Marc Faber: the perfect diversified portfolio

One of the best blogs in the investing community in English out there is Mebane Faber one.

He published some articles that first appeared in his book “Global Asset Allocation”.

One of those articles that called my attention was the one about Marc Faber, the director of the Gloom, Boom and Doom report.

By the way, despite sharing the surname these men are not family.

Marc Faber is famous for his appearances in American and World TV shows related to the world economy. He usually had a negative vision of the economy but not as bad as it may seem at first glance.

Marc Faber diversified investing portfolio

From an investing point of view, Marc Faber usually moves his funds among his different assets which include different kind of markets, including foreign stocks, exotic stocks, international bonds and estate property, commodities and specially gold, which had a terrible performance during many years after 2011

Mebane Faber assumed a simulated Marc Faber type of portfolio in which there would be 25% in each of the assets Marc names as best, like gold, real estate, stocks, etcetera.

Therefore Mebane put 25% of the virtual Marc portfolio like this: 25% in American and international stocks, 25% gold, 25% bonds and 25% REITS (real estate).

This portfolio would give us a much diversified investment, being a very interesting strategy since it is always likely that one of the groups will eventually behave very well, despite the fact that others may perform worse in the same time.

This portfolio we could call “global diversified portfolio”.

A no very popular one but to surprise of Mebane Fabcer, one of the best strategies when applied after 1973.

Logically, Marc Faber investments have not been the same as this supposed portfolio, but at least we can make an idea of how it is.

One of the things we could change from Mebane Faber is the fact that he put all gold investment in physical gold when probably a strategy in gold miners would have been better.

For instance, instead of 25% in gold, it would be good what it would be if it had 20% in gold miners and only 5% in physical gold.

Anyway, let us see the result that this virtual portfolio gave us in the period going from 1973 to 2013, 40 years with stock, gold, real estate and bond bubbles, and collapses as well.

diversified portfolio

The result, as seen in the data, it a 9.72% average return with a maximum drawdown of 28.14%. Compared to this, stocks returned 10.21% as average but with a 50.95% drawdown.

On the other hand, bonds had a return of 7.74% nominal return, although Mebane Faber supposedly adjusted for inflation. This is in spite of a major bear market in the seventies; however the bull market after 1980 is unparalleled.

Remember the impressive gains from those who have been investing in bond in the long-term from 1982.

In which it is, perhaps, the best part of the study, Marc Faber Portfolio had the best return in all the ten year periods after 1973, during the 70s, 80, 90s and 2000s with no negative period.

On the other hand the rest of the portfolios (stocks, gold, REITs or bonds) had some decade in loss.

For instance, during the 70s, “Marc Faber” portfolio had a bad result in stocks and bonds but a major result in gold.

In the 80s it was stocks and bonds that returned the best gains.

After the 2000s, the portfolio had moderate results in stocks, good in REITS and good in bonds, being a very balanced portfolio for stocks bulls and bear markets.

Diversifying investing

Without a doubt, here we have one of the most tranquil and profitable portfolios we could build for the long-term.

We could add some small variations but if we respect the overall idea, this “Marc Faber” type of portfolio would be one of the strategies to consider.

Ideally, a long-term investor could be able to have a better performance if he was able to see when any of the assets is over or under-valued.

Although, it is not easy to beat the market anyway.