Separating the signal from the noise
Most regular readers and friends will undoubtedly already know what my position is in regards to projections and forecasts. For many years, I have consistently maintained that any and all attempts to “time the market” are as useless as they are unrealistic and I have always urged all responsible and rational investors to be extremely wary and suspicious of anyone that claims they can accurately predict market behavior. Innumerable speculators (or more precisely put, gamblers) have tried to gain an edge and to make easy money by following “reliable” predictions and “solid tips” and most, if not all, of them suffered terrible losses.
Nobody knows and nobody can ever know how a single investment will perform in the short- or mid-term. Even if one conducts the most thorough fundamental analysis, factoring in the most granular of details and considering all conceivable scenarios, it is still decidedly unlikely that they could actually foretell and anticipate the future. There are simply too many variable external factors, too many “known unknowns” and too many uncontrollable and unpredictable forces that have the potential and the power to completely invalidate or redefine any reasonable expectation.
Even though short-term, “crystal ball” type forecasts, too-good-to-be-true “hot tips” and “surefire predictions” are, as a rule, sweepingly unreliable, it doesn’t mean that the conscientious and diligent investor is doomed to remain forever rudderless and adrift. The aforementioned unrealistic claims of extraordinary predictive prowess and the fantastical promises of exact forecasting powers are, always have been and forever will be, almost entirely undependable and perilously questionable. However, if one “zooms out”, truly comprehends and recognizes the bigger picture, if they are able to understand and appreciate the wider historical context and if they are capable of seeing the forest instead of focusing on a single tree, there are invaluable lessons to be learned.
Gold is a great example: Over the last couple of years, the price performance of the yellow metal has been truly remarkable. As it broke one record high after the other, it attracted the interest of a lot of speculators; they were perfervidly fixated on the price action alone. They were trying to make a “quick buck” though paper gold investment vehicles, while having no understanding or even no interest in the actual investment case for gold. They traded the precious metal like a trending stock and they never bought it with the intent to own and hold it over the long term. Undoubtedly, some of them succeeded in their goals and they made the “quick buck” they were after. However, whatever their profits might have been, they bear no comparison to the returns that responsible, conservative and sophisticated gold investors saw. Those that had invested years before in the precious metal for the right reasons and in the right way, those that understood the true, multidimensional value of physical gold and were unshaken and unstirred by short-term price fluctuations, were rewarded with exceptional gains.
Herein lies the difference between short-term thinking and far-sighted strategic analysis. The investment case for physical gold has been clear and incontestable for a very long time, at least for those of us that have studied monetary history and understand the fundamental flaws and dangers of the fiat money system. Physical gold has always served as a reliable store of value and as a solid safe haven and a hedge against inflation, monetary debasement and economic turbulence, while it has also consistently provided unfailing protection against State trespasses, transgressions and encroachments on the individual’s rights and their property. Although these arguments for investing in gold are timeless, it can be argued that the 2008 global recession and the disastrous policies that followed made them painfully obvious to any observant and free-thinking investor. Rampant money-printing and absurdly low interest rates were clearly destined to bring about inflation. At that time, this manifested mainly in asset prices, which lead many short-sighted “experts” to declare that “inflation was dead” – this triumphant, albeit dreadfully misguided, proclamation even made it to the front page of Businessweek in April 2019.
Unlike the majority of investors, long-term physical gold owners didn’t fall for this – they remained steadfast and stood by their assessment. They knew that no matter what the short-term trends, the prevailing “expert” opinions and forecasts might show, the fundamental truths they relied upon could not be changed. As underlined before, predictions are largely foolish. However, convictions are not. As opposed to the biased models, the questionable sampling and analyzing methods and the oftentimes blatant conflicts of interest that so many forecasts are based on, actual convictions are founded upon and supported by much sturdier stuff. For one thing, they are formed and fortified by individual, free-thinking minds – convictions don’t come from reading mainstream media opinion pieces and editorials, or from passively accepting and blindly following whatever path the masses move towards.
Convictions are slowly and meticulously forged through critical thinking, through diligent research and scrupulous study, they are tested through rigorous and open debate and they are refined, fine-tuned or even rejected as new information or as new opposing arguments arise. This is the true spirit of the scientific method, after all: A hypothesis, once tested and verified, can evolve into a theory, but that theory can be disproven and negated in an instant, the moment that reliable contradicting evidence emerges. Convictions are not affected by ephemeral distractions nor are they influenced by mainstream opinions and popular beliefs. They don’t tell us what the right move is today, they don’t dictate what to buy or what to sell right now – they just gently guide us towards a path that leads to a better future, however long that path may be.
In my experience, this is the “secret ingredient” that determines and defines any successful investor. The ability to think critically, to question freely and to analyze independently, in order to form sound and enduring convictions, is of paramount importance. But so is the courage to stand by those convictions, even when (or perhaps more accurately, especially when) everyone else chooses a different path, when the majority parts ways with you and leaves you behind. The capacity to resist doubting and second-guessing yourself and the fortitude to trust your own conclusions, your core values and your original ideas, even if everyone and everything around you point to the opposite direction, are terribly rare virtues, yet they play a uniquely decisive role in determining one’s success or failure.
As we launch into the new year, it is clear that there are numerous challenges and hurdles ahead. There is widespread and profound uncertainty on multiple levels, economic, geopolitical and social, and there are too many structural problems, deep divisions and overwhelming discontent that could boil over at any time. It is impossible to predict when this boiling point will be reached, as governments could continue to paper over all these issues and to appease the masses through further “printing and spending”. It is obviously not a sustainable strategy, but it has been working for almost two decades – who can tell if it will continue to work for a another two decades or if it will suddenly falter tomorrow?
Instead of chasing improbable answers to impossible questions, it is far more productive and infinitely more useful to focus on one’s convictions. After all, knowing the exact time when a systemic crisis might emerge, is much less important that being certain that it will and clearly understanding why it will. This knowledge not only provides an invaluable strategic advantage, but it also helps the astute investor prepare adequately and effectively for what lies ahead.
A great example of this dangerous confusion between signal and noise is unfolding before our very eyes. A lot of investors seem genuinely disturbed over recent reports that the waiting time to withdraw bullion stored in the Bank of England’s vaults has risen from a few days to between four and eight weeks. As the Financial Times reported, “a surge in gold shipments to the US has led to a shortage of bullion in London, as traders amass an $82bn stockpile in New York over fears of Trump administration tariffs.” Of course, this is not the first time this happened. During the covid crisis, we also saw waiting times rise, as the lockdowns and the overall uncertainty and panic led to a surge in stockpiling on Comex.
Granted, the situation is indeed unusual, and it might very well push gold prices even higher, but it hardly justifies hysteria and it is the wrong thing to be focusing on. It is merely noise. While mainstream financial analysts are obsessing over this story, there has been a much more consequential development that has gone largely unreported and shockingly under discussed. Back in October of the last year, gold overtook the euro to become the second-largest reserve asset after the U.S. dollar. This was a clear signal that too many investors completely missed. What it meant was that there is now a clear choice between the dollar and gold, even central banks recognize it. I know what I would prefer my savings to be in and I have a feeling that regular readers do too.
Claudio Grass, Hünenberg See, Switzerland. www.claudiograss.ch
This work is licensed under a Creative Commons Attribution 4.0 International License. Therefore please feel free to share and you can subscribe for my articles by clicking here
