaramucci, in the green room.
I was lucky enough to sit at that same table and listen to them talk about finance, economics, geopolitics, and books. It was fascinating. I just soaked up every word these two legends said, as I struggled not to have too big a smile on my face.
Have a nice weekend.
Regards,
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James Wells
Director