ICICI Prudential MF’s top investment strategist shares a ‘bad’ mantra for earning good returns in gold, silver, stocks, and property

Investors rushing into gold and silver following recent highs could be heading for a long-term setback, warns S. Naren, Chief Investment Strategist at ICICI Prudential Mutual Fund. Speaking on an ET Money podcast, Naren cautioned that buying precious metals after a rally demonstrates “anti-asset allocation”, a pattern of behaviour he says often leads to poor outcomes.

"One of the biggest things we have learned is that investing is not arithmetic, which means you will keep making mistakes. The first thing to remember is that investing is not arithmetic. So, if it is not arithmetic, what is the solution? The answer is to practice asset allocation. Once you practice asset allocation, half the battle is already won. Practicing asset allocation is very simple: first, invest in all asset classes; second, don’t change anything," said Naren.

What did Naren say about investing?

"Invest in the asset classes that have performed poorly. So, if gold and silver have done very badly, put money into gold and silver. But if gold and silver have done too well, don’t put too much money into them. If residential real estate has performed poorly, invest in residential real estate. If equities have done too well, don’t put all your money into equities. Asset allocation is very simple: it means investing more in asset classes that have underperformed and reducing exposure to those that have done well," said Naren in an ET Money podcast.

Naren added, "Invest in the asset classes that have done very well. That is simple. But is it easy to do? No. What does it mean? It means taking money out in 2007. It means, after the 2008 Lehman debacle, putting money into equities. It means investing aggressively in equities in 2020 during COVID. Did locals invest aggressively in equities in 2020 or 2024? The answer is no—they invested much more in 2024. In 2001, after the World Trade Center bombing, markets had become very cheap. That was the best time to invest because past returns had become very low."

Why did Naren suggest a 'bad' mantra?

"At that point in time, no one invested in equities. So, asset allocation means investing after poor past returns and taking out money after very good past returns. Is that simple? Yes. But is it easy to practice? No," said Naren.

"The framework is roughly like this: take debt as an asset class, equity as an asset class, gold, silver, and maybe other asset classes. Then look at the one-year return for all four (or more) asset classes. Today, if you look at it, gold or silver may have delivered the best returns. You then need to be careful and choose the asset class that has performed the worst and put money there," said Naren.

"It’s simple: it requires basic arithmetic. Based on that, identify the asset class that has underperformed and invest in it, and continue doing so each year. That is a straightforward way to invest, in our opinion—but very difficult to practice, because most of the time you are investing in what is considered unpopular, which people find very hard to do," added Naren.

Naren added, "Office space is always much more difficult to invest in, but from 2020 to 2024 it had performed poorly, primarily because people in the U.S. started working from home. Over the last four years, among equity, gold, silver, and office space, office space was the worst-performing asset class, which made it one of the best areas for asset allocation."