The financial markets have entered a wild period of extremely high volatility in the final months of 2018. A rare “perfect storm” hit investors as stocks, commodities, and bonds all tumbled in unison for the first time in decades. The economic picture is confusing, as this downward spiral comes atypically in a time when unemployment is low and other baseline economic indicators look favorable. How investors react in periods of extreme volatility can have an outsized impact on the overall performance of their portfolios. Although no one can predict what any given market is going to do, Pease & Curren is here to help with a discussion of what is driving the volatility, and pointers for how precious metals related businesses and business owners can weather the economic cyclone.
Pease & Curren recommends that precious metals businesses and business owners:
Read below for the basis behind these recommendations.
POLITICAL INSTABLITY DRIVES MARKET UNCERTAINTY
How can markets be so unstable when the underlying economic news about employment and output is so good? One answer is that many recent government actions, though motivated by important political concerns, have been a drag on the economy.
WHAT YOU CAN DO AMID ALL THE UNCERTAINTY
The Best Investment May be In Your Own Business: Especially with all of the major investment classes in turmoil, it can feel like there is nothing for an investor to do. One thing to remember is that the investments that the financial press discusses, such as stocks and bonds, are just those investments that are available publicly to one and all. This overlooks important investments that may be available to different people. One example is that for many talented people, their education might be the best investment they can make. For jewelry and pawnshop owners, the best investment available to you may be in your own business. After all, you work night and day because you expect your business to give you a higher return on your investment than you can get anywhere else. With markets going out of control, putting your money into new inventory, infrastructure, or expanding your pawn shop’s loan portfolio are ever-more attractive.
Stay the Course: In times of high volatility, it can be important to stick to a well-thought out investment strategy. Wild upswings and downswings are often in response to news that markets have not fully digested or analyzed, and as a clearer picture emerges, prices often return to the mean. Panicked decisions in response to market downturns usually lead investors to sell low and later buy high after they realize that they really should be in the market. For example, after taking punishing losses leading up to Christmas, the DOW rose by record amounts on December 26th. If you had panicked and sold, you missed this rally.
Now is No Time to Hoard Precious Metal Scrap: Here at Pease & Curren, we often hear that our customers are “waiting for [X precious metals price] to refine”, a comment that makes us cringe. It is impossible to predict when a metal is going to hit a certain price, and it is unclear what other opportunities will be missed in the meantime that may have yielded a much higher return. It is a truism that a metal is at a certain price today because half of investors think it is going to go up, and half think it is going to go down. Moreover, when the metal hits the desired price, any reputable refiner will require a certain lead time before scrap can be converted into cash, and especially with all of this volatility, you may miss your market. Even if you think that a metal is going up, refining now and holding the metals on consignment or having them returned to you in commodity form will improve your liquidity and allow you to sell quickly when the time is right.
Check in and Make Sure You are Diverse: Even though we have seen that all asset classes can go down in strange economic times, this is quite rare. The extreme rarity of this scenario is why a diverse array of investment assets is seen less risky than putting all your eggs in one basket. Investors holding only stocks and bonds may have overlooked precious metals, which can cut your investment risk by rising in value during troubling economic times. Conversely, precious metals businesses that do not attend to their scrap and accumulate large amounts may also be accidentally neglecting diversity by foregoing opportunities to invest in long-term high yield assets like stocks, bonds, and their own businesses.