"Every generation throws a hero up the pop charts."
But for the purpose of this article, I would change these famous
Paul Simon words slightly to "Everymarket cycle throws aninvestment
guru up the press charts."
And the pontificator
is Swiss economist Marc Faber, a lifelong investmentcontrarian who
is also known by the moniker "Dr. Doom."
Faber is most famous for warning his readers to dump theirstock
holdings prior to the market crash of 1987. He also predicted
thebull market for oil, precious metal, commodities andemerging
markets -- particularly China -- in 2002. In 2009, he predicted the
U.S. stock market bottom, and was right in his predictions for
2011/2012. In addition, his prediction that the Federal Reserve
would step in with unlimited quantitative-easing programs has come
It's no wonder Faber has earned quite the reputation for being
an accurate market predictor.
So what does Dr. Doom say about 2013?
He is convinced investors are way too optimistic about the
U.S.economy for 2013. Here are his words from his "Gloom, Doom
"That something is not quite right with the economy is
evident from the recent performance of Wal-Mart, Tiffany,
Genesco, and Kohl's. What disturbs me about mostasset markets is
that we had outsized gains since early 2009 (there are exceptions
such as Vietnamese, Chinese, Japanese, and Europeanequities , and
also U.S. housing).
In my opinion, investors' expectations about future returns
on their assets are far too optimistic. In a world that currently
hardly grows, investorswill need to reduce their future return
expectations. I believe 2013 will not be a favourable year for
holders of assets. My priority has now shifted to the
preservation of the outsized gains I have achieved over the last
He cites a breakdown in the technical picture of the U.S. market
and 2012's huge bounce from the lows as reasons for hisbearish
If investors still want to ownstocks , then he recommends
Vietnamese, Chinese and Japanese.
And despite referring to himself as the "most bearish person on
Earth" duringInvesting " conference, he suggested a diversified
portfolio to weather 2013.
His exact recommendation: Diversify your portfolio into four
These segments are 25% in equities, 25% in precious metals, 25%
incash andbonds , and 25% inreal estate . Faber said he doesn't
expect any of these asset classes to increase substantially this
year, but they are likely to preserve your wealth.
And because there's no information available about Dr. Doom's
portfolio holdings, the next best thing is to design aproxy
portfolio based on his recommendations.
So I built a portfolio based on his "25-25-25-25" allocations.
And since the main point is to "diversify," I think
) is the best route to take so single-stock risk is minimized.
25% stock allocation
Because Faber clearly does not like the U.S. stock market at the
current levels, and leans toward Japanese, Chinese or Vietnamese
stocks, an equal allocation to ETFs that track their respective
markets should fit his recommendation.
iShares MSCI JapanIndex ETF (
Market Vectors Vietnam ETF (
PowerShares Golden Dragon ETF (
are my favorites in this category.
25% in precious metals
SPDR Gold Trust (
is a good fit for this segment of Faber's proxy portfolio. This ETF
replicates the performance and price of the gold bullion.
25% in cash and bonds
Sticking with his words to the letter, an equal allocation to cash
and bonds make sense. I like Vanguard's
Total Bond MarketIndex Fund (VBMFX)
to mimic the broadbond market.
25% real estate
Schwab U.S. REIT ETF (
provides deep and wide exposure the U.S. real estate market
fulfilling this segment of Dr. Doom's 2013 proxy portfolio.
Risks to Consider:
While I can find little fault with Faber'sdiversification
recommendations, no matter how accurate a market guru has been in
the past, there's no telling when a major mistake will occur.
Should the U.S. stock market continue higher on its currentbullish
path, then Faber's followers will miss out on profiting from the
strong bull market already underway.
Action to Take -- >
Although I see the U.S. stock market continuing higher for at least
the first half of 2013, Faber's 25-25-25-25 suggestions for a
diversified portfolio make sense if your intention is merely to