Maheep Hayer's  Instablog

In my last article at the end of 2010, http://seekingalpha.com/article/244369-performance-review-of-2010-where-to-invest-in-2011, I mentioned that due to stocks being overvalued, up 2 years in a row coming into the year, and with gold outperforming it in 2010 I believed that stocks would underperform.  However, like in 2010, I built up a diverse portfolio of assets that included stocks, gold, commercial real estate, and treasuries.  In 2010 and 2011 I did no adding to or selling my positions in stocks and real estate.  I was shaken out of half my position in gold near the lows of 2011 at 1335 and still matched the metals impressive performance of 8% due to my long bond positions.
While the commentators in the media laughed at my TLT position, my relatively small position in it helped smooth out the volatility in my portfolio. In fact I haven't had a down quarter in 2010 or 2011. Overall my portfolio was up 8.5% in 2011 YTD 12/29/11, compared to 2.5% for the S&P.I only made one trade, the selling of gold near lows!. Also my portfolio for those not having the stomach for a big bet either way (see last article written by me) was up 12.6% with 0 trades.  But 2011 is now a memory.  We investors must prepare for what is coming.  
The facts for 2012 are that the S&P is trading at 21 times earnings, with the Robert Shiller method, and a lousy 2.44% dividend yield.  Gold is still in a secular bull market, but it might need a breather after 11 straight up years. Also it may be overvalued compared to the Dow Jones just trading 8 times the price.  You can now buy a median priced home in the U.S. for under 100 ounces of gold, usually another sign it could be overvalued.  With that said, overvaluation will not stop gold outperforming shares until stocks are trading at single digit multiples with 5%+ dividend yields. While I won't give away my thought process further I will say predicting what will happen in 2012 looks very difficult.  Since my hedge fund will be launching next year, using my same investing method written here, I won't say the exact percentages of my portfolio. I will be rebalancing to the following tomorrow 12/30/11.  Roughly 1/3 of the account will be made up of stocks and real estate and about 2/3 of the account will be gold and treasuries of different maturities.  I might look to sell about half my gold and buy some treasuries AND shares at some point in 2012 with the proceeds from gold. Also I think the next few years value stock indexes will outperform growth.  Good luck to everyone and have a safe and Happy New Year!


Disclosure: I am long RWR, GLD, TLT, IEI, IWN, IWD.

I have sold the other amount of gold I mentioned at roughly the same price, 1335. Gold now makes up roughly 24% of the portfolio, 12.5% long term bonds (TLT), 9% 1-3 year bonds (SHY), 25% intermediate bonds (IEI), 6% Nasdaq 100 (QQQQ), 10% Small Growth (IWO0, and 13.3% in commercial real estate (RWR).  

I sold 20% of my gold today at 1332 and used the funds to purchase some short term bonds, SHY and IEI. Gold has had a poor January like last year and I believe it will do better if the 30 year bond rate falls below 4.35%.  If the bond rate stays over 4.5% or so gold could be down this year.  Either way I am playing more defense and tomorrow will dwindle my position in gold to 25% of my entire portfolio, I'll be selling roughly 33% of my remaining gold.  I will update you on my sale tomorrow and portfolio composition.