Ask the Adviser: Bob Fitzwilson

This week, we’re trying something new in our regular podcast series. Chris talks with Bob Fitzwilson, founder of one of the financial advisory firms that we endorse.

Last week we invited Peak Prosperity readers to submit their top questions about money and investing. You didn’t disappoint.

In the podcast below, Chris puts your questions to Bob. We think you’ll be pleased with the results.

We addressed as many questions as we could in this first conversation. Most of the reader submissions regarded general investing strategy, retirement accounts, precious metals, and/or market risk – so we focused primarily on those topics.

If you value this sort of Q&A with an experienced advisor whose investing outlook is aligned with the Crash Course framework, let us know in the Comments section below. If the response is positive enough, we’ll turn this into a regular segment (likely a once-per-quarter event). And we’ll involve our other advisors, as well.

And if after listening to the podcast, you find yourself interested in connecting with our recommended advisory services, please use the form here to do so.

Transparency note: As a result of our public endorsement of Bob’s firm, Peak Prosperity has a commercial relationship with them. The details of this relationship are clearly presented in writing during the referral process – but the punchline is, our relationship does NOT result in any increased fees to those who become clients.


It should go without saying: this discussion should not be construed as individual financial advice by those listening to it. The content should be taken as informational and educational in nature only. Investment advice must be tailored to your specific personal situation (which Chris and Bob are obviously unaware of) and should be obtained directly from a financial advisor you trust. Before acting on any of the statements made in this podcast, we advise you do just that.

Click the play button below to listen to Chris’ interview with Bob Fitzwilson (46m:30s):

This is a companion discussion topic for the original entry at

That was a great interview, Chris. Much more a frank discussion than a sales pitch. Are there some uk-based financial adivisors you could recommend? 

Maybe I missed it but was JAG;s excellent question about the most hated assets answered?

[quote=ao]Maybe I missed it but was JAG;s excellent question about the most hated assets answered?
No it wasn’t Ao.  Nor was the question about tax rates on gold, or most of the other questions.  Fitzwilson talked a lot, but he didn’t say much.  I’d like to see this series continued, but with a different person.

l found the interview very helpful.  I am at a major transition point in my life, and Fitzwilson gave me a roadmap for what I need to do in the near term future.  Thanks very much.

Certainly one of the more hated, more undervalued assets are in fact the miners.  Regardless of the increased costs due to energy, many of these stocks appear to be deep value plays based on simple metrics like PE and Dividend rate;
RVM, PE = 5.9

VGZ, PE = 4.1

GORO, PE = 14, Div = 3.9%

IAG, PE = 13, Div = 2.2%

GFI, PE = 10.3, Div = 4.5%  (yes, 4.5%)

One should realize that possibly the best play available in the stock market is a high dividend vehicle that has real growth potential in the underlying stock… in this respect, I can think of no better double whammy stocks than some of the above.  

Several bloggers that I follow have written about the current cheapness of miners relative to price of Gold itself ;

"As you can see, despite the 11-year move in gold, which has taken gold from $250/oz to as high at $1900, the market value of mining stocks in general has declined in relation to the price of gold by extraordinary amount since its peak in 1996, when the price of gold averaged around $380/oz and silver around $4.80/oz.  Does this make sense, especially given that the large mining companies have steadily increasing their dividend payout ratio and throwing off record amounts of cash flow?
Either the market is pricing in the expectation of gold and silver selling off to the level where they started this bull market or the universe of mining stocks represents the value play of the decade."
I think that we who frequent the Liberty/doomer/prepper/ZH/ circles can sometimes get to thinking that all anyone is talking about is Gold and Silver.. the real truth is that almost nobody owns either the metals or the miners.. and many of the uninformed sheeple are happy to adopt the Mass Media propaganda that Gold is in a bubble, supported by the cartel-induced paper price fluctuations which can certainly be stomach turning on a short term basis for the uninitiated.   
I am quite sure that JAG won't care for miners, because he is anti-Gold in general... nonetheless, I agree with Dave from Denver, and this comprises my main specific stock-based investment thesis at present under the more general macro strategy of investing in PM's.  If and when the mining stocks hit their footing, going up by some multiple, my goal would be to convert them back to metals (in the brokerage acct) via PSLV and PHYS, and hopefully at that point get the shares directly registered.             

I'm glad I'm not the only one who felt that way.  There were some useful bits of information but not much. A fair amount of it was a rehash and distillation of what is pretty common knowledge on this site.

Thanks for that well thought out answer Jim.  The problem for me personally is that I'm already overexposed to PMs and investment in the miners would increase that exposure even more.  Also, I'm very risk averse at this stage in my life and the miners entail more risk than I'm willing to presently entertain. I'm realizing more and more that I need to open another business and after going to Europe and getting some ideas of products and concepts that would go over well in the US (but have seen minimal exposure here), I need to explore the import-export area. 
One other comment is that I disagree with Fitzwilson on the tax issue.  The greatest fortunes were built on businesses (not buying stocks of those businesses) and then legally maneuvering around the tax laws so that wealth could acrue more rapidly.  The Rockefellers are a case in point.  I've recently recognized that an area of weakness in my knowledge is taxes and I hope to spend the next year or two addressing that deficit.
My education is starting here:

No discussion about the Roth? It impacts just about all of the areas mentioned.

This was a good start, and I'm sure the Q&A interviews will get better and better.  

I think it was a fine interview.  There was not enough time to get to very many questions, however.  I suggest a follow-up interview merely devoted to answering questions.

"On the theme thing, the studies have shown through my career that 90% of the returns come from your allocation."  I could be wrong but I recall that this idea was one of the major flaws in Modern Portfolio Theory & has been put into much question.  

In discussing retirement accounts the Roth IRA should have been included in the discussions.  We are left with some uncertainty as to whether the negative comments on IRAs & 401k plans also apply to Roth IRAs.   

Fitz: oil use for gold mining up from 14 to 40 gallons/ounce
Chris: gold and oil prices in remarkable lockstep

Me: is this trend your friend???

With gold as in other 'commodities' like oil or copper, we are chasing ever more dilute resources. There comes a point where it makes no sense. The cost is rising faster than the value - I'll keep buying the product, not the producer.

Long term, ore grades are decreasing, and the costs of mining, influenced heavily by energy costs, are increasing… so your point is well taken.  What I am suggesting though is a much shorter term investment opportunity in the miners… over the next year or two.  While Gold and Silver may double, triple, or more, I expect some of the smaller miners to increase in value by 10X or more.  Assuming the metals take off from here, the earnings increases at miners over the time period I am suggesting will far outpace the negative effects of energy prices.     Miners are more speculative than the metals themselves, but offer more potential return…   

 Good Advice Jim H. 
Looking at GFI, I see risk in location, also Google Finance says div=3.3%.
I like the royalty plays like SLW and the more conservative GG which has a small dividend.
Miners are 3rd. on my list of ways to play PMs. Ist. is physical. 2nd. is safe bullion (CEF) and then finally the miners.
I will take a look at GORO. Thanks 

If Bob Fitzwilson was a farmer and I asked him how to grow corn, I would want specifics. Not a statement like "keep some silver in your safe in case you have to buy corn on the open market".
I found myself agreeing with everything he said, but wanted more specifics on money management. 

When asked what a 50 or 60 year old guy should invest in, he advised keeping your skills sets honed and continuing to work.  OK…But if I'm working who is going to give me investment help?

I really like Bob's macro view, but still don't know for example what % he allocates to PMs.

Also would like more direct questions and direct answers from those that were submitted.

My one takeaway is that he thinks cashing out of retirement accounts might be an ok strategy, and that you don't really know the tax implications till you do a personal projection.

Good Interview but needs to be more focused on the topic of investing.




Why not just prep and buy things bernanke and friends can't devalue.  Good stocks will be sold with the bad - hedging losses, locking in gains, going to cash…whatever.   When this thing locks up and goes no bid, you can be ready to sell, with your finger on the keyboard, and/or screaming at your broker to get you out - and it won't matter.  Low volume markets composed of HFT's trading the same stuff to each other in a circular firing squad won't treat the retail guy any better than the prettiest new inmate.   I think someday it'll be 1982 again, it'll be time to be diversified, go long, and go to the beach - but not now.  The markets rigged, the playing field is loaded with criminals and thugs, cheating is encouraged and rewarded, the refs are bought and paid for, the announcers and sponsors ignore what they choose, the fans are lunatics who want blood and pain and by God, if you step on that field… well, the show must go on.  Maybe some of you are quick and agile enough, good luck I guess.  I'd like to play again when its fair.  For God sakes, Corzine's starting another hedge fund?!  Thankfully, this fall it looks like a fresh new slate of reality tv programs! 

hucklejohn -I think your idea is a great one, and I would be pleased to help if asked.

Modern Portfolio Theory (MPT) had its day in the sun.  Sharpe was a professor of mine in business school.  He is a very intelligent man.  His theory appeals to the hunger in all of us for an understandable, almost mechanical way in which to invest money.  For those that do not know much about it, key aspects are "alpha" and "beta".  Close your eyes if you are math-phobic, but it involves the equation of a straight line…y=mx + b as we were taught in school.  "m" and "b" are not very sexy, so it was changed to "b" for beta and "a" for alpha.  The beta represented the slope of the line…think seesaw…and the alpha was where the line crossed the y-axis.  If I remember correctly, you plotted the returns of a stock for the past 200 trading sessions versus the S&P 500…put those points on a scatter diagram with an x- and y-axis, and then mathematically drew a line that best mirrored the pattern of the dots.  Beta is the slope of the line, alpha was the crossing point on the y-axis.  A steep line/high beta meant that when the S&P moved a little, the stock moved a lot both up and down.  When the S&P 500 showed a zero return and the stock under investigation still showed a positive return, that was the "alpha"…what you got when the market in general did nothing.
The line was called the "characteristic line" for the stock under investigation.  Since each stock has this "systematic risk" – S&P doing one thing, the stock doing the other in concert – the idea was that you could pick a slope that matched your ability to handle risk.  Steep slope = not for everyone, gentle slope = probably for most.

One problem was that each company represented by the stock market had "specific risk"…e.g. bankruptcy, product line problems, competition, etc.  Sharpe et al determined that a portfolio of 17-20 stocks with a characteristic line with a specific beta gave the expectation that you could chose your slope and your alpha, but the specific risk would be minimized given that there were multiple stocks involved.

That was the theory.  Graduating in 1973 and thinking I had been given the secret weapon with which to invest, we tried to apply it.  General Motors had a very low beta (slope) based upon the prior 200 trading days.  However, the '73-'74 bear market was caused by a drastic increase in gasoline costs.  A manufacturer of gas guzzlers was not a good place to be.  GM dropped like a stone.  I discovered that it is the future beta that matters not the prior beta.  If I only had the future 200 trading days to compute the beta, I would be in great shape.  Alas, I realized that if I could foretell the future, I did not need Bill's theory…:slight_smile: .

Another aspect of the mechanical investing crowd was to build a portfolio of non-correlated assets.  Think of pistons in an engine.  The pistons go up and down, but the car keeps moving forward.  That approach works if you are in a generally positive investment environment as we were from the early '80s until the early 2000s.  Unfortunately, the correlations are not static.  They change.  This was apparent for all to see in the 2008 meltdown.  Virtually everything converged on a correlation of 1.  It probably would have been total had it not been for trillions of dollars spewed out to save the banking system and sovereign governments (think bonds).

The last mechanical approach that I will mention is this idea of "small cap", "mid-cap", "large-cap", and "domestic vs. foreign" investing.  First of all, I never understood why the capitalization was a factor unless the company was truly huge or tiny.  The law of large numbers was the consideration for the former and liquidity, the latter.  As I would hear people talk about this over the last ten years, I finally started accusing people…with a wink…:-)… of investing in adjectives.  They would describe their style and allocations using these adjectives, but could not tell you what they really owned.  That is a very careless and hazardous way to invest.  It is promoted by the all-powerful consultants, so it is hard for people to stray from the mindset, though.

A major reasons that mechanical investing schemes fail is that economics do work in the long run.  If someone does have a unique approach, it attracts a huge following as well as vast sums.  As the advantage becomes well known, the excess profits shrink and ultimately disappear.  There was alpha when T. Rowe Price and John Templeton were in the heyday of their careers.  Templeton was investing in such areas as Japan and South American decades before the rest of us.  The disappearance of alpha and the correlation of assets has to do with global markets, the Internet and the massive increase in the size of the investment pool created by the increase in population and the massive amount of fiat currency that has been created.  There are exceptions, but alpha in the past decades involved leveraged-beta for most.

What I was trying to convey about allocation being so important is that it is still just as true as it always was, but it should be based on common sense themes and where Chris Martenson's followers believe we are heading…and I am one of them.  You don't need alpha and beta, you don't need Monte Carlo simulation.  You don't need mindless allocation sold to you by the wire houses.  Use your head and common sense.  Peter Lynch of Magellan fame was the master of this.  He went to the mall.  He saw what people were buying.  He would look for major trends in the population and the economy.  If he liked the sector, he would just buy all of the good companies in that sector.  There was little consideration to indexing and looking like his peers.

The pendulum has swung back to the so-called little guy and the patient analyst.  The institutions have too much money to invest in anything other than a small universe.  The HFT crowd are really just battling each other at the nanosecond level for an ever-decreasing piece of the action.

Institutions also operate by a creed: look like the others.  When it comes to gold, silver and the miners, they will be loathe to take positions until they have no choice.  There is no personal upside for being an oultlier if you are wrong.  They will stay with their peers in group think until the crowd moves.  That will come, but at much, much higher prices.  For many, keeping their job and their cash flow is what matters, not absolute performance.  For those who have expressed frustration about being ignored by their brokers and advisers, if you are with a large firm, recognize that your concerns will not be addressed until it is common knowledge.  That is why you should be applying common sense, history and open thought to how you approach your money.