This article picks up where Your Investing Blueprint For Inflation, Deflation, Or Recession leaves off. If you would like to catch the beginning, then please start there.
How to Build an Investment portfolio
As of this writing, the global economy has entered an inflationary environment. Supply chains have been crushed, while trillions of dollars in excess currency units have been printed.
How do you know what investment portfolio to build with so many differing points of view from economists and money managers?
Inflation is here, so what? How long will it last and what comes next? Deflation? If so, then what to invest in, how much should you buy, and for how long should you hold it?
It's easy to see why investing can get so confusing.
If you are new to George Gammon, or maybe new to investing and you need help, then let me cut you off right here. The best thing you can do right now is to visit Rebel Capitalist Pro and sign up for a 7-day trial.
You'll get access to real professionals and their portfolios and stock picks. It's the fastest way to get up and running while you learn the ropes.
Specific Ideas For Your Personal Investing Blueprint
These ideas will help you survive and thrive in a cycle of inflation, deflation, and recession. We know for sure that Chris Cole's dragon portfolio is a great starting point for many of us but not all. There are two components that require options trading, long vol, and commodities trend following.
You can also try looking into an easier portfolio strategy, the 10/80/10. The 10/80/10 was created by George Gammon and this portfolio consists of 10% physical gold, 80% assets that pay you to own them, and 10% speculative assets.
Click on 10/80/10 to get access to a video that teaches you about it.
The Dragon Portfolio
To understand how the dragon portfolio works and why it works better than every other portfolio allocation out there, you have to first understand inflation and deflation.
Chris Cole sees inflation and deflation coming in 20-year cycles, which he calls either the hawk or the serpent.
What makes the dragon portfolio stand out from your average 60/40 risk parity portfolio is the hawk portion. It does well during a time of deleveraging in the economy.
The Hawk includes:
- Long volatility
- Commodity trend following
For gold, I'll assume most of you know how to invest in that. Commodity trend following, a little more esoteric, but it's not impossible. Long volatility gives people trouble.
There are ETFs that are long volatility like the VIXY.
Unfortunately, ETFs like this almost always have a negative carry, like USO. You'd have to buy futures then roll them over when the futures' curve is in contango. Contango is when the spot price is lower than the future price. ETFs like this always lose money over time.
To understand this further, read the definition Investopedia provides:
VIX ETF positions tend to decay over time as a result of the behavior of the VIX futures curve. As this decay takes place, these ETFs have less money to use to roll into subsequent futures contracts as existing ones expire. As time goes on, this process repeats itself multiple times and most VIX ETFs end up losing money over the long term.
Since we're looking at our portfolio in cycles of a minimum of 10 years, we definitely don't want something that's going to have a negative carry, so the VIX ETFs are out.
The other option is to invest in Chris Cole's fund. If you're an accredited investor, I definitely suggest checking it out. Artemis Capital is the name of his fund.
However, for most people watching this video, allocating a portion of your network to Chris Cole is not a realistic option. So let's get into specific investing ideas for the average Jane and Joe.
Specific Ideas For The Average Jane And Joe
So what can average Joe and Jane do?
1. Become observant of trends in the economy
If we go into a de-leveraging, regardless of whether it's an inflationary or a deflationary de-leveraging. Here are the key trends I recommend you follow:
- Society will become poorer. Especially retirees. We have this glut of the population retiring, the baby boomers.
If we go through inflation, they're going to struggle because their social security checks aren't going to keep pace with inflation. If we have a deflationary cycle, their 401ks will definitely take a hit and their pensions will most likely go bust.
- Social unrest. We've seen this growing all over the world, and I think it's only going to get worse in a de-leveraging cycle.
- Capital preservation. More so than capital appreciation. If you can get the appreciation, fantastic. But when you go into a cycle like this, your focus should be on maintaining your purchasing power.
Now let's dive into other more specific ideas that I came up with. I had a lot of help from my community on Twitter.
So if you're not following me on Twitter, make sure you do so just @GeorgeGammon. This is more American centric, but I think you can get some good ideas.
2. Invest In Farmland
I did some research and I saw that in the UK during the Great Depression farmland did well. It also did very well in the 1970s.
I also know farmland did well in the United States in the 1970s and in the1930s.
3. Invest In Trailer Parks
For obvious reasons, as a society, if we're getting poor, we still need a roof over our head, so people are going to look for the cheapest option possible.
4. Invest In Payday Loans
Unfortunately, the unemployment rate is extremely high for a long period of time, which means more and more people are going to need this type of service.
5. Invest In Cannabis
You know what they say, when we go into a recession, the things that do well are alcohol and cigarettes.
I think moving forward, you've got to throw in cannabis as well. I know a lot of these stocks have been in a bubble, and I'm not saying with any of these that you go out and buy them right now, I'm personally just putting them on a watch list.
So if they do get cheap, I know I can go in and buy them because I want to hold them for the next 10 to 20 years.
6. Invest In AutoZone
Or any auto parts store, not saying they're cheap now, but I think if we go into a recession or a de-leveraging, regardless of whether it's inflationary or deflationary, fewer people are going to be able to buy new cars. They need to work on their own cars and AutoZone, O'Reilly's, that's the place you go.
7. Invest In eBay
On the same note as AutoZone, if we're really struggling economically, people are going to need to sell some things maybe to put food on the table, keep a roof over their head, send their kid to school.
In the old days, we'd go to a garage sale. Nowadays you go straight to eBay to not only buy things cheap but to sell things to get cash in your back pocket.
8. Invest In Coal And Uranium
I know this may sound a little weird, but if we go into recession or depression, I think the last thing on politicians' minds is green energy.
I'm not saying this is right or wrong. All I'm saying, if society is getting poor and we're really struggling economically, we're going to look for the cheapest, most efficient energy source possible, and as you guys know, coal and uranium are extremely cheap right now.
Bonus: Outside the box ideas
Buy XYZ real estate
This means buying properties in:
- South America
- South-Eastern Europe
Just anywhere outside the United States, where that culture sees real estate as a safe-haven asset. Not only that, you've got a boomer Bill whose retirement checks are getting smaller and smaller as far as their purchasing power, and Moody the Millennial who can't find any opportunity in the United States.
So what do they do? Maybe they go to Mexico. Maybe they come to Colombia because the cost of living is so much lower. People can improve their standard of living.
I've seen it down here in Medellin the last couple of years firsthand. I can't even tell you how many retirees I see moving down here constantly.
And whenever I go to a coffee shop, prior to Covid-19, they were just packed with millennials on their computers trying to make money online with a side hustle. Whatever it is, they're trying to get outside of the United States to find more opportunities.
Now, we head over to the SSMGP, just like the Fed we have to have a four or five-letter solution for everything.
2. SSMGP: Super Smart Macro Guy Plan
I saw a video the other day, an interview that was fantastic on Real Vision between Raoul Pal and Hugh Hendry, who I just interviewed for my channel.
If you haven't seen that interview, make sure you do so. But I found very interesting the way they look at volatility in their own portfolio and in their own lives.
What I mean by that is both Raoul and Hugh have moved to very small islands in the Caribbean. Hugh moved to St. Barts, Raoul moved to Little Cayman.
In their discussion when they're talking about volatility and how to structure a portfolio, they both say that that's one of the main drivers for them moving to one of these small islands.
They bought real estate there, especially in Hugh's case, it's a positive carry asset. This means it's a positive cash flow. He's getting paid to own it. So they take out super cheap, fixed-rate debt.
They have a hard asset, in Hugh's case, it has a positive carry, and they're outside of the insanity bubble.
Meaning that regardless of what happens in the world, even Covid-19, they've got an additional level of freedom.
As an example, I'm here in Medellin in an apartment and they will not let you leave. You're on a government lockdown. It absolutely sucks, but Raoul and Hugh are off on a beach.
There are very few people around. They're on a big piece of property, so they can go outside, they can relax, they can get some sun.
Hugh can go surfing while I'm sitting here in Medellin, in a city, in a metropolitan area, stuck in my own apartment.
I know this doesn't directly pertain to investing, but it does pertain to personal freedom, and at the end of the day, that's why we're trying to increase our purchasing power.
So we have more personal freedom to do the things we want to do when we want to do them.
So taking this back to the United States, maybe it's not realistic for you to buy a property on a Caribbean Island, but hey, maybe you want to get outside of the city, get out of the urban area and buy a rural property.
Maybe a little farm, a house where you can grow your own food, you can get outside, get some sun and exercise, if we go through another round of the COVID.
But more importantly for the next 10, 20 years, if we do have social unrest, or if we have this insanity bubble, it will most likely be focused in the cities.
Therefore you remove yourself, you increase your personal freedom, and at the end of the day, like I said, that's what it's all about.