Thursday, 15 September 2011

Marc Faber: Asset Allocation Models

I am a long time subscriber to “The Gloom, Boom & Doom Report” of Dr. Marc Faber:

A subscription doesn’t come cheap, but I can highly recommend it, it is the one magazine that I always very much look forward to receive by post. An alternative is his “Monthly Market Commentary” by email, but I prefer the print edition since I am sitting already too many hours behind my computer. I also like Faber’s travel adventures and general observations from his magazine, he is quite a character who doesn't mince his words.

Michael B. O’Higgins writes in the September 2011 edition about his MOAR (Michael O’Higgins Absolute Return) strategy, a simple asset allocation method which has, historically, produced relatively high returns with very low volatility by spreading assets over four different asset classes:

  • Undervalued global stocks (“Dogs of the World”)
  • Physical Gold
  • Intermediary Treasury Notes
  • Long-term Treasury Bonds

Generally, each sector is allocated 25% of the portfolio except in years following a losing year for the equity portion when an additional 15% - 5% percentage points taken from each of the other three portfolio sectors – is allocated to the equity portion, giving it 40% of the total portfolio. The portfolio is rebalanced annually.

This strategy would have yielded about 13.7% per year since 1971 versus 10.1% for the S&P 500, with only four mildly losing years ranging from -5% to -1% compared to the S&P’s nine losing years, some of which were as large as -37% (2008),

The percentage increase from 1971 onwards is about 17,000%. Not bad for a rather simple strategy.

This kind of models is often highly optimized on the data so we have to be careful off being too optimistic about future returns. The above system does make sense though, investing in four asset groups that are not too correlated and I really like the rebalancing part: selling part of what went up the most and buying what went down with the proceeds.

Marc Faber’s own preferred asset allocation at this moment:

  • 20-30% Gold and gold-related equities
  • 30-40% Equities
  • 20-30% Real estate, including REIT’s and property funds in Asia
  • 20-30% Cash and bonds


  1. Hi,
    My current asset allocation seems to be quite close to his(Marc Faber's). It's a bit funny. i mean the coincidence.
    Ha! Ha!
    But actually the GOLD asset has been there for quite many years already.

  2. Hi, you must have done quite well. Yes, Marc Faber has been bullish about gold for quite some time, and he thinks it still has some time to go.

  3. Hi,
    Though i try to be as opened-minded as possible, i know i am solely responsible for my decision. Maybe except when i have made a hooked-wind decision. Another words i may be even responsble for being con. Like when i am greedy.
    HA! HA!