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Flying With the “Gold Bugs”

In a recent issue of Reality Check, Gary North reminded his readers that he has been recommending gold for more than four years. Bill Bonner, editor emeritus of Daily Reckoning, has “nagged” his readers to buy gold for the last three years.

Gary chastises those who have refused to invest in gold. He characterizes their thinking this way: “I want to make money my way. I don’t want to make money your way. If you are asking me to change, then I would rather not make money, no matter how good the deal, and no matter how much money you have made.”

It’s very true. When it comes to money, we are all very much driven by our emotions. We like to believe that we make rational decisions, but more often than not they are the products of unspoken and underlying feelings/ideas/notions about value.

That is something to be aware of – that most of our decisions are influenced by emotional judgments. And that these emotional judgments are often invisible to us.

I spent a little time thinking about my underlying prejudices about money. Here’s what I came up with:

You can’t beat the market.

Every dog has its day.

What goes up must come down.

The best way to predict a market downturn is if I invest in it.

People are generally honest – but they will steal from you if you make it too easy.

The return of my principal is more important than the return on it.

I can always make another million dollars.

These are not facts. They are opinions. They are opinions that I hold deeply in my brain and body. I don’t pretend that they are correct. But I recognize that I feel them to be true. Given that recognition, it is easier for me to understand my investment impulses.

Back to gold …

Gary correctly says that he and Bill sagely recommended gold several years ago. Had their readers followed their advice, they would have made some very handsome profits.

What Gary didn’t say was that he and Bill have been recommending gold for much longer than that – probably 20 or 25 years. I am not saying that they’ve been urgently recommending the acquisition of gold in each of those many years … but their general posture toward gold has been favorable for as long as I’ve known them.

Which is to say that Gary and Bill are “gold bugs.” And they – like the readers who have ignored their advice – want to get rich their way.

We all have intellectual (in addition to emotional) prejudices. As a result, the way we act in our quotidian lives is often very different.

I, for example, have never been very interested in gold. And yet, in the last four years, I’ve acquired a good bit of it. (It’s not a major part of my portfolio, but it’s enough to pay for my lifestyle for at least five years.)

I wonder how much gold Bill and Gary have accumulated.

I’m not suggesting they haven’t followed their own advice. I’m pointing out an important fact about human nature: What we actually do and what we earnestly believe are often disconnected and sometimes polar opposites. (Think of the Christian ministers who get caught in sex scandals.)

I don’t have an emotional commitment to gold … and yet I’ve profited from it. Do I feel good about that? You bet! Do I feel smart? Not at all.

I didn’t do any of the analysis that suggested gold should be going up. I didn’t do any of the serious thinking. And I didn’t take a risk by publicly recommending gold when it was out of style. Bill and Gary did all that.

I just sat back and read the arguments, pro and con. There were good arguments on both sides – as there always are. Since I had no prejudices toward gold, I knew I could react to the pro-gold arguments in a rational way. Weighing everything I was reading, the buy-gold arguments seemed a little stronger.

But that wouldn’t have been enough to persuade me to buy gold, because – when it comes to my passive investment portfolio – I’m not looking to outsmart the market. (Why? See my list of prejudices about money above.) I put my money in a conservative (actually, very conservative) mixture of bonds and index funds and am happy to get what the market wants to give me.

When I was persuaded to buy gold several years ago, I didn’t really believe that the gold bugs were right. I simply recognized that, having no gold in my portfolio, it couldn’t hurt to buy a little. Turning two percent of my portfolio into gold was not going to hurt me – nor was it going to change my lifestyle (as my good friend EP always says).

What it did for me was give me a sense of security. I now had something tangible that was physically located in certain bank vaults that I had access to – not simply an asset recorded in some financial service company’s computer database.

I like that quality of gold for the same reason I like the “realness” of real estate. Being able to see it and touch it, it’s harder for me to believe that someone could take it away from me.

I also like the portability of the gold coins I have. If some sort of disaster hits, I can take them with me. (You can fit a million dollars worth of gold coins in a piece of carry-on luggage. It will be very heavy … but it will fit.)

And I’m not upset about the fact that my stake in gold has appreciated recently – though I have no idea as to whether or not it will continue to go up. What I have – that two percent of my portfolio – I’ll keep.

If you have gold, good for you. I wouldn’t have more than 10 percent of my money in it, but (for the reasons stated above) I do think it’s a solid investment.

If you don’t have gold, should you buy it at today’s prices – or wait for the market to come down a little? Gary addressed that question in the December 13 issue of Reality Check. At that time, he said:

“If you want to buy, but you just cannot make the decision, pick two prices, $25 lower and higher than today’s price. Lower, because you can get in lower, and you will feel good that you did not buy today. Higher, because you may see gold get away from you completely.”

The same rationale can be used today.

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]

Mark Morgan Ford

Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Wealth Builders Club. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.