At the peak of the financial crisis in March of 2009, I was skeet-shooting with a good ol’ boy in Texas. I don’t skeet-shoot often. In fact, this was only my second time. The conversation centered around where to stash one’s cash in uncertain times such as this.
“Larry,” my friend said, “there’s the four Gs. Gas, Gold, Ground, and….”
“What’s the fourth,” I asked, being slow-witted as I sometimes am.
He answered with a blast of his 12-gauge shotgun, blowing the next clay pigeon to smithereens. And, man, was he right. The theory is you buy only the things that are hard assets with actual value, or things people MUST have.
Gas: Really, it’s anything having to do with energy, but then it wouldn’t be a “G.” Light Crude was trading around $40 a barrel back then, and it’s now up close to $100. United States Gasoline Fund (NYSE:UGA) was around $25, and it’s now at $61. Exxon Mobil (NYSE:XOM) was in the mid-$60s and is just shy of $90 at this writing. Chevron (NYSE:CVX) has actually outperformed its peers, also having been in the mid-$60s and now at $114.
Do I think this trend will continue? Yes. A very big YES. I consider energy to be a “Forever Hold” for your diversified portfolio because the world will always need fuel. For the foreseeable future, that will mean petroleum fuels. Solar isn’t realistic and is losing money because it’s not paying for itself. Wind is too complex, and nuclear opponents are keeping a lid on that industry.
Gold: The yellow metal was around $900 in March 2009, and it’s at $1,725 now. I think the easy money here has been made. The question now is whether there’s further upside.
I wrote a few weeks back how badly burned I’ve gotten trying to trade gold. I reiterate the stance from that article. I think the safest way to play gold is to just buy the SPDR Gold Shares (NYSE:GLD) as part of a diversified portfolio, and decrease that position if and when the world is in a better place economically.
You could also purchase the Market Vectors Gold Mining ETF (NYSE:GDX), which removes you from direct exposure to gold prices, but exposes you to the operational risk for these companies. That’s why you get an ETF, though, to spread that risk.
Ground: “I’m talkin’ real estate, young man! Real estate, I say!” You can go a lot of ways here. There are so many REITs to choose from in so many sectors. Over the long term, residential remains ridiculously cheap because there is still a backlog of foreclosures. There may be further downside to the housing market, but in the grand scheme, we’re looking at a generational low.
The iShares FTSE NAREIT Retail Capped ETF (NYSE:REZ) has the most residential exposure, at about 50% of its fund, and pays a 2.9% dividend.
I love storage REITs right now because as they’re able to monetize their real estate by charging folks who had to leave their homes and can’t fit all their junk into apartments. Public Storage (NYSE:PSA) is probably the safest play, and it’s buying back all its preferred shares Series X, so it’s on really stable financial ground, and pays a 3% dividend. These stocks have tripled and added 160%, respectively, since the March 2009 lows.
Guns: You’ve got two solid choices here. Smith & Wesson (NASDAQ:SWHC) and Sturm, Ruger (NYSE:RGR). The former just…uh….”blew away” estimates, with sales up 48% among other metrics. It’s increasing capacity to meet high demand. The company is set to grow 75% this year and 15% next year and is 15x earnings. That’s a buy. The latter is growing 50% this year and trades at 15x earnings also. Both are in solid shape, but I think Smith & Wesson has a tad bit more value.
So buy up some ground in Texas, bring your Smith & Wesson, dig a hole in that ground to store yer gold, and if you hit oil while you dig, so much the better!
Lawrence Meyers owns shares of GLD, but does not own a gun. Yet.
