By: Arnold Bock with Lorimer
Wilson
Back in 2004 I made the
momentous decision to sell my house in a real estate market that was still
spiralling northward rather than wait for it to peak and then try to bail out
as it declined. I knew that my cautious inclinations would cause me to miss
out on further upside gains, but I saw the writing on the wall - two walls,
in fact. I realized it was just a matter of time before the housing bubble
burst and believed that commodities were about to take off.
Why Commodities are the Ideal Investment for a Cautious and Conservative
Investor
So what did I, a conservative
investor, do with the cash kitty from the sale of my house and my other
savings? I bought precious metals...gold and silver bullion as well as major,
mid tier and junior mining companies. Some exploration and development stage
junior stocks and warrants were added for balance and growth. For
diversification, I also acquired some energy...oil and uranium, a few select
base metals miners as well as some agricultural grains and fertilizers.
Back then, when someone asked
about my new investments, my response was guarded but it invariably
engendered head shaking scepticism bordering on wonder...about my stupidity.
'Goldbug' was a term I think I heard. It meant that I was one of those true
believers whose judgement was impaired.
I always justified my
investment decisions on the need for a conservative investment stance.
Suggesting that 'volatile' commodities and precious metals were conservative
investments clearly proved my ignorance. My investments seemed bizarre, given
unlimited consumer credit and multigenerational low interest rates available
to anyone with a pulse, at the time. It was an unprecedented sweet spot for
all consumers.
My explanation for investing
in precious metals, and other select commodities, such as oil, uranium,
agricultural grains and fertilizers, was that I wanted a stronger and longer
term financial foundation and greater certainty with my investments. This
comment was invariably met with mirth bordering on derision.
At that time the merits of
residential real estate was the obvious 'no-brainer' investment. (See a
previous 'no-brainer' article of mine here.)
The wisdom of buying, and even flipping multiple houses, was clearly
apparent, wasn't it? However, I used to respond that residential real estate
was too risky for my delicate constitution.
What about a 'balanced'
portfolio of DOW and S&P stocks? Surely they were the tried and true
formula for asset growth and retirement freedom? Oh yes, since I was getting
older and had already retired, conventional wisdom demanded that I shift ever
greater percentages of my investments into 'safe' fixed interest rate assets
comprised of money market funds, government and corporate bonds as well as
bank term deposits.
Assuming one wanted to be less
actively involved in the management of his treasured savings, the obvious
answer was to call one's friendly neighbourhood Financial Advisor. You know,
that nice man who remembers your birthday and who seems knowledgeable and
confident... surely he wouldn't steer me wrong, would he? He was a master in
getting his clients into 'balanced' and 'diversified' mutual funds which
seemed to make sense since they covered what appeared to be the investment
waterfront.
Upon closer examination there
was precious little exposure to commodities, including precious metals, or
emerging markets. Because these were 'buy and hold' investments, one needed
only to sit back and watch his portfolio grow. If it didn't grow, your
financial advisor advised you that your returns were no worse than the herd
comprised of the comparator group of funds managed by the industry's leading
money managers.
A conservative investor also
looks at economic fundamentals and trends. Unfriendly governments and
geopolitical conflicts, such as those in the mid east, must be central to
one's investment strategy. Another festering factor is huge and growing
government/sovereign debt. If debt can't be serviced, it won't be. Unlimited
money creation leading to devalued currency, price inflation and higher
interest rates are the inevitable consequences. Cash and fixed interest rate
securities such as bonds and CD's can be hazardous to one's financial health
in these circumstances. (For more on my views on why it is imperative to
invest in commodities today to withstand and prosper from the economic
realities of tomorrow please go
here.)
If the reasons which caused
one to buy a specific investment or sector remain intact, the conservative
investor remains firm and resolute. During a market correction, one should
test his judgement by asking himself whether he would still buy the
investments already owned, at their currently depressed prices. Above all,
one should not pay attention to the chattering 'talking heads' on business
television. They represent nothing but 'industry cheer leading' and 'trading
noise' which frequently results in doubt and a loss of perspective.
How Well Has This Cautious and Conservative Investor Done?
Since I climbed on to the
precious metals and commodities wagon gold bullion has not had a down year
although some of the PM stocks have not been as consistent. The monster
correction in the financial markets in 2008/09 was brutal, but most
everything has recovered nicely since.
More particularly, I didn't
allow myself to lose confidence in the fundamentals which caused me to invest
as I have. I refused to lock in my losses in down market corrections,
including the current one in precious metals. Most corrections have been
short and shallow. In fact a correction is the pause that refreshes when one
is in a secular bull market.
This conservative investor
confesses optimism in the future direction of his precious metals,
agriculture and energy investments...the best safe haven during the
turbulence ahead. Above all, they allow me to sleep soundly.
