Twice in the last three weeks, Wall Street Journal personal finance blogger Jason Zweig has taken aim at GOP Presidential candidate Ron Paul…not for anything Dr. Paul has said, or for any of his policy proposals, but rather to criticise his investment portfolio. In his 21 December 2011 post, Mr. Zweig wrote:
…[W]e’ve never seen a more unorthodox portfolio than Ron Paul’s.… It’s shockingly different.…[A]bout 21% of Rep. Paul’s holdings are in real estate and roughly 14% in cash. But he owns no bonds or bond funds and has only 0.1% in stock funds…. The remainder of Rep. Paul’s portfolio—fully 64% of his assets—is entirely in gold and silver mining stocks….
So, how has this “shockingly different” portfolio performed? Well, in his 21 December post, Mr. Zweig did not address this question. And the answer is not straightforward. Since the disclosure forms that representatives fill out only provide a range of values for each asset—and do not disclose the date of acquisition—it is impossible to calculate a precise return on investment for the portfolio. Dr. Paul’s most recent form dates from May 2010, but judging from earlier disclosure form submissions, it appears that he has held most of his mining stock investments since at least 2002. Using historical data from Yahoo!, here is a summary of how the stocks Dr. Paul owns have fared so far this Century (that is, since 29 December 2000):
|Agnico Eagle Mines||AEM||250,000||527%||18%|
|Pan American Silver||PAAS||100,000||736%||21%|
|Golden Star Resources||GSS||50,000||83%||6%|
|Allied Nevada Gold||ANV||15,000||451%||43%|
|Coeur D’Alene Mines||CDE||15,000||157%||9%|
|Federated Prudent Bear A||BEARX||15,000||41%||3%|
|Great Basin Gold||GBG||15,000||30%||2%|
|RYDEX DYNAMIC FDS, INVERSE NASD||RYVNX||15,000||-92%||-21%|
|RYDEX SERIES FDS, INVERSE S&P 500||RYURX||15,000||-28%||-3%|
|Wesdome Gold Mines||WDOFF.PK||15,000||45%||14%|
|Petrol Oil & Gas||POIG.PK||1,000||-100%||-47%|
- Max Value = the maximum value of the asset as listed in Dr. Paul’s disclosure form
- ROI = the overall return on investment for that position
- CAGR = compounded annual growth rate (annualized ROI) for that position from 29 Dec 00 to 30 Dec 11 (dates for some positions vary as appropriate…e.g., MMG was bought out by HL in 2011 so the enddate for calculating MMG performance is 29 Apr 11)
For the entire 11-year period, the CAGR for Dr. Paul’s stock portfolio is 19%. That is, +19%, on average, every year for 11 years! During those same 11 years, the S&P 500 declined overall by 5%, which amounts to a CAGR of 0%…but that does not count dividends; add them in and the CAGR is a tad under +3%. What about bonds? The 11-year CAGR of PIMCO’s massive Total Return Fund is about +1%.
I am not the only one handy with spreadsheets. There were over 300 comments appended to Mr. Zweig’s post, many of which pointed out that Dr. Paul’s investment strategy was running rings around the market. But, while in his followup post Mr. Zweig graciously conceded the point—his guesstimate of how well the portfolio may have performed is +23% on a CAGR basis, more generous than my calculations—he was still not impressed. In yesterday’s “How Weird is Ron Paul’s Portfolio?” post, he opined:
…[P]erformance alone can’t tell you whether an investment approach is sensible or not. After all, over the 10 years ended Dec. 31, 1999, Internet stocks far outperformed most other investments. That didn’t ensure that they would continue to do so in the years to come, and it certainly didn’t mean that it was prudent to put all or most of your money into stocks like Pets.com or eToys Inc. …[I]nvesting isn’t just about maximizing your upside if you turn out to be right. It’s also about minimizing your downside if you turn out to be wrong. Putting two-thirds of all your assets into one concentrated bet is a great idea if the future plays out just as you imagine it will—but a rotten idea if the future turns out to be full of surprises. …[I]f the future happens to unfold in ways [Dr. Paul] doesn’t expect, then his hot investment portfolio is likely to go cold in a hurry.
Well, of course it is true by definition that banking on a particular outcome is more risky than hedging your bets. But that does not ipso facto render such a strategy to be nonsense!
Dr. Paul’s portfolio employs a macro-strategy approach that by its nature seeks to derive concentrated bets from political-economic-social analysis. Within the framework of this strategy, betting against the anticipated outcome is what constitutes nonsense. Risk management here is accomplished via constant vigilant attention to the macros, not by betting against yourself. If The Powers That Be stop prosecuting illegal and wasteful wars, stop printing money to bail out criminal banksters, and stop promising the future income of our children for present-day indulgences that are beyond our means, it will be evident things are going that way well before the value of Dr. Paul’s gold holdings are much affected and he or his financial advisors will have ample opportunity to redeploy his investment dollars.
In his initial blast against Dr. Paul, Mr. Zweig gratuitously pats himself on the back for having “revealed problematic trading in Congress more than a year and a half before the ‘60 Minutes’ episode that recently raised a ruckus over the same topic.” Given that it is manifestly obvious that Dr. Paul is not employing insider tips to enrich himself, it’s not clear why this topic would be mentioned.
But in this light, perhaps the word “weird” is not so far off after all. Here we have a Congressman whose investments [a] are congruent with his diagnosis of what ails the Republic, [b] are decidedly not informed by the sort of illicit inside information that Congress has corruptly made technically legal for their members to use (which if you or I used, should likely land us in jail), and [c] are highly profitable. I suppose in the statistical sense of being unusual, that is a weird combination…and too bad for that; we’d all be better off if it were more common.