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.