Should you own stocks, gold, or bitcoin? Legendary investor who predicted the ’87 crash has an answer

Legendary hedge fund manager Paul Tudor-Jones has a shockingly simple strategy to identify the best performing investments in the post-pandemic world rocked by record government debt, money printing, and unusually high inflation. 

Tudor-Jones argues this wealth-creation strategy - so simple a school kid could follow it - applies to everyone from baby boomers keen to protect their capital against inflation to millennials priced out of housing markets. 

The hedge fund manager has produced returns close to 20 per cent a year for 40 years so he knows what he's talking about and has repeatedly warned that the coronavirus pandemic has rewritten the rules of investing and trashed the traditional idea of a 60/40 investment portfolio split between shares and bonds. 

He first sounded the alarm about the need for investors to adapt in a 2020 paper titled the Great Monetary Inflation that warned of wealth erosion for everyone who failed to recognise the consequences of excess money printing, debt and inflation.

"One thing is for sure, there will be many assets that will move as a result of this money creation [by central banks to fund government spending]. So what is an investor to do?" asked Jones. 

"One thing I have learned over time is the best thing to do is let market price action guide your decision-making and then try to understand the fundamentals as they become more evident and comprehensible [afterwards]."

Tudor-Jones is telling investors that record increases in the global money supply mean asset price movements in post-pandemic global markets will be structurally different to asset price movements before 2020. 

He's been proven right as well. The prices of hard and scarcer assets like high-end residential property, gold and bitcoin have soared to record highs despite the headwind of the fastest pace of interest rate rises in a generation between 2022 and 2024. 

Popular mega-cap stocks have also soared in value and expanded their price-earnings multiples as more money chases the same amount of stocks in the Nasdaq 100 Index for example. 

But to identify the biggest future winners in this new world, Tudor-Jones' key message is to let the price action guide you and not to worry about interpreting it so much.  

He identifies nine asset classes as beneficiaries of the post-pandemic investing world of debt and deficits. He then uses simple criterion to conclude which of these investments will help investors generate the most wealth for themselves over the medium term. The asset class options are below:

1. Buy Gold - a 2,500 year store of value. 
2. Bet on a rising US yield curve. "Historically a great defense against stagflation or a central bank intent on inflating. For our purposes we use long 2-year notes and short 30-year bonds," he says. 
3. Buy the Nasdaq 100 Index - The events of the last decade have shown that quantitative easing can rapidly leak into equity markets, he says. 
4. Buy Bitcoin
5. Buy US cyclicals, a goods inflation play he says. 
6. Buy the Australian dollar / sell the Japanese Yen - as Australia exports commodities likely to inflate in price, while Japan will have to pay more as a major commodity importer, he says.
7. Buy TIPS (Treasury Inflation Protected Securities) these bonds offer yields that are designed to rise in step with inflation and offer protection against it. 
8. Buy the Goldman Sachs Commodity Index (GSCI) a basket of 24 commodities that should reflect underlying global economic growth. Commodities should also rise as more money chases similar amounts of supply. 
9. Buy the JPM Emerging Market Currency Index - "Historically when global growth is high and inflationary pressures are building, emerging market currencies have done quite well." Tudor-Jones says. 

In 2020 Tudor-Jones forecast the best performer out the nine asset classes above would be bitcoin. 

His core reasoning is simple. And he says to think of it a bit like a horse race at Randwick you watch ten times without knowing the odds. If one horse consistently wins the race you know that's the logical bet to make for the eleventh race without worrying about why that horse is winning. 

Bitcoin, gold and Machiavelli

In his monetary inflation paper he concludes that bitcoin has performed best in volatility adjusted terms since the pandemic lockdowns forced governments to rapidly add to already elevated levels of debt. 

Therefore he says it makes sense to hold your nose and potentially make bitcoin a small percentage of your investment portfolio. 

"At the end of the day, the best profit-maximising strategy is to own the fastest horse," Tudor-Jones says. " The goal, of course, is to be invested in the fastest horses over the duration of the ride.

"Just own the best performer and not get wed to an intellectual side that might leave you weeping in the performance dust because you thought you were smarter than the market."

This Machiavellian approach to investing - where the returns justify whatever method's employed - may not be for traditional financial advisers, risk averse investors, or your grandparents.

However, asset price action across financial markets since the pandemic means it's obvious the consequences of governments' lockdown policies are reshaping the future returns of different asset classes. 

The growing influence of social media on money flows into asset classes also underlines how investors who take a Machiavellian approach to creating wealth may thump the returns of those wedded and glued to valuations or the intellectual sides of investing in a pre-pandemic world. 

Italian theorist Machiavelli said greed and self-interest is really what matters to and motivates all people. 

If you focus not on what ought to be, but on what is reality, you will arguably conclude how social media will lead certain asset prices higher in 2025, more than corporate earnings or professional money managers. 

Of course, Tudor-Jones doesn't reference Machiavelli, but has continued to warn that the US government's fiscal deficit (measured as the gap between what it earns in tax revenues, versus what it spends on liabilities) is unsustainable and will continue to impact what money flows into what asset classes. 

"Quite often, how the markets respond will be at odds with your priors. But remember, the P&L [profit and loss] always wins in the long run. With that in mind, in a world that craves new safe assets, there may be a growing role for Bitcoin," he concluded.

Over the last 5 years of post-pandemic markets the top performers among Tudor-Jones's candidates from 2020 are bitcoin in returning 1250 per cent, the tech-heavy Nasdaq 100 stock index in returning 139 per cent, and gold in returning 76 per cent. 

The billionaire investment legend believes that while the US government does nothing to reign in its spending binges the only way to manage the nation's debt will be to inflate it away. 

This is not a big secret, but US fiscal deficits continue to worsen at outrageous levels versus historical norms and Tudor-Jones has continued to warn on this. 

For reference in 2024 the US fiscal deficit widened to $US1.8 trillion and is forecast by the Congressional Budget Office to reach $1.9 trillion in 2025. That equals around 6.6 per cent of US GDP of $29 trillion in 2024 and is outrageously high by historical standards.