Here’s Why Ignoring Spot Prices Might Be a Good Idea
This weekend, I was rereading one of the greatest books on investment ever written: The Intelligent Investor, by Benjamin Graham. This time, one particular passage struck me more forcefully than ever before.
Graham sets up this analogy by saying you’ve purchased a $1,000 share of a private business. You’re now the owner of that asset. In a typical “private business” arrangement like this, there’s no public market for your asset (think Shark Tank). There’s no notion of your investment’s current value.
With all this in mind, Graham asks you to imagine you have a friend named Mr. Market…
Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.
If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise?
In the days before CNBC and the Internet, market prices were published once daily – in the newspaper (remember those?). If you wanted an updated quote, you had to call your broker who had access to a Bloomberg terminal – or just wait until tomorrow.
Now, is that a bad thing? In other words, is having more information about prices helpful? Or the opposite?
Graham thinks most investors would be better off to ignore market prices most of the time:
Only in case you agree to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings.
I think this is especially relevant for Birch Gold Group customers, for several reasons:
- Spot price isn’t representative of physical precious metals. You can’t buy gold or silver at spot price any more than you can pay Brent crude by-the-barrel prices to fill up your car. Spot prices are a financial derivative generated by the commodities markets, not an accurate reflection of the value of an asset.
- Constant price updates encourage short-term thinking. To go back to Graham’s analogy, Mr. Market is always offering to buy you out. It’s always tempting to sell when his offer is a little more than you paid – and when his offer is a little less, too. Short-term thinking leads to more trading. And let’s not forget, as John Bogle famously said, “The more you trade, the less you make.”
- Focusing on daily or even weekly prices defeats the purpose of diversifying with physical precious metals, at least for many of our customers. Most people we work with want to avoid the stress and worry of constantly monitoring markets and second-guessing themselves.
Physical precious metals are completely different. Our customers don’t buy gold and silver so they have one more data point to keep track of day-to-day. Rather, they diversify with physical precious metals so they can tune out the flood of market “news” and analysis. So they can sleep soundly through the next stock market meltdown.
An asset that has a centuries-long track record as a safe haven offers a great deal of peace-of-mind. As Steve Forbes said:
Gold maintains its intrinsic value better than anything else on Earth, and that’s for 4,000 years.
It’s hard to put a price tag on a good night’s sleep!
In my mind, that’s a huge and understated benefit of diversifying your savings with physical precious metals. I think we’d all be better off if we ignored the ravings of Mr. Market and follow Graham’s advice to, “form your own ideas of the value of your holdings.
Phillip Patrick is Birch Gold Group’s primary spokesman and educator. He was born in London and earned a politics and international relations degree at the prestigious University of Redding in Berkshire, England. Growing up in London, he saw the risks of government overreach and socialist policies first-hand.
He spent years as a private wealth manager at Citigroup on Lombard Street (the Wall Street of London). He joined Birch Gold Group as a Precious Metals Specialist in 2012. He’s been with us ever since. In 2021, Phillip became an American citizen (congratulations!).
Phil spends much of his time leading Birch Gold’s team of Precious Metals Specialists, working with them to understand the current state of the global economy and how macroeconomic factors change the lives of everyday Americans. He excels at explaining exactly how abstract numbers like the Producer Price Index or Baltic Dry Index influence street-level economic reality. Precious metals are just one of his passions.
Because of his far-reaching expertise and his skill at making dry economics relatable, he’s in great demand as a guest commentator at a number of media outlets.