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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. 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.
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.
Arnold Bock
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