DRIGGS, IDAHO – Greetings from our Rocky Mountains bolthole… It’s time for another Friday mailbag edition, where I answer the most pressing questions you’ve sent in.

Today, we talk about my ideal “mixture” for an inflation-proof portfolio… what the coming synchronized currency devaluation might mean if you’re buying stocks with Canadian dollars… and a change in one of my physical gold recommendations.

But up first, a reader questions my decision to buy shipping stocks as part of a long-term nest egg…

Reader comment: May I say that I read your newsletter every day. I find it gives me food for thought. However, I wonder whether your decision to invest 15% of your assets in shipping companies is a wise one. It may pan out well for you in the end, but I think it is fraught with risk. Investing in a shipping company is like investing in an airline company. High capital cost, cut-throat competition, etc. Some years ago, Warren Buffett made a famous comment on the wisdom of investing in airlines.

“Whenever I feel like investing in an airline, I go and lie down until the feeling has passed.” Sometime, less than 10 years ago, Buffett gave in to his desires and invested in an airline. In the last few years, he lived to regret his concupiscence and he sold his airline investment. I would suggest that a safe long-term investment (insofar as there is such a thing) would be the Vanguard S&P 500 ETF.

Concupiscence? Funny word choice! I’d rather own gold than the S&P 500. At current valuations, I imagine the S&P 500 is going to notch very poor (or negative) returns over the next decade or so. So no S&P 500 for me.

As for shipping, I acknowledge it’s a terrible business. And it’s nothing like the great businesses that I really covet (the dividend-paying, world-dominating stocks I call “corporate aristocrats”). In fact, as I wrote in my November 30 Postcard…

The shipping business has been a terrible business for the last 12 years. Generally speaking, there have been way too many ships and rates have been (broadly) terrible. Many shipping companies have gone out of business. The ones that are still in business have scraped by. Investors haven’t made money in shipping in years…

But that’s exactly why we’re making a contrarian bet on shipping stocks today. They’re very cheap… they have high cash-flow yields… and government regulation virtually ensures a positive return on capital over the next few years.

As I wrote here, even if ship earnings come in at a worst-case scenario, our shipping stocks will still make money. But if things do better than the worst case, or even the average case, we’ll make a very high payback.

Shipping stocks are also great inflation hedges and a good compliment to gold in a portfolio. That’s because they dance to their own beat, not to Wall Street’s beat. I have never had the slightest interest in buying an airline stock, however…

Reader question: Thank you for your recommendations in Tom’s Portfolio. I agree with holding physical gold and investing in ETFs redeemable for physical gold. However, your recommendation for AAAU gives me pause as I was considering buying it.

When I checked the prospectus for AAAU, it is listed as the “Goldman Sachs Physical Gold ETF,” and it states on page 1 that “investors do not have the right to take delivery of the physical gold bullion in exchange for the shares such investors own.” Is AAAU the correct recommendation in Tom’s Portfolio, or am I missing something?

Great observation. When I first recommended AAAU in Tom’s Portfolio (my premium research service) in May 2020, its shares were redeemable for physical gold. Unfortunately, Goldman Sachs acquired AAAU last month, and that’s no longer the case.

I don’t recommend holding this exchange-traded fund (ETF) anymore. And I’ve suggested a replacement in Tom’s Portfolio. Paid-up subscribers can read my full update on that here.

Reader question: Love your and your family’s escapades around the world and USA. About gold though, is it good to buy gold stocks or only gold bullion?

I’ve suggested a mixture in my Tom’s Portfolio advisory… The cake is made of gold and silver bullion, and the icing is precious metals mining stocks. But I also added a special ingredient… a basket of shipping companies for diversification and income.

(If you’re not a paid-up Tom’s Portfolio subscriber yet, I encourage you to watch this. I explain how you can get access to my model portfolio – including percentage allocations to build the ideal gold portfolio, plus the 11 gold stocks I recommend today.)

Reader question: Great to see your kids enjoying my favorite season (while growing up in Canada a rather long time ago). I have since spent most of my life in Finland and realized a year ago that it would be a good idea to invest in bullion, as well as mining stocks.

I use the Toronto stock exchange and thus transfer euros for Canadian dollars to purchase miners. Although all is well at the moment, I am now questioning whether or not this makes sense, given your concern about the debasement of currencies. The Canadian dollar is no exception. What if the loonie dives at some point and does not resurface for a rather long period? If the euro does not follow suit, I will be left with little in hand when I sell my miners priced in CAD-exchanged in euros. Any thoughts would be greatly appreciated.

An investment in a Canadian-listed stock is not an investment in the Canadian dollar, even if it’s quoted in Canadian dollars. Fluctuations in the CAD/EUR will not make any difference to your return while you hold the stock (because the share price will automatically reflect any decline in the CAD by rising, all else being equal.)

In practice, a declining CAD will actually increase the profitability and the value of your Canadian company, because it’ll be paying costs in a weakening currency but receiving its revenues in a strengthening currency, so its margins expand.

And that’s all for today… As always, thanks to everyone who wrote in! Your notes keep us going. Please keep writing us at [email protected].

I can’t give personalized investment advice, but I’ll address as many questions as I can in future Friday mailbag editions.

– Tom Dyson