Economy bouncing back strongly

With no of daily new covid cases ‘stabilizing’, the economic activity across the country has also resumed. Businesses have become far more adaptive of the new world order. Nomura just released its India Business Resumption Index, which is a measure of various parameters pertaining to economic activity. It tracks mobility data from Google and Apple, labour force participation rate and power demand. The good news is that it is at a record high of 101.2, surpassing Feb 2020 levels. Just to give you a context, it had fallen down to 60.4 in May 2021, when cases and lockdowns were at their peak

During our conversations, we like to talk about themes that aren’t really in the spotlight. So, while New Fund offers (in MFs) and IPOs (stocks) are the talk of the town ( or WhatsApp groups , in today’s times) , we would like to talk about a completely different asset class : Gold.

No, the Gold jewellery you buy is not an investment

At BuckSpeak, one of the key characteristics of an investment, is that you should be able to buy and sell it dispassionately. Any piece of investment that you make, should be put through this test.

Gold, its place in the sun

We aren’t huge fans of Gold, but we respect it. We are extremely clear on what role it has to play in the portfolio. It’s a HEDGE. Oxford Dictionary defines Hedge as ‘a fence or boundary formed by closely growing bushes or shrubs. I like this definition a lot better than the financial one (a tool to protect yourself against financial loss). So, it’s not the core of the portfolio, but the portfolio gets enhanced and protected due to its presence. Hence it also would be a mistake, if you make this the core of your portfolio. Our recommendation: Gold should be 5-7 % of a mature portfolio.

Why is Gold a Hedge?

All our investments (asset classes) are a function of optimism, gold (for most periods) is a function of pessimism. Equity, Debt, Real Estate and even our own job/businesses fall under the first category. Contrary to what we might think at an individual level, world mostly remains optimistic (I know it’s not an easy sell in today’s time). However, the world would see bouts of pessimism and it is during such periods, that Gold delivers.

Why now?

You know, when it comes to our recommendations, we follow the principle of #ToughConvincing. Gold has corrected 15-16 % (as on 15^th Aug 2021), since its last peak in Aug 2020.  It’s a good time to accumulate. We anyway recommend adding gold through SIPs / STPs, in a granular fashion, but this would be a good time to add some lumpsums as well. But please bear in mind that Gold equally requires your patience, a bit like equity.

It can very well deliver negative to low positive returns for long periods (even 5 years). However, we have been able to calibrate our participation in the past at right levels. For all our holdings more than 5-year-old, the current CAGR in gold is between 9 % -14 % p.a. Though, the last 5-year return for the asset is around 7.2-7.5 % p.a. So, Investor Return (at BuckSpeak) > Investment Return Curating an investment portfolio is like building a sports team, you need players with different (complementary) skills to perform distinct roles. Key is to remember that not all of them would perform at the same time. Alas, you couldn’t win even if you had 11 Sachin Tendulkar’s(sic) in your team.

Disclaimer: Any calculation shown in this post is only for illustrative purposes and based on prevailing tax laws and the past performance of a fund or investment is not an indicator of it’s future performance. The data used in this presentation has been taken from several sources. Neither BuckSpeak nor any of its employees or Subir Jha vouches for the authenticity of the data. Investing in mutual fund comes with market risk. Please read all Scheme Information Documents (SID) /Key Information Memorandum (KIM) and addendums issued thereto from time to time information and other related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund. Investment should be done in consultant with a financial planner/consultant, who would recommend products aligned to your needs and risk profile. There are no guaranteed returns. Neither BUCKSPEAK NOR ITS EMPLOYEES, makes any warranties or representations, express or implied, on products offered and would be responsible for any losses from these investments. The company earns commission from Asset Management Companies when the user buys mutual funds. However, the recommendations on funds is not influenced by the commission earned.