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Republican presidential candidate Rep. Ron Paul marches to his own drummer in politics "“ and in his investment portfolio, too.
Here at Total Return, we've looked at hundreds of the annual financial-disclosure forms in which the members of Congress reveal their assets and trades "“ and we've never seen a more unorthodox portfolio than Ron Paul's. (In fact, The Wall Street Journal revealed problematic trading in Congress more than a year and a half before the "60 Minutes" episode that recently raised a ruckus over the same topic, but that's another matter.)
According to data available through his 2010 "Form A" financial disclosure statement, filed last May, Rep. Paul's portfolio is valued between $2.44 million and $5.46 million. (Congressional disclosures are given in ranges, not precise amounts.)
Most members of Congress, like many Americans, hold some real estate, a few bonds or bond mutual funds, some individual stocks and a bundle of stock funds. Give or take a few percentage points, a typical Congressional portfolio might have 10% in cash, 10% in bonds or bond funds, 20% in real estate, and 60% in stocks or stock funds.
But Ron Paul's portfolio isn't merely different. It's shockingly different.
Yes, about 21% of Rep. Paul's holdings are in real estate and roughly 14% in cash. But he owns no bonds or bond funds and has only 0.1% in stock funds. Furthermore, the stock funds that Rep. Paul does own are all "short," or make bets against, U.S. stocks. One is a "double inverse" fund that, on a daily basis, goes up twice as much as its stock benchmark goes down.
The remainder of Rep. Paul's portfolio "“ fully 64% of his assets "“ is entirely in gold and silver mining stocks. He owns no Apple, no ExxonMobil, no Procter & Gamble, no General Electric, no Johnson & Johnson, not even a diversified mutual fund that holds a broad basket of stocks. Rep. Paul doesn’t own stock in any major companies at all except big precious-metals stocks like Barrick Gold, Goldcorp and Newmont Mining.
Rep. Paul also owns 23 other miners "“ many of them smaller, Canadian-based "juniors" whose stocks are highly risky. Ten of these stocks have total market valuations of less than $500 million, a common definition of a "microcap" stock. Mr. Paul has between $100,010 and $326,000 (roughly 5% of his assets) invested in these tiny, extremely volatile stocks.
Rep. Paul appears to be a strict buy-and-hold investor who rarely trades; he has held many of his mining stocks since at least 2002. But, as gold and silver prices have fallen sharply since September, precious-metals equities have also taken a pounding, with many dropping 20% or more. That exposes the risk in making a big bet on one narrow sector.
At our request, William Bernstein, an investment manager at Efficient Portfolio Advisors in Eastford, Conn., reviewed Rep. Paul’s portfolio as set out in the annual disclosure statement. Mr. Bernstein says he has never seen such an extreme bet on economic catastrophe. ”This portfolio is a half-step away from a cellar-full of canned goods and nine-millimeter rounds,” he says.
There are many possible doomsday scenarios for the U.S. economy and financial markets, explains Mr. Bernstein, and Rep. Paul’s portfolio protects against only one of them: unexpected inflation accompanied by a collapse in the value of the dollar. If deflation (to name one other possibility) occurs instead, “this portfolio is at great risk” because of its lack of bonds and high exposure to gold.
Running an investment portfolio that protects against only one bad outcome is like living in California and buying homeowner’s insurance that protects only against earthquakes, says Mr. Bernstein. You also want protection against fire and wind and theft and the full range of risks that houses are prone to. Likewise, he adds, investors should hold a broad mix of assets that will hold up under a variety of good and bad scenarios.
A spokeswoman for Rep. Paul didn't respond to requests for comment. But you can say this for Ron Paul: In investing, as in politics, he has the courage of his convictions.
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shWN wrote : Can someone estimate how that investment has worked for him since 2002?
Sure shWN, that’s a 588% return since early 2002 through today. That was the best asset class investment available in the markets. Smart investment by Dr. Paul that will become even smarter in the months and year ahead.
Good call on Ron’s part. Hope the gold is not in worthless paper “gold.”
The WSJ is where the Banker Executives that stole money from the tax payers get their information. It is their propaganda machine so that they can continue funneling what is yours into their circle of power. Ron Paul will create free markets where if you can’t run a bank without bankrupting it then you go out of business. That is why I support Ron Paul.
This is commonly known as putting your money where your mouth is. I wonder if that highly-regarded trait of Ron Paul is more of a surprise than the makeup of his portfolio. Guess what, you haven’t surprised me, but then again, you have to know the man to make this a trivial conclusion. Good morning, America!
Why is Paul’s holdings a surprise? Are you totally unfamiliar with his writings and talks? He is hedging against the #1 risk he warns about every day. And the “canned goods” quote is just ad hominen, not journalism.
Total Return covers the latest personal-finance and investing news and trends, helping readers make sensible money decisions in a complex financial world. Send your comments, feedback and questions to totalreturn@wsj.com.
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