How Ron Paul is beating the market

The libertarian-leaning congressman and GOP presidential hopeful has an investment portfolio dominated by companies that explore for and develop gold and silver. His buy-and-hold strategy is working just fine.

By MSN Money Partner Aug 29, 2011 1:31PM

By Zvi Bar, Seeking Alpha

 

Ron Paul is a medical doctor, a Republican congressman from Texas and a candidate  to be the GOP’s standard-bearer in the 2012 election. He is also an investor, and apparently a very good one.

 

While Paul’s portfolio may lack diversification, he  has had a focused buy-and-hold strategy over the past decade. The strategy has worked well for him, largely because gold has been the focus of his investments.

 

Congressman Paul has consistently warned that high inflation is coming on the back of the Federal Reserve’s loose monetary policy. Paul has asserted that this inflation could hurt the lower classes worst of all, because they will have few options to protect themselves from rising prices other than to put some of their savings in gold and silver.

 

 

Post continues after video:

For more than 15 years, Paul has held shares of gold and silver miners. He rarely sold shares over the last decade, and raised his stakes of many miners as the United States expanded its diplomacy into Iraq in 2003.

 

Below are the year-to-date, five-year and 10-year returns for some of the gold and silver miners that are among Paul’s top holdings. These holdings have largely outperformed the Standard & Poor’s 500 Index, most by a significant level.

 

The Paul portfolio

Company

Year to date

5-year return

10-year return

Goldcorp (GG)

13.3%

73%

875%

Barrick Gold (ABX)

-4.6%

53%

201%

Newmont Mining (NEM)

1.6%

19%

187%

AgniCo Eagle Mines (AEM)

-9.9%

89%

620%

AngloGold Ashanti (AU)

-9.1%

-5%

150%

IAMGold (IAG)

16.6%

94%

441%

Pan American Silver (PAAS)

-21.1%

51%

791%

Silver Wheaton (SLW)

0.6%

288%

1,129%

Standard & Poor’s 500 ($INX)

-4.5%

-7%

1%

 

Last week, Barron's characterized Paul's investment portfolio as a "big bet against the U.S. economy." Barron’s noted that the congressman recently voted against raising the debt ceiling, and that a failure to raise the limit would have benefited Paul's portfolio. This argument ignores Paul's history of voting against government spending and his argument that this very type of action is what will cause that feared inflation.

 

Beyond shortsightedness regarding Paul's lengthy history of voting against inflationary legislation, Barron's showed bias against the portfolio by choosing to provide readers with 1-year and 3-year return numbers for Paul's portfolio holdings, and the claim that "Paul's 'stopped clock' portfolio looks like it's finally paying off."

 

In particular, one may wonder what a 3-year return has to do with Paul's holdings, especially within an article that explains Ron Paul acquired most of those holdings between eight and 15 years ago. Taking a look at the chart for the Gold Miners ETF (GDX), it appears the industry lost a significant amount of value about 2.9 years ago, though, and that Barron's used that time-frame in order to show the portfolio from a poor and biased perspective. The reluctance to actually consider Paul's historic performance appears to be intentional blindness to the facts.

 

An investment in the worst performer among these tocks over the last10 years would have returned 150%, with the average miner's return being nearly 550%. Compare that to the S&P 500, which is up just 1% over the last decade. The five-year average return for these miners was over 81%, compared to a loss of 7% for the S&P. These returns also indicate that Paul's portfolio is not finally paying off, but that it had been paying off for quite a while. Not bad for a stopped clock.

 

Over the last decade, Paul's portfolio has beaten the market as well as the vast majority of hedge funds, yet Barron's labeled Paul's investment strategy a "financial planner's nightmare." Okay, so what? After all, should an investor's priority be how soundly their financial planner sleeps or the identification of suitable and timely investments that present a value proposition? Perhaps Barron's feels Paul was too focused on winners, and needed to diversify into some losers.

 

While it may be true that a financial planner may sleep easier knowing clients are broadly invested in fee-based instruments and market-linked baskets, such a move would have cost Paul essentially all of his substantial profit over the last decade. Do keep in mind that a financial planner's daydreams cost about 1-2% in annual fees that are not included in the S&P 500's performance, and that about half underperform the S&P 500 before fees anyway.

 

 At the time of publication, Bar had no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours. Bar is a contributor to Seeking Alpha and an attorney who provides advisory services for trusts and beneficiaries, as well as expert consulting in fiduciary and related financial litigation.

 

More from Seeking Alpha:

Valuation gap makes gold miners attractive

Gold bubble evolution

Why market undervalues Barrick and African Barrick

 

VIDEO ON MSN MONEY

53Comments
Aug 29, 2011 7:49PM
avatar
Although I don't agree with Ron Paul completely I will vote for him given the current choices. He wants to stop the wars. He wants to stop the drug war. He is for less government. I am not a Republican but I like his ideas. As far as him buying gold stock ....it looks like he has made a wise investment.
Aug 29, 2011 6:42PM
avatar
I am from Texas and started listening to Ron Paul about 10 years ago. His recorded as a model citizen is spotless, and his policy votes are always consistent with his view of the roll of government. His biggest opponent is the current establishment itself. The article states that he is voting the way he does to support his investments, I would suggest that he is actually voting on the status queue, which he views differently, but understands intimately! This man is a citizen posing as a politician, instead of a politician posing as a citizen. When the establishment/media do not give a true visionary coverage, to pander to the status queue, they do not allow free thought and debate to grow and flourish. Weather you agree with his view or not, his stance has not changed on his policies the entire time he has been in office, which cannot be said of very many people within our government to day.
Aug 29, 2011 2:25PM
avatar
Maybe this guy should be working for us. Oh, that's right he does and he gives his pay back. Hmm, strong business sense, a doctor, longtime senator. Could this be our man? Why is Ron Paul such a polarizing figure?
Aug 30, 2011 1:39PM
avatar
Ron Paul is a throwback politician. Much like the founding fathers, he has a job, a business and produced wealth by his own labor. He does not need to be a "career politician" with a large salary and the opportunity to sell his vote to the highest bidder.....oh excuse me political contributor. He can afford to vote his beliefs and ideals if it costs him his "political job" he has other resources that can sustain him and his family.
I believe that when our constitution was framed no one could conceive of a career politician or the idea that the legislative branch would endow themselves with the salaries, pension and medical benefits that they have. So the idea of term limits was just not part of the document.

We can fix this impose term limits for the next 4 election cycles, no incumbents get re-elected. Once we have a slate of politicians that understand that there time in office is finite, we can push for the repeal of the congressional pension, when that is done I'll be social security is fixed damn quick. Then onto congressional medical care. Once that is fixed we can get a balanced budget amendment in place that has teeth in it. In 16 to 20 years we can have a gov't with a debt that is sustainable and shrinking, but we will all have to take more responsibility for our lives. There will be far less "programs" to support you if you make bad decisions in your life.

Aug 29, 2011 4:33PM
avatar
Folks,  why is it that the media seems to portray this guy as a loser.  To me he's our only hope to make a change.  He's walked the walk and talked the talk!!  Not just a regular politician that says what we want to hear.  He's honest and I think a good man.  To me there is no other option in this upcoming election.  But so many people are taken in by the flashy media coverage of the status quo politics.  Make a change and support this guy!
Aug 29, 2011 9:17PM
avatar
If it looks like Ron Paul might win, the CIA will do a Kennedy on him. 

The effort to keep him out of the news or denigrate his positions is beyond obvious, and it is more pervasive than just a few news outlets.
Aug 30, 2011 11:37AM
avatar

The Barron's article is just the tip of the iceberg of media bias against Dr. Ron Paul.

Liberal and other special interests know the gravy train of Gov't largess would be over under President Paul.

Our economy would flourish, but the people now in power would lose some of what they currently have.

Paul is the most honest, trustworthy politician.

Apparently he also knows our economy better than the Fed or Wall Street brokers.

Aug 29, 2011 2:35PM
avatar
Easy to figure out why Barron's is taking that stance- Barron's is owned by Dow Jones who is in turn owned by News Corp which is in turn owned by Rupert Murdoch. Just another attempt by Murdoch to discredit or minimize Paul.
Aug 29, 2011 6:32PM
avatar
The Liberal Media pushes candidates that they know Obama could easily beat in Debates. That is why they do not push Ron Paul, Ron Paul could easily make Obama look stupid in a one on one debate with no tele-prompters.
Aug 29, 2011 4:43PM
avatar
I challenge every citizen to observe as they drive around, how many signs for Ron Paul vs. how many signs for Perry, Bachman, Palin or whatever Republican of the week.  You will observe a lot more Ron Paul signs in people's front yard, their car or other personal property.  And Obama, while he has promised a lot, has failed to deliver - except to Bankers and the Military Industry.
Aug 29, 2011 4:26PM
avatar

This just proves that everything Paul has been saying all along is true. NOW are people ready to listen???

Aug 29, 2011 3:24PM
avatar
Ron Paul bet a lot on gold because it knew the fed was very unlikely to change it policies. It more a bet against the fed. 
Aug 29, 2011 6:57PM
avatar
Notice that the news about Ron Paul is spotty and inconsistent while other blowhard Republicans fight for the spotlight.
The Rupert Murdoch types must be afraid of him and his views.

Aug 29, 2011 4:30PM
avatar

I'm amazed at some of the comments - obviously many don't have a clue about Ron Paul or his senate voting history.  They don't call him 'Dr. No' for nothing.  He's been telling us all the Fed is bad along with fiat money for his entire career.  His portfolio is simply putting his money where his mouth is...

 

For those commenting out of ignorance, spend less time being sheep for the political wolves.  The truth shall set you, and the rest of us free...

Dec 29, 2011 4:16PM
avatar

I'm having a hard time reading between the lines in this article. Are you implying that Ron Paul  votes so as to increase his personal wealth? If that's the angle, his voting record puts it to rest pretty quickly. He's voted strictly according to the constitution for 30 years. Is the problem that he makes money from his investments (rather than being diversified)? I think this is a sign of just how intelligent and prudent he is. If the economy was ACTUALLY strong, (which it isn't, it's just propped up by government borrowing funneled to both the buyers and seller, in other words, a big faux economy of smoke and mirrors), I'd bet that Ron Paul would be invested in a number of other areas.

 

For me, his portfolio is the perfect indicator for why he should be president. He's smart, capable, honest and believes in the inherent right to liberty of every human....my question to the author and anyone else in the media is this - If he's smart enough to make money, if he always votes according to the basis of our government (the constitution) and he thinks that the role of government is to protect your right, my right and everyone's right to liberty and has spent thirty years acting in exactly that manner - why is the media's depiction of him always negative. Every American should ask themselves this question. Personnally, I think the answer is very simple. American media, the government, the banks, wall street and all of those faux financial planners, that are nothing more than salesmen, they're not your friends, their not your buddies. They're not in it for you. Ron Paul isn't in it for you either - he just understands what the framers of the constitution understood. The only way to maintain a civil environment is to grant and protect a set of rights for all people. Those that make bad decisions must live with the consequences. Those that make good decisions must have the opportunity to benefit. America's debt and the people who live on debt will suffer consequences. investing in gold and silver is a hedge against ridiculous fiscal policies that indebt and tax people without their knowledge or understanding of it. These policies erodes the economy and lead to crisis after crisis. Those policies are so entrenched and protected by the very few that benefit from them that they are virtually unstoppable at this point. The problem with this government spending (and giving) is that it all comes from the people. Not just poor people, but the middle class and upper middle class and even the wealthy. Try to pit the rich against the poor, the black against the white, the straight against the gay, the religous against the secular, but the ruse has run its course. The only way for this nation to survive is for all of these people to assert one single fundamental idea - we all have a right to our existence and none of us should have to pay for the failed mechanisms of any other person.

Aug 29, 2011 5:04PM
avatar
So, he is smarter than the average Wall Street and investment company worker.  That is nice to know, at least he got the money legally and not by being a "community organizer" who goes from rags to riches with no apparent reason.
Aug 30, 2011 4:32AM
avatar

Ron Paul's bet is against the dysfunctional stupidity of out of control spenders on The Hill who continue to financially rape taxpayers while fattening their own wallets on our dime.

 

A collapse of our financial system could also well make gold and silver almost useless with food and  necessary survival supplies more important than precious metals. Having both would be nice if you can afford it. 

 

I won't trade my survival stash for something that I can't eat, drink or use as medicine  and neither will anyone else. Gold and silver alone won't keep you alive. .

Aug 30, 2011 9:02AM
avatar
Gold is a bet against what the FED is doing. The FED is not doing what is right for the citizens in this country, only what will help the current POTUS and the rich/banksters.
Aug 30, 2011 11:33AM
avatar

Ron Paul ......2012 and 2016.....not republican.....Libertarian!

 

Then fill congress with Tea Party candidates that will force through all of Dr Paul's ideas that will fix the nation.

Aug 30, 2011 1:14PM
avatar
The Demo's with " O " have only been able to do 1 thing at a time.     1.  give a lot of money away.   2.  make everyone get health insurance.   3.  pass Bush tax cuts on for more years.  4. raise the debt ceiling.  5.  manage to do all this without a budget.  6. cry about republicans and Tea Party affiliates.  7.  increase war level threats.  8.  increase the size of government.  9.  forget about mainstreet america.  10.  collect a lot of money for re-elections.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min

MARKET UPDATE

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] The stock market finished the Tuesday session on the defensive after spending the entire day in a steady retreat. The S&P 500 (-0.6%) posted its third consecutive decline, while the small-cap Russell 2000 (-0.9%) slipped behind the broader market during afternoon action.

Equity indices were pressured from the start following some overnight developments that weighed on sentiment. The market tried to overcome the early weakness, but could not stage a sustained rebound, ... More


Currencies

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.