Blind Investing Is Over: The Portfolio Shift to Make Before the Next Crisis

**SPEAKER_1** (0:00)
There is so much NFL on ESPN right now.
Monday Night Football, plus pregame and postgame. NFL Live, NFL Primetime. Everything you need to stay on top of every game, every week.

**Steven Feldman** (0:14)
Unbelievable.

**SPEAKER_1** (0:16)
And now, NFL Network is on the ESPN app. More football, more coverage, more ways to watch. Football's on, all season long, on ESPN and streaming on the ESPN app.

**Steven Feldman** (0:30)
Intentional indexing is fine. Blind indexing is not fine. It means probably a long-term depreciation of the dollar, long-term inflation. You want to be prepared for the crisis first. We believe in real assets very deeply. We think it's the most overlooked part of the market.
Intentional indexing is fine. Blind indexing is not fine. If you want to invest quarterly in an index that you think is overvalued and you're 90 percent in, I'd say that was a bad idea, no longer a good idea.
And so everything is about the more of how much is that index within the entirety of your portfolio.

**Maggie Lake** (1:18)
So what does diversification look like? How does one prepare their future for some of the risks that we're facing?

**Steven Feldman** (1:27)
Well, you want to diversify with an idea of what's going on in the world. Right. So we started this as what does that intervention mean? What does debts and deficit means? It means probably a long-term depreciation of the dollar, long-term inflation.
Inflation and depreciation of the dollar is the best way to pay off a debt visit until someone tells us that politicians have the will to raise taxes and still get elected. I don't think that's going to happen. Maybe if there's a crisis, usually you have to have the crisis first, but you want to be prepared for the crisis first. So I like to think that diversification is a function of regime. So what is the regime? That doesn't mean what's going to happen tomorrow. So the regime is we have a political, geopolitical, and macro backdrop, which has a lot of risk in it. We have wars.
We have debts and deficits. We have global competition in a way that we didn't have before. And we have a general weakening of institutions that navigate international relations. So I read an article over the weekend about what are we going to do with the UN? And we're now talking about whether the UN has any value whatsoever. Maybe it was dysfunctional, but at least there was a place for people to talk. Maybe we won't have them. And so you look at the institutional protection within a country and among countries a lot lower. So that's a regime. So someone said to you, forget it, you're going to invest your first dollar. That's a regime.
Would you be 100% in risk assets understanding that regime? No, you wouldn't. If someone said to you, hey, listen, I know you've been on your lunar mission and you've been gone for two years and now you've landed, there's this thing, it's called AI. In fact, we landed your ship using it. Really? How do I invest in that? No one would say zero. It's the hottest technology is changing the world. It may end the world. And I've written about that too, but that's for another show. And you'd probably want to participate in it. And then the next question would be, well, how do I do it? And I would someone say, you can, but here's the thing.
You got to do it at 50 times earnings. And at 50 times earnings, you're going to do it with companies that are all increasing their earnings from this interconnection. Oh, that sounds scary. Are there other ways to play it? I'll still do a little money in that way because who knows, maybe 50 in two years looks like 20 And by the way, not all these companies trade at 50 Some of them trade 20 to 30 And so then you would start to just construct it. And the portfolio construction is interesting. There's a word called construction that people don't do. You want to construct it.
I think you should have some gold. Gold's typically pretty good in inflationary environments. When the dollar depreciates, gold is priced in dollars, but dollars are priced in gold. And it used to be that 2,000 of them bought gold, and now 4,000 of them buys gold. And so your dollar is worth half than it was in gold as it was a couple of years ago. It would have been good to be in front of it. And by the way, we were. And so that was the regime. And so I think when valuations are high, probably want to have a higher cash position. This is where interest rates work for you. So if valuations, I love it, but maybe I want a better entry point. And well, be in cash. Well, cash not so hard to be. Now you get 4% on it. And if rates go up, you get a little bit more. It's taxable. That's terrible. But you can hold cash and have a better entry point. And we believe in real assets very deeply. We think it's the most overlooked part of the market. It has, because it's hard to narrative it.