Time is an Illusion, But Not if You’re an Investor
Getting in and out of the market at the right time is everything. The problem, however, is that the right time is never clear until it’s too late. Humans aren’t good at predicting outcomes.
In 2001 author Robert Zuccaro famously declared that the Dow Jones Industrial Index would reach 30,000 by 2008. Today, we still haven’t reached 30,000. Moreover, his prediction year of 2008 market one of the most disastrous declines in the history of the stock market.
Then, there was economist Ravi Batra whose 1987 publication, “The Great Depression of 1990” became a New York Times bestseller. Then, the 1990s ushered in an era of economic prosperity.
Predicting is a losing game.
Perhaps this is why so many fail to recognize opportunity. Science shows that we are far too confident in our decisions. But, research into psychological shortcomings like confirmation bias, gambler’s fallacy, and the ostrich effect all reveal how the brain short circuits our decision process.
Gold investors would be wise to take note of these errors. Many recent headlines lament falling gold prices. They take a cautionary and depressed tone. They warn of recent drops in value. However, they all miss a key takeaway: declining prices leave investors with upside potential.
Getting into the gold market now means enjoying a relatively low-cost basis. That is, investors who buy low have a greater chance to see their investment in gold appreciate over the long-term.
Large institutions know this fact well. Consider that “After nearly two decades as net sellers, central banks collectively are now net buyers of precious metals (mainly gold), contributing to a decrease in supply and an increase in demand,” according to Morgan Stanley.
However, if this central bank buying is reducing supply, then why isn’t the price going up at the moment. The answer is found in the hundreds of biases steering investors every which way.
The problem is that we’re not wired to view circumstances in a long-term context. For early humans, the long-term didn’t extend much further than the next harvest. Therefore, it’s not surprising to see why it’s difficult for investors to consider that gold has outperformed stocks and bonds.
In fact, investors only have to look back 15 years to see that gold has delivered an impressive 315%. This performance outpaces the Dow Jones Industrial Average which earned just 58% over the same period.
The key to investing in commodities like gold is to preserve a long-term perspective amid the noise of headlines, talking heads and the incessant voice within that urges us to act irrationally.