Wednesday, July 13, 2016

How My Pet Rocks Are Doing

I know that actually the majority of the financial community here do not believe in precious metals like Gold or Silver to be an investment. It's just considered completely off-topic discussion that deviates from the usual and anticipated analysis of IPOs and local companies. Really, no one cares about gold or silver.

I can hardly blame them, there are things about precious metals that does not make it the ideal investment to some.

There is a cost to own it (storage, safekeeping).
It isn't easy to buy or sell (liquidity and transcation costs).
And of course, it doesn't produce any cash flow or give birth to baby gold (or silver) bars.

The part about cash flow is the thing that bugs most people. No earnings, no yield, how can that be an investment? Of course, without earnings or yield, how would some of the fundamentalists apply FA to determine the value of the asset? It doesn't sound like an investment if it doesn't produce anything, right?

Then again, looking at the negative yields in the sovereign bonds of many developed countries and then tell me that it is an investment while gold isn't. Hey, gold just sits there, but those bonds actually have a negative yield. If gold can't be considered an investment, are those bonds then considered an anti-investment? Pray tell, are negative yield bonds considered an investment?

Honestly though, there are plenty of fundamental reasons to hold precious metals, but they don't conform to what the fundamental analyst has been taught at his $888 stock analysis course. For 2 reasons. First, it's not a stock. Second, those aren't real courses. HAHA. Okay I kid. Not everyone is so free or have the access or patience to self-teach. It's like learning a language. Do you need to attend a class and complete it with a certificate to be considered a speaker? Do you need to attend a stock analysis course to analyze stocks? There's some deep stuff for you to think about regarding authority and authenticity, boom.

Whatever the case, I believe that if you can sell something later and it is worth more than what you bought it for (note that I am completely omitting the price, because as long as you can purchase more real goods in the future, that's considered a positive investment to me), it can be considered an investment.

Even with the recent declines in the market, I'm still up plenty on a cost basis. On a sell basis, just knock down a few % for transaction costs. They are still showing a pretty return. I've talked about the BSP before, and I legit do think it's a decent way to accumulate physical precious metals. I walk the talk and I own these products, and I own enough to take physical delivery of my gold and silver. Maybe not everything, but enough for delivery does give you a baseline of just how much I've personally sunk into these products.

It's not a surprise that Silver is overperforming. I think anyone who is looking at precious metals as just another form of investment as opposed to the susceptible biased eyes of a gold bug, it has always been obvious that Silver has been setting up to be a great investment, and would out perform gold.

Of course, needless to say, gold miners would provide semi-leverage like returns over precious metals themselves. If I didn't say what the fund was and what assets they invest in, I'm sure many of you would be interested to know. Now that you know that it was a gold miners fund, would you even consider it? I think many would not even bother touching it. To each their own, I suppose.

I've recently wrote what I've been thinking about the precious metals space. I even talked about my positioning. Which, yes, precious metals makes up the bulk of my holdings.

Although you can never have enough of a good investment, I don't feel regretful that I didn't buy even more of my precious metals related investments when they were at lows. I've always been a buyer, especially on their most ugly days (since apparently, "averaging down" is a sucker's strategy), but I don't buy them on leverage and I have always been prepared that it could go down even lower, or that it would take a long time to show profits.

I'm not trying to convince you that you should hop into the precious metals bandwagon, because honestly I don't really care. But, I am sharing this because I think that there is story about perspective and bias to be told here. The typical retail investor restricts themselves with the selection of investment options for no particular reasons at all. INSURANCE (wtf), fixed deposits, structured deposits, unit trusts, retail bonds, local SGX stocks and... private property. Maybe that might be enough or even too much for most people, but it isn't enough for me. I want to be able to search out the best investment opportunities and be able to take action on them.

Anyway, I'm just saying that yes, it is possible to make money with precious metals. Just because it is unfamiliar or non-traditional doesn't mean that you should avoid it. Actually, to me, it would seem that there would be largest opportunity because of the steep learning curve. Are there risks to this, or even other types of alternative / non-traditional investments like perference shares, or even modern day crowdfunding? Yes, of course there are. There are plenty of risks everywhere and in every asset.

Being an investor is about being able to evaluate risks - their severity and probability - and then deciding if they are willing to assume those risks for the possibility of future returns, which they must once again evaluate if those returns are realistic and likely.

I have got to say, it irks me that most (better) investors can realize and understand that returns are on a probability distribution and are not static. Yet when it comes to risk, many assume that risks are static, such as the severity (drawdown) and the odds of it. Wake up sweetpeas. Risk ain't static either.

Welcome to the real world where we live in. Where the stock market is at all time highs, bonds are at near zero yields and gold is the best performing major asset year to date. (GLD 24.6% vs TLT 16.3% vs SPY 3.8%). How's that for all you stawk lovers?


  1. Hi,

    Honestly, I am glad you are vindicated. I have a small profit there too.

    However, with regards to your "shorts", we might be on the opposite sides since I hold a little of Brk B. But if it indeed crashes, I am also prepared with ammo.

    1. Hi Mr 15HWW,

      Hehe, I'm still expecting a lot more from my gold positions though! Any plans on getting more precious metals?

      The good thing about being long is that history and time are on your side. As long as you aren't leveraged, it's hard to lose in the long run. Shorting on the other side... has been rather painful, haha.

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