Gold & Silver: The Most Dangerous Bets Ahead, Says ICICI Pru’s Sankaran Naren

In a recent podcast with INDmoney, hosted by Shagun Gautam, Sankaran Naren, the CIO of ICICI Prudential Mutual Fund, made a striking statement: "Gold & Silver are the most dangerous asset class in the near future." This bold claim from a seasoned investor warrants a deeper look, and in this blog, we'll explore his reasoning and what it means for your investment strategy.

The Contrarian Approach: With a Calculator

Sankaran Naren is well-known for his contrarian style of investing. But what exactly does "contrarian" mean?

• Contrarian Investing: This approach involves going against prevailing market trends. When everyone is buying a particular asset, a contrarian investor might consider selling it, and vice versa. The idea is to find value where others aren't looking.

However, Naren emphasises a crucial addition to this philosophy: "Do contrarian with a calculator." He illustrates this with examples from 2007, when many "junk infrastructure" and "junk real estate" companies were available. While staying away from these was a contrarian move, it didn't fit the "calculator part" – meaning, the underlying fundamentals and valuations didn't support the investment, despite the contrarian stance.

Here is the link to the YouTube podcast:

What Does Your Asset Allocation Look Like?

Naren is a strong believer in hybrid investing.

• Hybrid Investing: This strategy involves investing in a mix of different asset classes, typically both equity (stocks) and debt (bonds), within a single fund. The goal is to balance risk and return.

He suggests that hybrid funds are particularly perfect for beginners. Why? The fund managers handle all the asset allocation decisions, rebalancing, and diversification for you, simplifying the investment process.

Should Investors Invest in Gold and Silver?

Within Naren's investment framework, direct investment in gold and silver has largely fallen out of favour.

• Limited Role: He believes the only way to consider investing in gold and silver is through multi-asset funds. Beyond that, he expresses a lack of conviction in these precious metals as standalone investments.

Sectors That Excite and Scare

When asked about sectors that excite him, Naren points to areas that have been out of favour. What scares him, however, are the American Artificial Intelligence companies.

• AI Concerns: He highlights the trillion-dollar market caps of many AI companies, suggesting they might be overvalued.
• Historical Context: In earlier times, when everything seemed costly, people often turned to gold. However, Naren believes this strategy has failed.
• Current Opportunities: Instead, he suggests looking at:
  • Cash: Holding cash can be a strategic move when other assets are expensive.
  • Oil and Gas Sector: This sector has globally underperformed for the last 15-16 years, making it a potential contrarian opportunity.
• IT Sector: The IT sector is currently one of the most researched. Naren suggests that if there's some level of "mean reversion" – where prices return to their historical averages – there could be opportunities.

Three Key Investment Principles

Naren emphasises that investors often focus on one aspect while neglecting others. He outlines three crucial things to consider:

1. Buying: This is where most people focus their attention.
2. Selling: Often overlooked, knowing when to sell is as important as knowing when to buy.
3. Sizing: Determining the appropriate allocation or size of an investment in your portfolio.

He notes that people tend to focus heavily on the "buying" part but often neglect the "selling" aspect.

Mutual Funds and Stocks: A Different Approach to Selling

In the context of mutual funds and stocks, Naren suggests different strategies for managing your portfolio.

• Mutual Funds:
  • Categories like balanced advantage, equity, debt, equity savings, and multi-asset are available.
  • If a particular category has performed exceptionally well, it might be a good time to consider reducing your exposure to it.
• Stocks:
  • Instead of simply "selling" a stock, Naren advocates for "switching."
  • Switching: This involves selling one stock (Stock A) and immediately buying another (Stock B) that you believe has better prospects.

Conclusion

Sankaran Naren's insights offer a valuable perspective for investors, particularly his emphasis on a calculated contrarian approach and the evolving role of traditional safe-haven assets like gold and silver. His focus on hybrid investing for beginners, identifying overlooked sectors, and the importance of selling and sizing, in addition to buying, provides a comprehensive framework for navigating the complexities of the market.

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