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How Billionaires Prepare for Bear Markets

BY Sprott | Tuesday, May 14, 2019

Gold is considered the undisputed king of uncorrelated assets and is a proven, safe haven investment that lets investors sleep at night.

Many investors turn to gold to hedge against the prospect of a bear market, defined as a prolonged downturn in which stock prices fall by at least 20% over two months or more.

2019: More Billionaires Embrace Gold

Not surprisingly, some of the world’s most elite investors have shifted their fortunes into gold to take advantage of these traits.

Hedge fund bigwigs like Ray Dalio, Paul Tudor Jones, David Einhorn and John Paulson have made similar moves into the yellow metal. In early-2019, Sam Zell, the famous real estate mogul who invented the REIT, bought a substantial position in gold for the first time ever, saying he thought it was a “good hedge” and that “supply was shrinking.”

“Bond King” Jeffrey Gundlach, CEO of DoubleLine, endorsed gold in June: “I am certainly long gold,” said Gundlach. He believes that there is a 40-45% chance of a recession within six months, and a 65% chance in the next year.

Paul Tudor Jones championed gold on Jun 13, 2019: "The best trade is going to be gold. If I have to pick my favorite for the next 12-24 months it probably would be gold…it has everything going for it."

Ray Dalio increased Bridgewater's exposure to gold in Q1 2019. Dalio is the founder of the world’s largest hedge fund, Bridgewater Associates (~ $150 billion in assets). Dalio recommends that all investors should hold 5-10% gold as a hedge.

View the Full Series: Why The World's Billionaire Investors Buy Precious Metals

Video Transcript

In both bull markets or in bear markets, the world’s most elite investors are constantly working to protect their wealth.

This may seem like paranoia – but in reality, it’s quite prudent.

You see, circumstances can change quickly – and when things do go sour in the stock market and the bears take over, it pays to be prepared.

A diverse, non-correlated portfolio

According to investment experts, the way to protect investments is to have a diverse portfolio that holds different types of asset classes, especially ones that are uncorrelated. This means that the price movement of one asset has no effect on the price movement of the other asset.

While this may sound complicated, it just means that you don’t want the pieces of your portfolio all moving in the same direction – up or down – at the same time. This is especially important when stock markets take a dive, and your portfolio needs a lot of protection.

The world’s billionaires and elite investors understand this, and many of them turn to gold - one of the great uncorrelated assets – to help them sleep at night, especially when the stock market moves south. Gold is non-correlated with stocks, and gold adds no systematic risk to an investor’s portfolio.

Here’s how gold can mitigate risks in any type of market situation:

Gold has acted as a store of value for thousands of years
Gold can reduce the volatility of a portfolio
Gold can act as a hedge against inflation
Gold is a traditional safe haven against various types of financial disaster scenarios

These traits are all made possible by gold’s extremely unique physical properties, as well as its extensive history as a monetary metal and a financial asset.

How Billionaires protect themselves

Not surprisingly, some of the world’s most elite investors have turned to gold to protect their fortunes.

Ray Dalio, for example, uses gold to protect Bridgewater Associates – the world’s largest hedge fund with $150 billion in investments - and he has constantly re-iterated that all investors should look at holding 5-10% gold as a hedge.

Fellow hedge fund bigwigs like David Einhorn, John Paulson, and Paul Tudor Jones have made similar moves into the yellow metal.

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