Editor’s note: This week at the Dispatch, we introduced a series from long-time Casey Research analyst Andrey Dashkov. He shared the experiences that taught him how to manage his money – including lessons he learned from fleeing a collapsing economy – and how you can use them to prepare your own portfolio right now.
But if you missed it, don’t worry. Today, Andrey shares his takeaways from this week… and tells us why you should always spread your downside bets – just like you would spread your speculations.
And he provides a list of the best ways to do just that…
By Andrey Dashkov, analyst, Casey Research
Like I said on Monday, I’m from Belarus, a small country in Eastern Europe. I have a Soviet Union-issued birth certificate.
It’s a novelty item at this point.
It’s also a sad reminder of a system that took the lives and assets of hundreds of millions of people as it crumbled back in the 1990s.
Here’s an example. Your parents saved $150,000 for you back in 1990. Then the country they lived in ceased to exist. Their savings were frozen “until later.”
It’s 2016, and you want to check how that “capital” is doing.
The bank clerk logs into her computer… checks your ID… and prints out a statement that shows $5.
That’s all. The government blew up 99.997% of your inheritance. The money your parents painstakingly saved out of their paltry salaries for years is now worth nothing.
Go buy the most expensive burger of your life with what’s left.
It sounds like a nightmare… But it was a real experience for many people. And it goes to show you never know when a crisis like this could hit… or how it might affect you.
The lesson millions of people learned was to rely on themselves. It meant pulling yourself up by your bootstraps was the only way to go.
For me, it meant stuffing my head with quality information, building a network of powerful contacts, and getting as much hands-on money management experience as I could. So I got a master’s degree in finance and earned the coveted Chartered Financial Analyst (CFA) badge. (I started a PhD program in finance, too, but put it on hold when I decided to move to Canada.)
But what does it mean for you?
I applied everything I knew while working on a team that managed hundreds of millions of dollars here in Vancouver. And now I’m committed to telling you everything I know.
This Week’s Crisis Advice
For starters, let me sum up the crises I talked about and how the lessons I learned apply today.
On Monday, I urged you to allocate 10-15% of your portfolio to cash. It’s simple, I know, but it’s fundamental. You want to make sure that you have cash on hand so that when any opportunities – or crises – arise, you’re prepared to act. And you shouldn’t wait for problems to start before you take this step. Individual sectors and stocks get cheap all the time. Others get expensive. Make sure you sell some of the pricey stuff and reallocate that cash to the cheap stuff. Not the other way around.
On Tuesday, I talked about the cyclicality of gold, and how holding it for the long term can help cushion any blows your portfolio takes during times of volatility. It’s a safe-haven asset that every investor should have in their portfolio – allocated up to 15%. Throw in some speculative early stage stocks for extra leverage – but no more than you can afford to lose.
Wednesday was all about volatility, and how playing with it – without understanding it – can steamroll your portfolio. As such, it’s best to avoid volatility-based funds.
Yesterday, we went through all the signs I look for to identify a Special Situation. Coronavirus ticks all the boxes… And I told you that history shows the best time to buy during an epidemic is between one week and one month after daily infection numbers peaked. Coronavirus is a pandemic… but the advice still stands.
Be ready to buy some really good companies trading at rock-bottom, bargain valuations. Make sure you check out the list I gave in yesterday’s Dispatch.
And yes… the situation will get worse… but then it’ll get better. Brace for more volatility.
Take the steps I outlined above, then take a look at ETFs (exchange-traded funds) that tend to move opposite the market.
How to Spread Your Downside Bets
I’m sure you were watching the markets this week. And you don’t want to see your portfolio plunge the way the Dow or S&P 500 did.
Funds that move opposite the market usually have a “negative beta.” An ETF tracking the S&P 500 would have a beta close to 1. Negative beta means that these ETFs aren’t tied to the movement in the broad market.
Negative-beta funds don’t guarantee that they will provide you complete protection against market fallouts… but it’s a really good way to diversify your portfolio in a crisis.
The list below has some ideas about what moved opposite the market in the long-term. Check them out, do your research, and diversify your portfolio accordingly.
And as a bonus, some of them also pay dividends, like Invesco’s Taxable Municipal Bond ETF (BAB).
|Company||Ticker||5-Year Beta||Dividend Yield, %|
|Invesco Taxable Municipal Bond ETF||BAB||-0.14||3.7|
|iShares Core U.S. Aggregate Bond ETF||AGG||-0.14||2.5|
|Invesco DB Gold Fund||DGL||-0.08||1.8|
|Invesco CurrencyShares Japanese Yen Trust||FXY||-0.17||–|
|SPDR Gold Trust||GLD||-0.1||–|
The key takeaway: Spread your downside bets like you spread your speculations.
How the next crisis will look is anyone’s guess. But I can tell you that it won’t feel good to be invested in the wrong assets… and it’ll feel worse being anxious and unprepared.
To protect yourself, focus on the big picture, keep some cash on hand, and use the tools that I mentioned here – and that our experts at Casey Research bring to your attention.
Analyst, Casey Research
P.S. Another asset that doesn’t usually move with the broad market is… that’s right, crypto. And on Wednesday, March 18 at 8 p.m. ET, Teeka Tiwari – the best crypto mind in our business – is sharing the coins you need to grab today.
It’s another excellent way to spread your downside bets. Sign up for free right here.