A headline in the Wall Street Journal sums up one big-picture view of things: “Pivot Point: Investors Lose Faith in Stocks.” The Wall Street Journal explains that “Investors are abandoning the time-tested ‘stocks for the long run’ optimism that dominated since the 1980s.”
I’m one of those worriers that supports the truth of the old saying, that “markets climb a wall of worry.” Bingo. That’s me. Guilty as charged, because I worry a lot. There’s a voice in my head that’s always asking, “Are you worried yet?” Or another version of that inner voice says, “You may be worried, but are you worried enough?”
For example, I long ago figured out that the world has run out of cheap, easily accessed oil. Sure, there are lots of hydrocarbon molecules out there in the rocks, but they’re expensive to find, drill and produce. So I worry about issues like energy scarcity and oil prices rising over the long term. The other side of the play is that I look for long-term investing opportunities that’ll grow in that direction.
Same thing with, say, gold. Unlike Federal Reserve Chairman Ben Bernanke, I happen to believe that “gold is money.” Gold has a 5,000-year heritage as money, long before some government bureaucrat applied green ink to paper. Indeed, I don’t just think that gold is worth (today) $1,650 per ounce. My view is that the dollar is worth 1/1,650th of an ounce of gold.
And similar to the situation with oil, I long ago figured out that the world has run out of cheap, easily accessed gold. Sure, there are gold atoms out there in the rocks, but they’re expensive to find, mine and produce. So I worry about issues like the decline of the dollar, and/or a major mine shortfall that could spike gold prices. As with oil, the other side of the play is that I look for long-term gold-investing opportunities that’ll grow in that direction.
Why Buy Risk?
There’s one very basic principle of investing. It’s that if you put even one dime in the stock market, you had better understand that markets go up and markets go down.
Yes, there are optimistic trends, and there’s even some truth to that other old saying that “the trend is your friend.” There are times when things seem like smooth sailing. But nobody really knows from day to day what may happen. And stuff sure happens. The trend is your friend, until it turns around and bites you in the jugular vein.
The stock market is not an insured passbook savings account. When you buy shares in companies that trade on the stock market, you’re buying risk. Some sectors are in favor today, and relatively less risky. Other sectors fall out of favor tomorrow, and are more risky. In my view as editor of these topics, investing is, and always has been, a pursuit for stock-pickers.
Yes, you want to make money. You’re looking for return in the form of dividends and capital gains. But the underlying truth is that when you buy shares, you’re making a pact with your fellow man — if not with the devil — that you’ll accept the risk that comes from holding assets in the stock markets.
If you think that all of this is nerve-racking as an investor, try doing it for a living as a newsletter writer. Long time readers may recall that, on occasion, I mention that I wish that I had a copy of tomorrow’s newspaper — let alone the business section of the Sunday New York Times from a month or two (or three) from now.
It’s painful to watch quality stock tickers decline and see the share prices slide and tumble. Really, I’ve worked hard and traveled far to find good companies in which to invest, and I have plenty more to say on that point.
Last week, people sold. The market situation had little or no respect for the fundamentals of any company, whether it’s a small-cap Canadian junior resource developer or a huge blue chip energy producer.
No, people aren’t selling shares in great companies because there’s something wrong with the companies. They’re selling because they need to raise cash quickly, either to pay bills or just out of fear — as in, they want to take it off the table.
The Gold and Silver Crash
Let’s look at another example of panic selling. We saw how screwed up things could get over the past few days, with the tumble in gold and silver prices.
Consider some basics. Gold and silver are precious metals, and they’re “precious” for a reason. As I mentioned above, “gold is money.” And don’t neglect silver, which is money, too.
So why were people ditching gold and silver? To raise cash, of course. The flight to the dollar. To preserve capital, out of fear of more market tumbles. To meet margin calls (which were increased for gold, by the way.) To have cash in the accounts with which to buy back in later.
Still, is now the time to part with gold and silver — particularly if you own physical metal, as opposed to an ETF like the SPDR Gold Shares (GLD: NYSE)? Looking out, say, five or 10 years, what would you rather have? An ounce of gold? Or 17 or 18 crisp, new $100 bills on which the ink is still wet? (And I believe that, in 10 years, there will be a LOT of wet ink on a LOT of new bills, if you get my drift!)
Well, right now gold and silver are “up” for the year. They’re up for the past two years, three years, five years and even 10 years. When you have to sell something — for the margin call or whatever — you sell what’s up and what’s liquid. It’s another way of describing that old concept in economics that troubled times cause great assets to pass from weak hands to strong hands.
Don’t Sell the Good Stuff
I don’t think that we’re at the end of the world.
Yes, the markets stink. That’s because the global political class stinks. A few tens of thousands of people, across the world, are in power within governments, central banks, big organizations and such. They’re in charge of doing important things, and collectively, they’ve screwed them up.
But just because the political class has screwed up, it doesn’t mean that people across the globe will stop needing important substances like, say, oil. Or that people will all learn to love green paper again, versus real gold.
Thus, I’m wary of selling into market weakness. I’m less wary of buying into some really great companies at a discount, particularly if they’re paying a nice dividend yield.
My recommended portfolio is filled with great companies that have superb prospects over the long term — the next three years, five years and more. There’s nothing wrong with the companies in a fundamental sort of way.
The thing that’s screwed up, right now, with resource companies is the stock market valuation. Hang onto your shares and wait it out. Don’t sell the good stuff, if you can avoid it. Don’t be afraid of buying into the shares that are down, and particularly the players with strong dividend yields…
That’s all for now. Thanks for reading.
Byron King
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