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.
This question looks simple, but really requires a lot of thought.
Let’s start with a few unpleasant facts.
- You never know, at any point in time, if you are in a bear market. A bear market—commonly defined as a period in which a given stock index has dropped at least 20% from a peak—can only be identified after the fact. Until the market has dropped 20% from a peak, you are not yet in a bear market. Once it’s dropped 20%, you can say that you were in a bear market, but you still have no idea where the market’s going next of if you are in what will later be viewed as a bear market. Every uptick is potentially the end of a bear market and the beginning of a new bull market.
- Consequently, advice about what to do during a bear market is really a fantasy that can only be enjoyed with the benefit of hindsight. Unfortunately, we can’t invest with hindsight. I’m fond of saying, if I ever knew where the market was going next, I wouldn’t have to provide investment advice for a living.
- If stock prices have recently fallen by 20% (or any amount), that information contains absolutely zero predictive value of where they are going next, which of course is what really matters.
- Falling stock prices do not, in themselves, tell you anything about how money is moving between, say, stocks and bonds. It is not necessary for even a single share of stock to be bought/sold in order for a stock’s price to fall. The lower price simply means that the equilibrium price (the price at which buyers and sellers are willing to transact) has changed. This happens all the time when a company halts trading in its stock and then makes a major announcement. If the announcement is good news, the price adjusts upward without any trades in the stock having taken place.
It is a false premise that you can know when you’re in a bear market. Market observers are fond of looking at a downward sloping historical stock index chart and saying “the market is going down” or “we are in a bear market.” The truth is, the only thing you can say with certainty is that the market has gone down and perhaps we were in a bear market. Where it is going next or whether we are in a bear market is anyone’s guess.
There is also a false idea, often promoted by the financial press, that when stock prices are falling, investors are “fleeing” stocks. This is patently absurd. For every seller, there is a buyer. The number of shares owned does not change, only the identities of the owners.
So, to get back to the original question, investors as a group do not tend to do anything in particular in a bear market. And since you can never know if you are in bear market, any advice about what to do during a bear market is nonsensical.
The best advice I can give is to determine your proper asset allocation, which is one that properly balances your tolerance for risk with your long-term objectives. Stick with it through the good times and bad, and be sure to rebalance periodically if your portfolio drifts significantly from your target asset allocation. If you tend to react to bear markets (after the fact, by definition) by selling stocks, then you should consider hiring a financial advisor whose coaching can help you avoid these actions—they are detrimental to your long-term financial well-being.
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.