I am just an analyst at a small northern financial institution, and I never thought something like this could happen to me. But one evening, a few years ago, the most amazing sequence of events began to unfold.
I was working late on an investment screening exercise. I had pulled down a massive data set from my Bloomberg terminal and was picking through a list of investments trading well below fair value when, suddenly, a soft voice very close to my left ear whispered, “What about silver?”
I turned around quickly, and there beside my chair was the office cleaning lady, although she was dressed like no cleaning lady I had seen before … or since.
She told me she had something to show me and bade me enter the supply room at the back of the office. I followed obediently and was not to be disappointed.
For there, in a PowerPoint presentation projected against the supply room wall, she showed me everything I needed to see. Silver’s uncorrelated relationship with bond prices, the metal’s improving supply and demand dynamics, silver’s huge discount against gold, the spiralling debt burden of the western governments, which would lead to money printing – all was laid out clearly and convincingly. It was an iron clad case for owning silver.
The strength of her analysis gave me the confidence to place a massive portfolio weighting into the pearly metal. And then I held on for the ride. Through rallies and corrections, bull and bear markets, I held on.
Four years later, my returns are staggering. Although I have kept quiet about my gains, I am overcome at points with euphoria. I want to tell my loudmouth brother-in-law that my silver returns have blown away all his Arizona condo investments. Whenever I drive past a stadium, I have an almost irrepressible urge to bid for its naming rights.
Are these feelings simply part of the ride or are they the first signs I should be getting out? What should I do now?
(Name and address withheld)
The great success you have had does not necessarily preclude you from the potential of making further gains in silver. Every investment that delivers a 10-times return must first deliver a five-times return. However, I do agree with your underlying intuition and your worry about holding on too long. The art of investing successfully is in maintaining a portfolio that is heavily weighted in the most undervalued assets that money can buy.
Therefore, it makes sense at this juncture to start peeling off significant weights into other areas that are convincingly undervalued looking forward.
I wonder what your cleaning lady would think of natural gas at this juncture. Although beset by truly awful oversupply in the short term, I wonder more and more whether gas is putting in a long-term bottom around $4/mcf (1,000 cubic feet).
As for your emotional state, dear reader, I think it is likely that you’re falling victim to what the Greeks knew as hubris. Success begets arrogance. Arrogance begets failure. Nowhere has this script been played out more often than in the world of investing. I wish you luck in your efforts to maintain your humility. Continuing to maintain your discipline as an analyst may be a useful start.
I end this week on a personal note. This will be my last “100-Mile Investor” column. I have recently taken on a new role with a private capital organization here in the city, and I intend to make that activity my exclusive professional focus. I would like to take this opportunity to thank Timothy Renshaw and the editorial staff at Business in Vancouver for their kind encouragement and also to thank the many great readers of this newspaper for their interest and comments over the past couple of years.