Nov 26, 2020Liked by Nicolas Bustamante

I agree, the worst thing to do is to sell your portfolio in the middle of a panic (recession, pandemic...). I have invested around half of my money in stocks and I never sell unless I need the money. I never look at stock markets live news.

I know people who say "I can't invest in the stock market, because I don't have time to often look at stock market news to buy and sell at the right time". How ironic it is that this is in fact precisely what NOT to do.

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A lot of values added by this article, thank you, some notes of reflexions :

- Indeed I think that gold is a better hedge than bonds, given the current QE policies of the FED.

- What seems to me the most balanced, if we take into account the investment theories of Nassim Nicolas Taleb (85% safe investment / 15% ultra risky with an asymmetry on ROI) the following investment structure seems to me the best :

- 85% divided into 80% S&P500 / 20% Gold

- 15% divided into 50% Tech Startups / 50% Bitcoin

In this way we can bet on several narratives:

- Humanity will continue to create value in the long term (S&P500)

- Gold is the hedging asset par excellence that has proven itself over thousands of years (Gold).

- The paradigm shift due to technology will bring exponential value creation in this sector. ( (Tech Startups)

- Bitcoin is a new form of store of value that may bring one of the largest transfers of value in history over the next few years and it is surely the most radical hedge to the current system. (Bitcoin)

Also a really interesting resource on gold: https://www.amazon.fr/dp/1947441825/ref=cm_sw_r_tw_dp_LqX.Fb0J4YXCB?_encoding=UTF8&psc=1

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Great article! I encourage you to read "A random walk down Wall Street" a great book on the same subject ;)

Regarding the bonds allocation in a portfolio don't you think that given (i) the low interest rates and (ii) the relatively high risk of inflation in the coming months/years due to all the cash put in the system by the central bank to outweigh the impact of the pandemic there is a significant probability that bonds will underperform?

Regarding real estate, historically it has been an asset weakly correlated with other assets therefore it might be a great pick to reduce the overall risk of a portfolio.

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Great article!

Regarding bonds you cite Graham's recommendation.

I wonder if this recommendation is still true.

The idea to balance bonds and stocks was they were inversely correlated (when stocks underperform, bonds then to outperform, and vice versa) and that bonds were a "no risk asset".

However, the inverted correlation between bonds and stocks may have changed ( https://qz.com/1755700/the-60-40-split-for-investing-is-an-endangered-species/ ).

Also, bonds now have negative yields (in nominal or real yield) and even big national governments (not yet the US) have default risk as proved by the European sovereign debt crisis, when Greece, Portugal, Ireland, Spain and Cyprus were unable to repay their debt without the assistance of the European Central Bank (ECB) and the International Monetary Fund (IMF).

(Benjamin Graham's bible, The Intelligent Investor, was first published in 1949, so after a period of high debt + low yield, similar to ours, so maybe I'm wrong and his reasoning still applies today. But anyway investing in stocks = a bet that companies will continue to create value vs investing in government bonds = a bet that governments will continue to extract value?)

Question: is the "invest your age in bond" principle a thing of the past?

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