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 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
Year to date
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:
VIDEO ON MSN MONEY
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.
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.
This just proves that everything Paul has been saying all along is true. NOW are people ready to listen???
The Rupert Murdoch types must be afraid of him and his views.
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...
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.
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. .
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.
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.
[BRIEFING.COM] The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.
Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google (GOOG 536.10, -20.44) and IBM (IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'