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Gold Really Isn’t All That Special

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Photo credit: jirotrom

I shared my thoughts on gold with Jeff Reeves for his recent article in USA Today.

 

You’ve seen the ads for gold in your Internet browser or during commercial breaks on cable news. “Gold is the ultimate safe haven,” they claim, or “Gold is the only true currency in the world.”

And in a year like this one, those marketing messages seem to add up. After all, gold prices are up more than 25% so far in 2016 amid plenty of uncertainty — including, most recently, the United Kingdom’s groundbreaking Brexit vote to leave the European Union, which has thrown the economic alliance and its shared currency into turmoil.

But is gold really a must-own investment in 2016, or just a glittery fad?

“The mystique around gold can get a little kooky, actually resembling a fundamentalist religion. ‘Gold is the one true currency’ is something I hear often, and I roll my eyes every time,” says Charles Sizemore, principal of Sizemore Capital Management in Dallas. “Gold is just a commodity like any other. It’s better suited as a store of value than, say, cattle or corn, because it is imperishable. But it’s still just a shiny metal.”

Sizemore acknowledges gold’s long-term underperformance but says the precious metal still can serve a useful purpose for investors making more tactical trades — say, those hedging against the risk of inflation or looking for an alternative investment to stocks in the very short term.

“I say this mostly joking, but I consider gold a little like a handgun,” Sizemore says. “It’s something that is good to have, just in case. But you hope you never have to use it.”

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Protecting Against An Inflation Surprise

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I don’t see much in the way of inflation coming down the pipeline. In fact, I see the same deflationary forces that are plaguing Japan and Europe to continue nipping at our heels for the next several years.

But… let’s say I’m wrong. Let’s say something comes out of left field that ignites inflation. What then?

I gave my thoughts on inflation to Kira Brecht, writing for US News and World Reports:

“Real estate is a natural inflation hedge that also tends to pay decent current income. A basket of REITs is generally a good addition to any portfolio, and now more than ever,” says Charles Sizemore, founder of Sizemore Capital Management.

One option for investors includes the Vanguard REIT ETF (VNQ). Sizemore calls it “a very solid option. It gives broad diversification to the REIT sector and has the lowest fees of any of its competitors.”

Sizemore says the best advice for investors now may be to stay flexible.

“Be willing to invest in new ways you’ve never invested before,” he says. “We’re in uncharted territory. We’ve never had negative interest rates, nor have we had this level of central bank manipulation. We don’t know how this story ends, so we need to stay nimble and flexible.”

You can read the full article here.

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Searching for Dividends in the Retail Sector

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I gave my thoughts on the retail sector to Reuters’ Caroline Valetkevitch. Here is an excerpt of the article:

Some of the best deals at big retailers like Macy’s, Staples and Gap are not in their stores but on the stock market: their dividends are through the roof.

After a Wall Street selloff hit shares of stores that turned in weak earnings for the latest quarter, the companies are sporting yields at historically high levels…

But experts warn that unusually high dividend yields can be a trap, and retailers more typically are seen as cyclical stocks with below-average yields…

Nonetheless, some investors think the leap is worthwhile. Charles Sizemore, who focuses on dividend stocks as chief investment officer of Sizemore Capital Management in Dallas, said he owns and is bullish on shares of Wal-Mart (WMT) and Target (TGT), both yielding roughly 3 percent and with histories of raising their dividends.

He said he would shy away from smaller specialty retailers. “Retail is volatile because consumer tastes change, and the entire sector is undergoing a structural change because of e-commerce.”

Still, he doesn’t think retailers in general are at risk of having to slash their dividends like many energy companies have been forced to do. They are still making enough money to cover their dividends, and that wasn’t the case with the most stressed oil companies in recent months…

Many high-yield retailers have solid balance sheets, even if their earnings are weak, said Sizemore. “If anything, they would be raising their dividends, because they have nothing else to do with their cash.”

You can read the full article here.

High dividend yields in the retail sector are essentially a product of two factors:

  1. Investors have dumped the sector en masse, pushing stock prices down.
  2. Facing a dearth of opportunity to expand and reinvest in their businesses, retailers are choosing to spend more of their cash on dividends.

The entire retail space is being transformed by the likes of Amazon (AMZN) and its peers, but in an otherwise overpriced stock market, some of the beaten-down retailers are finally cheap enough to warrant consideration.

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What’s Ahead for Ford and GM?

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Photo credit: Adam Dooley

I recently gave my thoughts on Ford (F) and General Motors (GM) to US News and World Reports’ Lou Carlozo:

“Ford and GM have both had excellent runs operationally,” says Charles Sizemore, a portfolio manager on Covestor and founder of Sizemore Capital Management in Dallas. “Sales have been robust and profits have followed. Yet Wall Street seems unduly pessimistic about their prospects going forward, pricing in pretty significant sales declines.”

Another reason for the pessimism revolves around a bad accident that hasn’t even happened yet: skyrocketing interest rates.

“Yes, rising interest rates — if they ever actually happen — are bad for auto sales, which depend on credit,” Sizemore says. “I get that. But if the economic outlook is as bad as the prices of auto stocks suggest, then U.S. stocks should not be trading at a Shiller price-to-earnings ratio of 26. So either investors are wrong about auto stocks — or they’re wrong about the rest of the market.”

You can read the full article here.

I’m currently long both General Motors and Ford in my Dividend Growth portfolio and expect both to deliver outsized total returns in the year  ahead.

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Lessons Learned From Prince’s Untimely Death

I gave my thoughts to Kiplinger’s Stacy Rapacon on lessons we can learn from the unfortunate passing of Prince. The music legend apparently passed away without a proper estate plan. Or if he had an estate plan, no one knows where it is… which is just as bad. See below:

Keep a copy of your will somewhere handy and be sure to tell your family—or at least your lawyer—where it is. All the estate planning in the world is for naught if your loved ones don’t know where the documents are. In Prince’s case, he was unmarried and had no surviving children, so at least in this case there are no grieving widows and orphans to worry about. But chances are that Prince intended his multi-million-dollar fortune to go, if not to a friend or friends, then to a charity. His wishes may never be carried out if his will cannot be found.

I’ve told my wife repeatedly where to look for the documents in the event I meet an untimely end. But I also know good and well that, if that day came, she might not be mentally able to deal with it at first. So, I keep one of the estate lawyer’s business cards pinned to the bulletin board in our kitchen. Yes, it’s a little morbid, but at least the number is there to call if she needs it. The estate lawyer has copies of all of our documents in the event that the originals are lost or destroyed.

You can read the full article here.

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