Gould Asset Management
President and Chief Investment Officer
Don brings to the company a broad understanding of both the business and the practice of financial asset management, gained over three decades of industry experience. Don is recognized for his continued development and application of innovative investment strategies designed to meet the needs of real-world investors.
In 1985 Don founded the Huntington Funds, a pioneering group of globally-oriented mutual funds based in Pasadena, California. He joined Franklin Templeton Investments in 1993 upon its acquisition of the Huntington Funds. At Franklin Templeton, Don was president and portfolio manager of the Franklin Templeton Fund Allocator Series, a group of three actively managed global asset allocation funds. He also served as managing director of Templeton Worldwide, Inc. and was responsible for overseeing the establishment of asset management companies in Sao Paulo, Brazil, and Cape Town, South Africa.
Don holds a BA in economics from Pomona College and an MBA from Harvard Business School. He is a visiting lecturer in portfolio management at the Robert Day School of Economics and Finance at Claremont McKenna College, and previously served as an adjunct professor of finance at the Peter F. Drucker and Masatoshi Ito Graduate School of Management at the Claremont Graduate University. Don is a trustee of Pitzer College, chairing the Board's investment committee. He is a former president of both the Pomona College Alumni Association and the Rotary Club of Claremont, and has served on numerous non-profit boards. In his free time, Don enjoys travel, classical music, film and sports.
BA, Economics, Pomona College
MBA, Finance, Harvard Business School
Assets Under Management:
Most gold investments fall into three categories.
1. Physical gold in your custody. This usually will take the form of gold coins, such as the one ounce South African Krugerrand or the one ounce American Gold Eagle. You can buy the Gold Eagle directly from the US Mint, but at a substantially higher price than offered through gold coin dealers, so I would not recommend buying directly from the Mint. That said, be sure you are buying from a reputable dealer, either in person or through the Internet. There have been instances of counterfeit gold coins. Gold coins obviously require safekeeping - either a home safe or a safe deposit box. If you're holding gold for an "end-of-the-world" scenario, arguably you should not leave them in a safe deposit box that might be inaccessible in a crisis.
2. Gold ETFs (Exchange Traded Funds). Gold ETFs (such as GLD and IAU) are a special kind of mutual fund that invest directly in gold bullion. The physical bullion is held in safekeeping by an independent custodian, for example, in a bank vault in London. Independent accountants must annually verify the ETF's gold holdings as part of their audit. You can buy and sell gold ETFs through any brokerage firm. The shares are very liquid, and the transaction costs through discount brokers (Fidelity, Schwab, etc.) are minimal. The value of your shares will very closely track movement in the market price of gold. In addition, you can buy or sell call or put options on gold ETFs (and also sell short), meaning you can implement complex strategies for almost any market view. Gold ETFs are the easiest and most cost-effective way to invest in gold. However, as the ETF owner, you do not have (and are not entitled to) physical custody of the gold itself. If that's important to you, option 1 above is preferable.
3. Gold mining stocks. These are stocks of companies that are in the business of gold mining. Generally, gold mining stocks rise and fall faster than the price of gold itself, making these a higher risk, higher potential gain/loss way of investing in gold. In addition, individual gold mining companies are subject to risks unrelated to the price of gold, such as political, environmental, currency and labor relations risks.
Bottom line: if you are buying gold as part of a portfolio diversification strategy, the gold ETFs are the best way to go. If you are buying gold as a potential store of value in the event of a system-wide crisis, you will want to own and hold the physical gold yourself.
A very good question! And the answer is not so simple to explain.
But to make it simpler, start first with the example of a 10-year zero-coupon Treasury bond—a bond that pays no interest, but simply pays back $1,000 at maturity. If the prevailing interest rate on similar assets having a 10-year duration is 3%, then you would pay $744 for a new 10-year zero-coupon bond. Why? Because a bond bought at $744 today that matures at $1,000 in 10 years would pay you a 3% compound annual rate of return over those 10 years. Note that the price rises over time (from $744 today to $1,000 in 10 years), just as stock prices do, and it rises without any underestimation of future cash flows. (You estimated a $1,000 cash flow in year 10 and that’s exactly what you got.)
Now consider a stock. For simplicity, let’s take a stock that pays no dividends, similar to the zero-coupon bond that pays no interest. (This means that all profits are kept inside the company and reinvested in one form or another. Adding dividends to the example wouldn’t change the analysis much.) Let’s assume the stock’s systematic risk (its exposure to market-wide fluctuation) is average. (We would say this stock has a beta of 1.) We might estimate that the market expects about an 8% annual return on this stock. The stock’s 8% is higher than the T-bond’s 3% because the stock carries a lot more risk. Investors want to be compensated for taking on greater risk.
You would expect the stock’s price today to be set at a level such that if your estimations of future cash flow come to pass, the price will rise at 8% per year, on average. So, just as the zero-coupon bond price must be set today at a price lower than its price at maturity, the price of our stock today is also set at a level that will result in its price rising over time if one’s estimates of future cash flow actually come to pass. Note that you do not need to underestimate anything in order for the price to rise. If, in fact, you did underestimate future cash flows, then the price would rise faster than the 8% rate you originally expected.
Another way to think about it is this. The present value of the stock is the sum of the future cash flows, each discounted by the expected rate of return (8%). If you reverse the calculation and instead calculate future value, it will be today’s stock price compounded forward at 8% per year (and therefore increased). For any positive expected rate of return, present value (today’s stock price) must be less than future value (future stock price).
Bottom line: the present value calculation has built into it the assumption that the stock’s price will rise over time.
First, let's understand what a dividend is. When a corporation makes a profit, it pays income tax on that profit, similar to the way individuals pay income tax on their wages and other income.What's left after the corporation pays income tax is known as "profit after tax" (PAT). A corporation with PAT can do two things with their PAT: (1) It can retain it in the business and either hold it as a reserve or invest it in new plant, equipment, R&D, etc.; and/or (2) It can distribute it to its shareholders. Such distributions are called "dividends." (Note: corporations with a history of profitability may choose to pay dividends even when the company is temporarily not earning profits.)
Apple Inc. earns huge PAT. The company has about 5.39 billion shares outstanding and currently pays $2.28 per share, per year in dividends to its shareholders. That amounts to about $12.3 billion in annual dividends paid, or roughly one-quarter of its PAT. If you are a shareholder of, say, 100 shares of Apple (symbol: AAPL), you receive $228 in dividends a year. You must report those dividends as income on your tax return. Depending on your tax bracket, you may pay tax on the dividends of as much as 20% of the $228, as well as state income tax, if applicable.
Because Apple paid tax on its profits, and then you paid tax on the dividends, some refer to this as double taxation of dividends. In fact, it is double taxation of corporate profits; the dividend itself is only taxed once. In order to avoid double taxation, some companies (for example, Berkshire Hathaway) choose not to pay a dividend. But many investors desire the steady income that dividends can provide.
An excellent question. At first glance, it’s not clear why anyone would buy a bond that actually requires the investor to pay interest to the bond issuer. And yet that’s exactly what you do when you buy a bond with a negative yield. It’s estimated that $7 trillion worth of bonds worldwide now carry a negative yield. On further inspection, it turns out there are sound reasons for one to accept a negative yield under certain circumstances.
Until recently, the concept of an interest rate below zero was mostly confined to the realm of theory. But as economies around the world struggle, central banks have taken extreme measures in an attempt to stimulate economic growth and avoid price deflation. Negative interest rates are one of their tools. The theory is that negative interest rates encourage more business borrowing and spending on plant and equipment, as well as encouraging investors to seek out riskier investments with higher expected returns. In turn, that pushes up asset prices and perhaps stimulates consumption. The jury is decidedly out on whether this actually works.
There are at least a couple situations where it can make sense for an investor to accept a negative interest rate. One case is that of institutional investors who are required by their investment policy to maintain holdings in the shortest term, safest instruments available, for example, Treasury bills. If the interest rate on such investments happens to be less than zero, these investors really have no choice but to accept the negative rate. While in theory one could obtain paper currency and store it in a vault, this is impossible for the world’s multi-trillion dollar money markets as a whole, particularly given the need for electronic safekeeping and instantaneous liquidity.
A second situation where it would make sense to accept a negative yield is in an environment of deflation, that is, falling prices. For example, if prices are dropping at a rate of 3% per year, an interest rate of -1% would actually represent a positive inflation-adjusted rate. To see how this would work, suppose you have $10,000 dollars today and you invest it at -1%. One year from now you will have $9,900. However, you would only need $9,700 a year from now to buy what $10,000 buys today (since prices will have dropped 3%). Thus, in our example, $9,900 a year hence represents an increase in purchasing power versus $10,000 today.
Alas, for years bond investors have been accepting rates that in many cases don’t even match inflation, and this represents one of the great investment challenges of our time.
Capital gains tax is a special form of income tax. It's best in this case to separate taxable income into two main categories: "ordinary income" and "realized capital gain," as the IRS talks about them. The most important thing to understand is that under certain circumstances, realized capital gains are subject to a substantially lower tax rate than ordinary income. The maximum federal tax rate on ordinary income is 39.6%, compared to only 20% on long-term realized capital gains (explained below).
Ordinary income includes wages from a job, as well as profits from a business. In addition, rental income and interest income on loans, CDs, and US government and corporate bonds are also generally considered ordinary income. Interest income on most municipal bonds is exempt from US federal income tax.
Realized capital gains are gains from the sale of a "capital asset" (for example, a stock or a piece of real estate) at a price that is higher than the price you paid for it. (Note: if your asset goes up in price but you do not sell it, you have not "realized" your capital gain and therefore owe no tax. When I talk about capital gains here, I mean realized capital gains.) If the asset was sold within one year of its purchase date, it is generally considered a "short-term" capital gain. Gains on assets held for more than one year are "long-term" capital gains. Short-term capital gains are taxed at the same higher rate as ordinary income, while long-term gains get the preferential lower rate discussed above. Consequently, investors have a big incentive to hold appreciated assets for at least a year plus one day.
Just to make things more complicated, most dividends from stocks are taxed at the same lower rate as realized long-term capital gains.
The US tax code is absurdly complex. There are countless exceptions to every rule, including those I've laid out above. Consider this a broad brush explanation. As always, consult with a tax advisor on tax matters.