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Question and Answer with Ric - Investing in Gold Today
June 2010
Question: I listen to your show, find it interesting and informative. But last week you made a comment that completely offended me. A caller asked about gold and you answered by telling the listeners that at a conference full of financial gurus, literally everyone laughed at the mere mention of gold investing today. I happen to be a client of a top-ranked advisor and hold gold and am very happy and making money. Shame on you; you came off as very condescending and insulting.
Ric: Thanks for your email. Sorry if you were offended, but please read very carefully what I’m about to tell you. This email might save you a lot of money.
You might be a victim of “confirmation bias.” This is a psychological phenomenon that is remarkably common — most of us suffer from it. This bias causes us to reject information that does not conform to our own preconceived opinions. For example, liberals like to watch MSNBC, while conservatives like to watch Fox News — often merely because we all like to hear people say things that we already agree with.
In this case, you seem to be a fan of gold as an investment. So when I made a comment that opposed your view, you became “completely offended” and said I was “very condescending” and “insulting.” But all I did was report a simple fact: A roomful of the nation’s top financial advisors were unanimous in their belief that gold is a very bad investment at the present time. [The event was the annual conference of the nation’s Top 100 Independent Financial Advisors, sponsored by Barron’s; as the #1 advisor on the list, I was a speaker at the event, although not at the session in question.]
I encourage you to think very carefully about what I reported. I am not trying to insult you. I am encouraging you to consider the possibility that gold, at its current price and in this current market environment, might not be as profitable an investment in the future as you seem to feel it will be.
Nor am I trying to insult your financial advisor. If he or she had told you to invest in gold back when gold was $400 an ounce, he or she made the right call, which is obvious today now that gold, at this writing, is more than $1,500 an ounce. But is your advisor suggesting that you should buy more gold today, at this current price? Owning gold at $400 is very different from owning it at $1,500 — and that is the point that the roomful of topranked advisors was making. No one suggests that gold hasn’t been profitable; there is simply consensus that further substantial price increases are unlikely.
And that’s the key point: You stated that you own gold, are very happy and are making money. Yes, you own it, and yes, you are very happy with the profits you have made over the past few years, but that does not mean that you are, at this time, continuing to enjoy profits from gold. In fact, you most certainly are not; gold pays no dividends, and its price has been languishing for many weeks. Please recognize that “was,” “is” and “will be” are three very different things.
And, it’s entirely possible that you don’t even own any gold at all, meaning that what you’re happy with is something entirely different! Perhaps instead your advisor has placed your money into mutual funds or exchange-traded funds that own shares of stock in gold mining companies. While the metal itself might not rise in price going forward, such shares might well do so. Or perhaps you’ll get a call soon from your advisor telling you that the nice ride you’ve enjoyed with gold is over, and it’s time to sell. Will you accuse your advisor of insulting you?
Don’t fall in love with an investment. It doesn’t know who you are, and it doesn’t love you back.
Be on the lookout for confirmation bias. It can be very costly.
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