Stellar Potential

Posted by Michael Berry , Ph.D. - Discovery Notes

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Michael Berry: Discovery Investing’s Stellar Potential

Discovery Investing pioneer Dr. Michael Berry’s number-one hedging strategy against the struggling U.S. dollar is to simply own currencies of the commodity countries—of which Canada is his favorite. When Michael grew up in Canada, he recalls its currency— now fondly known as the loonie because of the image of the loon used on the die for the back of the C$1 coin—always being worth more than the U.S. dollar. We’ll be revisiting those good ol’ days within the next year, he predicts, as the Canadian dollar reaches parity with the greenback and then goes beyond. In addition to holding loonies and their C$2 counterparts, the toonies, Michael tells The Gold Report, in this exclusive interview that he believes in “some exposure to the physical” in every investor’s portfolio, maybe as little as 1%. He’s also a staunch believer in keeping a place in the portfolio for discovery investments, ideally in a mixture of incubator, mature and legacy companies, to partake in the bonanzas that can come when promising discoveries make it to the world-class stage.

The Gold Report: Gold is in the news. You’ve been talking about investing in gold for years, and now all of the investment programs are talking about it. In one of your recent Morning Notes, you said, “Today, you must own and hold gold bullion or coins.” But how much more can an investor expect on the heels of a 215% increase in the gold price over the past four years?

Michael Berry: In the first place, I said “coins and bullion” to differentiate from buying shares in the gold companies. I think it’s important for discovery investors, in particular, to hold the physical gold. And I said “you must hold it” because I think bad things are going to happen to our currency, even though right now we’re having a covering of the short dollar position and commodities are getting hit a little bit.

I am not suggesting that they necessarily need to buy a lot more of the physical metals. I am certainly very happy that gold came off $66 the first week in December and another $66 or so during the following week. So this is correction great; this is wonderful.

TGR: A pullback is wonderful?

MB: Yes. Gold was overbought; I kept watching it ascend and began to realize, “Hey, wait a minute, there’s too much froth here.” We knew we had to have a correction; there was a bit of a bubble forming. This correction is very good for gold, and it will allow people to come back in at a lower level. We will find the bottom—this is just a correction. It is not the beginning of a bear market in gold.

TGR: And when you say, “hold bullion or coins,” would you include ETFs, GoldMoney and so on, or do you want people actually hold the physical items?

MB: To answer your question directly, I exclude ETFs from the “bullion and coins” category. But I am not saying you shouldn’t also own an ETF, nor am I saying you shouldn’t also own a discovery company such as Goldcorp (TSX:G) (NYSE:GG). I am talking about having physical gold in your possession, however. As far as I am concerned, you need some exposure to the physical in your portfolio and at your disposal.

TGR: Given the turmoil in the markets and the economy, what percentage in physical silver or gold would you suggest people own?

MB: A relatively small portion, depending on your proclivity for risk and your view of the marketplace—maybe 1% to 5% of your portfolio. For some people that would be quite a bit, but not 10% or 15% or 20%. You always must feel comfortable with your position, so allocations toward the physical metals are going to be different for everyone.

TGR: In another one of your recent Morning Notes, you wrote that investors who are U.S. dollar based MUST (in all capital letters) develop an active investment-in-hedging strategy. Can you suggest some ways for our readers to look at hedging against the dollar?

MB: Hedging is a very specific term that usually connotes the use of options or futures contracts, where you can implement “delta hedging” to dynamically change your position over time. There’s always that, but I think you can also hedge by buying currencies; you can buy access to other currencies such as the Canadian dollar or the Aussie dollar that have more upside relative to the U.S. dollar.

My main hedging vehicle for the past six or seven years, when the Canadian dollar was at 62 cents, has always been to buy Canada. I like Canada because not only was I raised there and know the country very well, but it’s tied to the U.S. geographically and culturally and I think the Canadian dollar will benefit relative to the U.S. dollar. My number-one hedging strategy is to simply own those currencies of the commodity countries, basically, and Canada would be my recommended currency.

… more HERE ( quite a bit more actually)