What's A Better Investment, Gold Royalty Companies or Rare Earths?
Chris starts off by answering a simple question surrounding gold royalty companies and whether or not it makes sense to invest in the niche right now, since gold is on the rise.
Chris is a well-respected deep thinker and his response here just proves why Glenorchy Capital clients pay him so much damned money to manage their investments.
Like most of Chris's answers, you'll find knowledge bombs strapped to every observation he makes. You really ought to watch the above video.
The gravity of the situation we are facing in the world just can't be communicated as well as video can. And I think that's why you should watch it.
Before we dig into Chris's answer, let's cover a quick lesson on how George Gammon treats physical gold.
Physical gold as insurance
If you follow George's 10/80/10 portfolio allocation strategy then you know he suggests investing 10% of your cash in physical gold, 80% in assets that pay you to own them, and the final 10% in speculations with asymmetric upside potential.
Physical gold is like having wealth insurance that guarantees your purchasing power is safe against high inflation.
Holding physical gold will not make you any richer, however.
But if you're someone sitting on mounds of cash, physical gold is a great place to store your wealth while big governments and out-of-control central banks continue to destroy the value of the dollar.
Every time George gets any extra investing cash, 10% of it goes to physical gold whenever possible.
Gold Royalty Companys As Speculative Assets
If you're looking to get rich, then the speculation side of your portfolio is where you'll make that happen. In George's 10/80/10, the other 10% should be put towards speculative assets with asymmetric upside potential.
Gold royalty companies fall into the speculation category.
Gold Royalty Companies
According to Chris, he loves the royalty company concept. Especially in bull markets because they are essentially investment banks.
Royalty companies finance mining operations, which could be any precious metal, using dollars. They get a revenue stream. Instead of dollars, they get the actual commodity in return.
These deals usually last 5-10 years. When a gold royalty company is funding a mining operation with dollars and receiving the underlying commodity as revenue in return, then it becomes apparent how much of a cash cow these gold royalty companies can become if they back the right projects.
They are leveraged to the rising price of the underlying commodity over a 5 – 10 year period.
So if we're in a massive inflationary environment – like the one we are heading into now – and the price of gold is going up, then adding a couple of royalty companies to your portfolio might make sense.
This assumes the underlying stocks are high quality and cheap.
And that's where the gold royalty company investment idea falls apart for Chris at the present time.
According to Chris, “right now… they're too bloody expensive!”.
Chris likes deep value stocks and right now he doesn't see any deep value or asymmetrical upside potential in the gold royalty company niche.
Getting into them now would be like buying a $1.00 stock for $3.00, then hoping it goes to $5.00.
Sure, it could work out, but there are better places to put your money.
Swap Precious Metals For A Rare Earth Position?
According to Chris, his Glenorchy Capital portfolio has more precious metals than rare Earth metals. He confesses that he may have it backward.
The problem with rare earth metals is that they are not rare. They're just lesser-known base metals, and abundant. But that does not mean there won't be significant supply and demand imbalances in the future.
In fact, Chris believes the probabilities are high that supply shocks will occur. We're seeing supply disruption happen in real-time, right now.
A Raging Bull Market In Commodities Is Coming
Insider Secret time. Most fund managers and certainly most investor subscription services will never admit or tell you what I am about to reveal…so here it goes…
…We do not know which of these sectors will do best…
(I know…you were expecting more…)
Chris knows that being diversified across as many of these commodity sectors as possible will be the only edge working in his favor. So that is what he is doing.
A Very Chaotic Period Of Time This Way Comes
Chris also sends a strong message about what is coming…A very chaotic period of time. We don't know what that is going to involve…
…could there be nationalization of copper mines? Sure, there could be. And could nationalization destroy some of Chris's copper positions? Absolutely.
But if you were only in well-known base metals, like copper, and not exposed to the lesser-known rare-earths, and let's say rare earth's don't get nationalized the same way, then you could be missing out on a huge opportunity.
This is one of those times where you really need to be paying attention
According to Chris, we are in a time when you must be well-diversified and monitoring the macro landscape as much as you can. This is what we are doing inside Rebel Capitalist Pro and why it's so important to be a member right now.
As we move into the darkness
Chris wants to be diversified and ready to pull the trigger on portfolio diversification in a heartbeat.
If his analysis and his experience are telling him that problems are coming, then he will make moves.
He just did it with his Bitcoin position a couple of weeks ago. The same position he has been holding onto since 2014 was liquidated somewhere above $50k.
He admits in the video that his bitcoin sale may have been a dumb move, but as of this writing he is looking like a genius, as bitcoin has entered deep-correction territory and is now sitting around $35k.
“I can get a much better return, with much lower risk, in different asset classes”
– Chris MacIntosh justifying his BTC sale.
In conclusion, Chris recommends not trying to overthink whether or not one asset is better than the other. When you've got different asset classes presenting decent risk/reward asymmetry in sectors poised for strong future growth, you can't lose.
Unfortunately, Chris feels we have a lot of risks coming our way and they will be moving fast.
He doesn't know exactly what is coming, but he knows that he must position his portfolio so he can be flexible.
Because he's practically watching events 24/7, he can identify risks before they hit, and shift accordingly.