Gold & Silver: Learning Lessons From “Smart Money”
$GLD, $SLV, $ABX, $GG, $EXCFF, $SLW
There are always lessons that to be learned from the “smart money”
Unlike regular investors, money managers like Ray Dalio and Stan Druckenmiller are professional investors. They have institutional teams at that dive deep into the nuances and complexities of the global market, plus spend every waking moment of their lives thinking about how to get more from their investments. Ray Dalio meditates on solutions and methods daily,
Their mission is to make money, and to execute on strategies that will protect their wealth and build robust portfolios that can withstand any type of macro event for their clients and themselves.
Since the beginning of this year, some of these rich and savvy investors have turned to precious metals like Gold as a part of their overall investment strategies.
The Big Q: Why are these billionaire money managers buying precious metals for their portfolios?
The Big A: There are 6 Key reasone: wealth preservation, store of value, inflation hedge, portfolio diversification, future upside, and investment fundamentals.
Below is some insight into what the big money is doing now, as follows:
1. Lord Jacob Rothschild: In late Summer of Y 2016, Lord Rothschild announced changes to the RIT Partners portfolio because he was worried about very low interest rates, negative yields, and QE (quantitative easing), saying they are part of the “greatest monetary experiment in monetary policy in the history of the world”.
His solution? Buy Gold to help preserve wealth, and as a store of value for the future.
2. David Einhorn: Mr. Einhorn has a similar assessment. He believes that monetary policy is becoming increasingly adventurous, and that this – along with the policies of The Trump Administration will eventually lead to large amounts of inflation. And this is what we here are HeffX-LTN believe too.
In February 2017, he shorted sovereigns (bonds), and bought Gold.
3. Ray Dalio: Mr. Dalio is the founder of the world’s #1 hedge fund, Bridgewater Associates, but he is no stranger to Gold.
“If you don’t own Gold, you know neither history nor economics.”– Ray Dalio said.
In Y 2016, Mr. Dalio in a note to investors said, “… to own a well-diversified portfolio that is 5-10% Gold.”
4. Stanley Druckenmiller: Mr. Druckenmiller, some say, is the best money manager of all time.
Lately, he’s placed his bets on Gold too, but for different reasons than the above money managers. Mr. Druckenmiller has always placed big trades with lots of conviction, and in February 2017 he put his money in Gold because “no country wants its currency to strengthen”.
In February of this year I interviewed my friend Brett Heath the founder/CEO of Metella Royalty & Streaming , Ltd.(OTCMKT:EXCFF) Below is some what Brett had to say about Gold, as follows:
Paul, I have been involved in streaming and royalty companies for the last 4 years. I’ve done it publicly. I’ve done it privately. I’ve worked with other public companies. I’ve also done deals with private equity firms. Prior to that, I ran a hedge fund that was focused on development and junior producing companies, and I was able to build relationships with a lot of management teams in the mining sector, this space that we’re focused on specifically in regards to future deal flow. That has been Key in building out our current pipeline and the transactions that we’ve been working on in the past and currently.
The best part about Royalty & Streaming companies is they are incredibly scalable. You do not need a 100 employees to create a big company. These companies have the highest revenue per employee ratios out of any other businesses. Silver Wheaton (NYSE:SLW) for instance, does $24-M in revenue per employee, Franco Nevada does $20-M in revenue per employee. So a small team can generate a lot of value for shareholders.
Our overall goal is to create the best vehicle to invest in for precious metals exposure for this next bull cycle. We’re going to do this by acquiring a portfolio of royalties and streams. The reason you want to own streaming and royalty companies at the beginning of a cycle is because you get what I call 3X leverage.
The 1st part of the leverage is the internal company growth. That means every time we execute a transaction and create free cash flow from these royalties and streams, we’re going to get revalued in the market comparable to these other companies. The second part of the leverage is an appreciating gold and silver price. When we do these deals, we model them at today’s prices. When you have rising gold and silver prices, these cash flows can sometimes double and even triple with just a modest rise.
The 3rd bit of leverage that goes with that is the expansion of the multiples. The royalty and streaming companies trade based on multiples of cash flow, with the bigger companies, Royal Gold, Franco, and Silver Wheaton trade between 20 and sometimes up to 40X cash flow in bull markets. When we can create a company that has internal growth by additional transactions, a rising cash flow from rising metal prices, and rising multiples on how they are valued, this is what makes huge winners. That is the reason these companies have been so successful in the past.
For the complete interview click here please.
Have a terrific week.