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Michael Berry is known for his controversial predictions, and the latest SEC report is no exception. The big short investor completely divested himself of 14 stocks, including companies like Google, Amazon, and CVS. With the cash received, he increased his holdings in some existing stocks and added new companies to his portfolio.
However, a larger investment isn't in a single stock but in another asset class, and this reveals much about what Michael Berry expects from the stock market in the coming months. His portfolio is rarely just a collection of stocks; it often tells its own story. His fifth-largest holding is the Sport Physical Gold Trust, which, as the name suggests, invests in physical gold.
This ETF not only attempts to replicate the performance of gold but actually owns the gold in physical form. With this purchase, the gold portion of Michael Berry's portfolio now stands at just over 7%. And this is surprising for two reasons. Firstly, Michael Berry is considered a classic value investor who is constantly on the lookout for undervalued stocks with which he can achieve outperformance.
Gold is the complete opposite of this, as one rarely expects gold to deliver a return that beats the stock market; rather, gold or other precious metals are usually bought for other reasons. More on that later. Secondly, the price of gold has already risen by 20% in the last 12 months, and over a 5- year period, it's even over 60%.
Yet Michael Berry doesn't seem to care, and so he invested in the first quarter of 2024 anyway. But why should one invest in gold at all? Gold is often seen as a classic hedge against inflation. History has shown that when global crises or recessions occur, stocks can fall sharply, while gold rises precisely during these times.
The last major increase in the price of gold took place during the coronavirus crisis, when there was enormous uncertainty in the stock market. Especially during this time, a lot of money was produced, which led to high inflation. To protect themselves against the loss of value of money caused by inflation, many investors turned to gold.
This also explains the rapid rise in the price of gold. The increase we've seen in gold prices in recent years is due to the interplay of supply and demand. In times of higher inflation, demand rises, and with it, the price of gold, which is precisely quoted. Gold is thus seen as a kind of safe haven, similar to how Bitcoin is perceived by crypto enthusiasts.
Unlike companies, however, gold doesn't generate revenue, and therefore, unlike stocks, it doesn't pay dividends or similar benefits. It's purely a store of value intended to protect against uncertainty in the stock market, reviews, or high inflation. Why does Michael Berry believe in a further rise in the price of gold despite the currently high prices, and what does his investment in gold tell us?
The last major crisis, with the coronavirus pandemic, is already behind us, and inflation has fallen significantly compared to 2022 and 2023. Central banks have, of course, taken note of this, and the European Central Bank recently lowered its key interest rate for the first time in years. However, the American Federal Reserve has not yet followed this trend.
This is because, although inflation has fallen, it has remained above the previous average for some time. set target of 2%. Michael Berry is also skeptical and doesn't believe that inflation has been defeated. He even assumes it will rise again, making the ECB's interest rate cut premature. Jör Krämer, chief economist at Kommerzbank, shares this opinion, stating that inflation has n't been defeated yet because core inflation, which excludes food and energy prices, remains persistent, and overall inflation has even risen slightly in recent months.
A similar phenomenon— namely, premature interest rate cuts before inflation has been defeated—occurred in the US in 1970, resulting in a significant rise in inflation. This is precisely the scenario Michael Berry anticipates and the reason he added gold to his portfolio for the first time. However, I must point out that such portfolio updates are always a snapshot in time, because by the time the SEC reports (the American Securities and Exchange Commission) are published, the exact portfolio structure may have already changed.
Furthermore, these reports only consider investments made within the US; we unfortunately cannot see assets like bonds. Therefore, Michael Berry is certainly... A larger fortune than the one we're looking at here. Furthermore, Michael Berry has often predicted a crash that didn't happen. Nevertheless, I wouldn't label Berry a classic crash prophet, even based on his 2007 prediction of the real estate cash flow.
His advice to buy gold still carries significant weight, in my opinion, especially considering that Michael Berry isn't the only investor warning about the current trend and increasingly focusing on other asset classes. Ray Dely, Jamie Diamond, and Howard Marx, among others, have already warned of very high expectations in the stock market, and Warren Buffett has also sold some of his stocks, thereby increasing his cash position.
This does n't necessarily mean that a correction is inevitable, because at the end of the day, the stock market does what no one expects anyway. Nevertheless, it doesn't hurt to keep such scenarios in mind. I hope you were able to take something useful away from this video. If so, please leave a like and subscribe to the channel, and don't forget to activate the bell to avoid missing any future videos. Thank you for watching, and see you next time! Goodbye
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