VIDEO - Adrian Day: Diversification is Overrated, Buy Better-quality Stocks

Anxiety is often an investor’s key motivator when markets experience large losses or volatility, prompting selloffs. However, Adrian Day believes investors need to keep calm and carry on.

“Panicking and dumping is the worst possible thing you can do,” the founder of Adrian Day Asset Management told the Investing News Network at the Prospectors & Developers Association of Canada (PDAC) convention in Toronto last week.

He also warned against flocking to precious metals amid growing concern that markets will crash from the economic upheaval brought on by the COVID-19 coronavirus.

“When you have sharp moves up in gold you don’t want to just be piling into the gold stocks at their high,” he explained. “I think one of the worst things investors do is react rather than have some kind of plan and work on that plan.”

For Day, the state of markets prior to the coronavirus outbreak was cause for concern, and has only been exacerbated with the rising cases of infection.

“There is no question that the broad stock market, not just in the US but in most countries around the world, is overextended, and parts of it are extremely overvalued … and also a deteriorating global economy, in that scenario anything can pop the bubble — the coronavirus could well be it,” Day said.

As for the emergency interest rate cut imposed by the US Federal Reserve last week, the asset manager was critical of the move, noting that a rate cut will do little to combat a virus.

He went on to say that the Fed, the European Central Bank and the Bank of Japan have kept rates far too low for far too long, leaving them with little “firepower” now that they need it.

“Stimulus is like feeding drugs to a drug addict. Every time you give the patient a drug they need more next time to get the same high, and I think the Fed has basically run out of ammunition,” said Day.

While he warned investors about buying gold for the sake of buying, he did advise that the yellow metal is a safe haven asset for a reason.

“When you look around the world, of all of the asset classes of all of the markets, gold to me does have the best risk/reward in the current environment, so I would certainly recommend a pretty high allocation for all investors.”

In terms of price, Day expects gold to steadily trend higher and reach US$1,750 an ounce by year’s end.

To hear more from Day on why he isn’t a fan of diversification, and why the gold/silver ratio and other similar ratios are invalid, watch the video above. You can also click here for our full PDAC playlist.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.