Fight
or flight?
Government policies and
geopolitical circumstances are always changing.
One thing that has not, however, is that when things start to get a
little uncomfortable, investors flee to safe havens, like gold for example.
Strange, since it is
really just an inert yellow metal. But
consider that gold is not just a noun, but also an adjective in our lexicon as
well.
"I
have a golden idea."
"That's
gold, Jerry. Gold".
Why is gold considered
such a valuable commodity? No one knows
for certain but what we do know is that this venerable metal has held our
fascination for as long as civilization has existed. It is the one currency, in fact, which evokes
that kind of confidence and trust.
(Sorry, bit-coin). Despite our
idealization of the metal it has very few real uses in society. None of the other commodities that you can
think of might actually say the same.
As today's current
events and political bombast proliferate our airwaves, it is obvious to experts
and the casual observer alike that successful portfolios should be erring on
the side of conservatism and caution. As
a result, more tangible assets (real estate, art, precious metals) and yield
based products are finding their way into people's portfolios.
More than anything else,
the wealthy are searching for a standard which creates a finite floor to their
net worth that can withstand all the political electioneering, personal
grandstanding, political hubris, market volatility, and terror overseas...enabling
them to sleep well at night. Every long-term
investor is looking for the "magic bullet" that offers immunity from
catastrophe, crisis, or financial collapse.
Thus, the key for me as
a portfolio manager is to use our proprietary tools to navigate any short term
exigencies in order to maximize upside opportunities that present themselves,
while diversifying sufficiently not to let the occasional downturns (and there
will be downturns) from ruining the overall trajectory of positive performance. It is only those exogenous
"curveballs" that are thrown our way by imperfect persons or sudden unforeseen
events that have the power to interrupt secular cycles by any significant
magnitude.
Your
call
Curiously, as interest
rates remain low, so too do they impede the capital gains potential of those
"safe-haven" investments mentioned above. You see, without inflation or price-push
momentum, inanimate objects really just sit there, generating little comfort
(or return) other than that which we bestow upon them....we can touch them,
feel them, and "value" them in our mind, but little else. So, when "real" interest rates
start to rise, and I hope that they will do so this year, it is reflective of
economic surge, and these "tangible" objects, along with other
investments, must also keep pace with profits and price movements around them.
The
conundrum for investors, then, is that they are fleeing to material objects for
protection, but the climate that urges them to do so must be so dire as to
generate an atmosphere of lost confidence in other more traditional market
baskets.
At the end of the day
you have to determine whether you are a "glass
half full" or "glass half empty" type of personality because, ultimately, your
ability to frame a successful portfolio outcome is defined by whether you are
an optimist or a pessimist, and how you view taking risk as part of an
over-arching portfolio methodology.
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