Are we going to see a repeat of last year’s precious metals performance between now and August?
‘I know what I am talking about, I work in a company with £200 billion funds under management and £100 billion in cash. We advise thousands of clients daily. You are an amateur day trader and speculator, who uses a simple app to gamble in the stock market and you lot are turning it into a casino. You have no idea about the fundamentals of investment in stocks, property, or precious metals. Silver squeeze? You have no idea.’ ‘I am sorry you feel that way, to be honest, I thought it was already a casino way before lockdown and TV repeats bored the pants off me. Furlough pay and stimulus cheques are burning holes in my pocket, so I want to try my hand at making money in shares and the Gold and Silver markets.’
‘That is so naïve and worrying, seeing you new kids on the block, gambling, and creating erratic prices. It is not good for companies, the economy or our net worth’. ‘I guess so, but we all need to start somewhere, and I know you guys want price stability to maintain the billions you already have. You were lucky to make your fortune at a time when funds were growing at 5% – 10% per annum. I feel enslaved with the 1% interest I earn in my Bank account these days, so I know I need to speculate to accumulate and to try and gate crash the party. It is not personal, and I understand why you are pissed at having to share your casino profits, but I just want a small slice of the pie that you already have. It is not much to ask for because you have £300 billion in funds and cash and you make the rules.’
‘We have worked hard for it. We spend hours researching past and estimated performance of an asset and the fundamentals of the underlying company to help investors reach a goal such as saving for retirement and their children’s education. It is easy for us to find information on stocks, but you are a back street gambler, reliant on chance.’ ‘I have gambled yes. I research players or team history; a horse’s track record and I try and seek an edge by looking at the body language of other players at the poker table. I can learn and transfer those skills, don’t worry. About research, whilst you seem to have your shit together, millions of investors have lost billions of retirement and children’s education funds via scandals involving Enron, WorldCom, AIG, Lehman, Royal Bank of Scotland, Madoff, Wirecard, to name just a few. Add cyclical recessions into the mix and all the manipulation that occurs in precious metals, for example, and it all seems a bit of a gamble to me.’
‘Yes, they were all unfortunate. We invest in shares, pensions, property, and managed funds, expecting to make a profit, via capital appreciation and income (dividends and interest). It is great to own an underlying share of a growing and profitable company.’ ‘Not strictly true though, is it? Many investors hold a nominee share account, so their name is not even on the share register. I have also heard so called investors sell shares at a given price without possessing them and then purchasing them later at a lower price, which seems a bit dodgy to me. Is it right that a lot of shares, funds, and ETF’s, including those involved in precious metals, are heavily invested in derivatives, which just follow the price of an asset, rather than owning it? Man, you just do not realise you are gambling. No wonder there have been so many speculative bubbles over the years. You have taken advantage of them in the past, why can’t I?’
‘Anyway, you mentioned Madoff etc, but they are few and far between. Our clients receive the best product and investment advice that money can buy. You are in and out of shares before I have gone to bed at night.’ ‘Yes, but by the time you have charged 4% for advice, an initial product fee of 1.5%, on-going advice fee of 0.5% per annum and annual fund management charges of 2%, a large chunk of investor’s money has gone, and you need to keep your money invested for years to overcome these charges. By the way, do your clients see a Financial Adviser every year for that 0.5% and are your Managed funds actively managed because some of the performances look awful. Holding losing positions for so long after entry smacks of gambling to me. It feels like the ‘points’ charged by casinos and online gambling companies, with the house or investment company always winning but not the investor. Are you sure they are not the same?’
‘We spread capital across different assets to help minimise potential losses and a diversified portfolio, should cushion against downturns. Stop losses on shares is a good risk management tool to mitigate losses. You invest all your money in one share or asset and then get out. Let’s face it, you are hooked on the excitement, the buzz, the instant gratification of winning or losing. At least, over the medium to long term we can improvise if something goes wrong and put the money elsewhere.’ ‘Does not guarantee success though, does it? Most of your funds are invested in Managed funds, where you cannot set individual stop losses because everything is at the discretion and control of the fund manager. As for instant gratification, are you sure that fund managers and traders are not high fiving each other if their shorts come good and they are on track for a £5m bonus? Bit naïve don’t you think?’
‘No, not at all, investing is usually done in years or decades because the basic principle is the more time you allow your investments to grow, the more valuable they will be. Between March 1980 and March 2021, the S&P 500 had a total return of 10344% (dividends reinvested), an average annual return of 12%. If you had invested $1000 in 1980, you would now have $104,218.’ ‘Do you know what, I am sick of the ‘if you had invested in 1980 and kept it invested for 40 years brigade’. What if you had invested just before the market crashes in 1987 (Black Monday), 1990 (recession), 1992 (Black Wednesday), 1998 (Russian crisis), 2000 (dot.com bubble), 2001 (September 11th), 2007/8 (Financial crisis), 2010 (European sovereign debt crisis) and 2020 (covid)? The chances are, if you wanted that money to make money over a reasonable 3–5-year period, not a 40-year period, you would have lost money. Managed funds keep you in for the long term so investment companies can feast on the charges you pay on an annual basis. Prior to the 2020 crash, the Dow reached its record high of 29,551 on February 12th and then fell 5700 points or 19% to the March 9 low. It is now 34,777, up 17% from its previous high and 45% up from its March low. Great short-term performance, but to be honest, I call those erratic casino figures. It sounds like you are hooked on the excitement, the buzz, the instant gratification of these figures, not me.’
‘Blimey, you have gone on one there. It is not just shares and funds we invest in. The cherry on the cake is the £100 billion we have in cash to weather any storms and to invest if markets plummet.’ ‘That is sensible but for me as an individual, even putting my cash into bank accounts, with low or negative interest rates, seems like a gamble these days. I am paying for the privilege of someone looking after my cash and I have previously experienced bail ins where I was forced as a depositor to write-off a portion of my cash holdings to save my bank. If anything, it is forcing me into more speculative investments to make any worthwhile gains.’
‘So, you accept that what you are doing is risky and speculative? Did you know that as a trader, risk-taking has a big impact on your emotional well-being and performance? You may trade well and make significant profits when you trade moderately but then trade poorly when you trade with maximum size. Dopamine (the feel-good hormone) is triggered depending upon how much money you win or lose, and the thrill of risk and reward can lead to it hijacking your brain and leading you into addiction.’ ’Absolutely, I agree. If I do not have control of the reward sectors of my brain, I could be walking down a bad path. With most things though, it is all about education. Have you ever wondered why investing and the associated psychological factors are not taught in schools? Do you think there is a smidgin of Governments and the investment community, not wanting you educated so they can ‘manage’ your hard earnt money and bleed off billions via charges? Are you sure that out-performance will compensate you for this in the future? Keep them in the dark and companies take advantage of people who are sheep and who do not have a mind of their own. Controversial I know, but how about everyone spending 5 minutes each day educating themselves instead of surfing on Wastebook? Maybe just maybe, they will start to understand what I have been saying and see the landscape changing. Maybe just maybe, they will understand that shares in major companies are at a major super-cycle peak and it is now precious metals turn to shine in the sun.’
OK, I know this conversation is a bit one sided and one dimensional, but I think there is enough here to confirm that investing is indeed gambling. How can it not be with so many variables making it a game of chance? We have been fortunate to have the stock market returns we have had over the last 4 decades but, despite the printing presses now running at full speed, we are entering a period of diminishing returns, so repeating that performance is extremely unlikely. ‘It’s my party and I’ll cry if I want to’ is the status quo’s mantra to the gate-crashers. But do you blame them for joining the party late? I certainly don’t. The status quo and investment battlegrounds are ripe for a shake-up and I welcome them.
Well, what a good week for our precious metals:
I really do not mind if Gold retreats to support below $1800. I took some profits this week prior to the usual Tuesday attack. Likewise, Silver can retreat to $2549 to give that support a last kiss goodbye. There are so many bullish mining charts that I really am spoilt for choice. A couple, with commentary are below:
Are we going to see a repeat of last year’s precious metals performance between now and August? Don’t be guided by me. Click off social media for 5 minutes each day and find out for yourself. You might be pleasantly surprised.
Stay safe and see you next week. I am Sheep Shearer and I shear sheep.