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Go For Gold Series…Lessons Learnt From Wise Investors

August 28, 2018

Could it be that because investing is not an exact science, we are easily misled?

Traditional investing is governed by diligent research, skilled analysis and the prudent application of the fundamental and technical analysis. On the other hand, contrarian or unconventional investing is more about pursuing value in the asset classes or sectors that are underperforming and trading at discounts to their net asset value.

Both avenues have merit and can find justification for their strategy. Sometimes things do not go according to plan as the choice of a company does not grow as you expected. This can often lead to trying to justify your expectations and strategy.

One becomes emotional, and can get “married to the company” instead of learning to “cut one’s loses.” The old adage of “your first loss is your best loss,” if diligently applied can lead to a lot of sorrow being avoided.

Here are some wise words that I trust you will find helpful to reflect on and make part of your application too and so avoid falling into these slippery traps.

  • "The four most dangerous words in investing are, 'This time it's different.'"  ~ Sir John Templeton.

  • "Markets can remain irrational longer than you can remain solvent." ~ John Maynard Keynes

Sadly, in many of these instances, one’s behaviour can become both irrational and foolish. What may have started off as a conservative or cautious investment goes wrong, this can lead to a blind faith belief, that it will come right. This in turn results in a hope strategy being ensued, that is not rational.

  • Hope as a strategy is the worst strategy one can have for investments. Long term investment is based primarily on estimating a company’s future cash flows with reasonable accuracy after making certain assumptions.”

  • “The point of all this is that you have to deal with what is and not what may be or should be!” ~ Liston Meintjes.

And then worse still, a ‘double or quits’ approach is deployed. This is tantamount to gambling your investment away. All too often then a short term investment becomes a long term investment by necessity.

  • “Either we will make some good money from this extreme position, or they will have to carry me out on a stretcher.” ~ Wayne McCurrie.

  • Liquidity is a coward. At the first sign of trouble it is nowhere to be found.” ~ Hilton Davies.

Investing in physical gold and gold companies is a specific area where I have learnt many hard lessons as I have yielded to this foolish behaviour. I have collected a “treasure chest” of quotes from the great investors and friends in order to remind me and help me not to fall into these traps that I have all too easily succumbed to.

  • “The gold price is like a salmon swimming upstream, struggling to maintain gains as the dollar index pressures the metal.” ~ Gary Wagner.

  • “Establishing and maintaining an unconventional approach, requires frequently appearing downright imprudent in the eyes of conventional wisdom” ~ David Swensen.

We would do well to remember that investing is both an art and a skill. There is no short cut to successful investing. Diligent research, establishing careful evaluations and investing across the board are essential. As what ‘location’ is to property, so is ‘diversification’ is to prudent investing.

  • “If past history was all there was to the game, the richest people would be librarians.” ~ Warren Buffet.

  • “Those classes of investment considered the ‘best’ change form period to period. The pathetic fallacy of those thought to be the ‘best’ in truth are only the most popular, the most active, the most talked of, the most boosted, and consequently, the highest price at the time.” Fred Schwed.

And because investing in gold often does not feature in a well-balanced portfolio, it would be good to reflect on the reason for its inclusion.

  • "There are good reasons why central banks hold so much gold, which earns no interest and whose storage is costly. They consider gold the ultimate store of value, and policymakers who ignore its price, do so at their own peril." ~ Alan Greenspan.

  • “I retain a mystical faith in gold, as I do regarding the US Constitution. Gold is our best defence against the stupidity and the self-serving of our noble politicians.” ~ Richard Russell.

  • “Global political instability and market volatility are on the rise. Gold, always a prudent asset to own, has become the single most important wealth preservation tool for banks and individuals alike.” ~ James Rickard.

  • Gold is ‘still’ one of the Big 5 (the others being equities, property, bonds and cash) and it is the oldest and often most liquid and well accepted of the lot. So it is unlikely to lose its special status ever, even in the era of Bitcoin and others alike.” ~ Peter Major

In closing these two quotes have nothing to do with investing as such and yet their timeless wisdom of patience and timing are crucial to life’s decisions and also have application to weighing up decisions when making investments.

  • “If I have ever made any valuable discoveries, it has been owing more to patient attention, than to any other talent.’ ~ Isaac Newton.

  • “Having the right vision at the right time is what leads to success.” ~ John Maxwell.

Suggestion: Ideally, one should aim to make an investment in gold of between 5 - 10% of your total assets. This should be in coins primarily, and maybe some in gold mining shares for the more aggressive investor.

David Melvill ~ FSP No 17608

+27 23 614 1215 or +27 83 284 2202

[email protected]

45 Long Street Montagu 6720 South Africa

The world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.
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