I'd rather be caught with it, than without.
The Sunday Essay ☕️
A friend of mine recently shared his frustration with me. He had bought a one-kilogram gold bar to diversify his portfolio, but compared to his real estate, equities, and crypto positions, he felt it had "done nothing." His disappointment was palpable, and I hear this sentiment all the time.
It reminded me of a young broker I hold in high regard in Vancouver. He’s made me a lot of money, but he has an almost allergic reaction when it comes to gold. During a recent hike, he ranted non-stop about how lacklustre the gold market was and how foolish it is to sit on gold positions for years, waiting for the next big run that always seems just around the corner.
I couldn’t help but agree with him on one point: the Achilles’ heel of gold enthusiasts—and of anyone who falls in love with a single asset class, whether it’s crypto, real estate, or equities—is their blind devotion. They immerse themselves in echo chambers, following like-minded Twitter accounts, shutting out bearish arguments to preserve their convictions. It’s herd behaviour, plain and simple.
And I get it. There’s a strange comfort in failing as part of a crowd. Failing on your own? That’s a tougher pill to swallow.
Asymmetry in Action
Gold is a small part of my portfolio, but that’s all I need. The bet is asymmetric. I’ve acquired gold passively over time, dollar-cost averaging into my position without ever putting a disruptively large portion of my net worth at stake. It’s a long game, not a sprint.
In a way, it’s like how I approach combat sports. Fighting has never been a primary focus of mine, but I’ve consistently invested a small amount of energy into it over the years. The results have compounded. The skill has become part of me, though it’s rarely useful. And yet, possessing it carries no downside.
Much like gold, fighting is an asset of low utility most of the time. It’s done very little for me compared to other skills like reading or writing. Over the years, there have been almost no occasions where I’ve needed to defend myself physically. Almost.
But in that rare, Black Swan event—the one-in-a-decade moment where you need it—the value of the skill skyrockets. That’s asymmetry: a small investment, low carrying cost, and an outsized return when you least expect it.
I don’t consider myself a martial artist, but I’ve worked at it enough to have the skills I need. Similarly, I’m not a gold bug. I don’t follow gold prices obsessively nor expect it to outperform my other investments regularly. But, like my fighting skills, I know gold is there I need it.
The truth is, there are very few reasons to own gold most of the time. And that’s okay. You don’t own it for most of the time. You own it for those rare, unpredictable moments when the asymmetry of the investment pays off in spades.
So why own gold? For the same reason I learned how to fight: almost no reason. Almost.
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This week on the podcast I was joined by David Hunter, famed for his market melt-tup thesis. David has been remarkably consistent with his market forecast and remarkably correct. When everyone called for a market crash, David said, “Get ready for an epic run.” I wanted to ask him if the recent US election impacted his long-term thesis; the short answer was “it depends”… Check out the full interview here.
That’s all for today. Have a great week!
Jay
Years ago I worked with an older guy who was Jewish. We became very good friends professionally ( we both worked for IBM at the time) one of his pieces of advice which still sticks with me was. You got to invest we do. 1/4 in gold, 1/4 in shares,1/4 in real estate,1/4 in cash it’s simple formula and easy to remember.
Not sure I agree that gold is useless most of the time.
I can't identify a single event where gold ownership has bailed me out of a bad situation... and yet gold has outperformed every other asset class this century.
Seems your friend bought gold for the wrong reason... it's not a reliable way to make a quick buck.