In today’s Exponential Investor

  • One of many small tragedies
  • Conviction and decision making in investment
  • Gold – buy or sell?

I imagine most will have seen the deeply troubling news out of Afghanistan over the weekend.

It seems to have happened so quickly. I really am in no position to comment as an investment analyst, but for my part, one small episode spoke volumes about the social impact of what is now inevitable.

This is a very minor thing is a disastrous episode, but last year the Afghans announced that they were establishing a women’s national cricket team, following on from the immense success of the men’s team and its star player, Rashid Khan (who still managed a match-winning performance over the weekend even as his country fell to the Taliban).

Such a thing was unimaginable in a country which didn’t play cricket and stoned women for adultery just two decades ago.

This tweet underlines the sadness of this moment, now.

I myself have spent time working with the Refugee Cricket Project, a magical branch of the Refugee Council which helps young Afghans learn the game, make friends and settle in through their great love – cricket – with very helpful counsel on the administrative process too.

I have never truly seen such love and passion for the game I’ve spent my whole life deeply involved with. Sport is culture, sport is life for many people, and through sport the emotions of life make themselves clearer. For the women cricketers of Afghanistan as well as the men, the story of the last 15 years has been a fairytale of progress and development.

Clearly there is a wider and more all-encompassing tragedy unfolding, this just made me sad when I read about it this morning.

The story has been paused, for now, but in time it will resume. Progress always does.

Moving on to what might be considered more mundane, financial matters, I want to say a word on gold over the past year or so.

Double or nothing?

In investment, the dream situation is when you discover some diamond in the rough that no one else has seen.

Or so the people say.

In theory, that’s how you find winners. When you can see a company or asset that the market has undervalued. But you see its real quality and potential.

Turn this on its head though and it can look rather different.

Maybe the market is right, and you are wrong?

And when you are in a position of seeing something that no one else does, trust me, it doesn’t fill you with confidence and optimism.

Howard Marks, a famous investor and co-founder of Oaktree Capital Management, likes to say that “most great investment starts in discomfort”.

What I’m getting at is that finding the undervalued gem requires you to have deep conviction in the face of widespread scepticism – and to be right.

In this edition of Exponential Investor, we’re talking about gold.

I, and I think many of you, will be in this boat.

It’s not a totally undiscovered gem.

But I’ve spent the last six months watching inflation soar and interest rates stay low – pushing “real” (inflation adjusted) rates deeper and deeper into negative territory.

This is normally the perfect situation for gold.

And yet…

Source: Koyfin

To go back to my point, we are at a point where:

The conditions for gold are incredibly favourable, but the gold price has fallen for a year, slowly but consistently.

Should an investor:

A) think wow, yes! Relative to the conditions we believe have an influence, gold should be doing much better. How wonderful to be able to buy it so cheaply when everything is going in its favour!

B) Gold can’t even go up when the conditions are perfect. I must be missing something, and I had better wind back my holdings a bit.

Well, I wish I could tell you.

It depends what kind of investor you are. For me, I almost think that this is what we’re here for.

If you see something and think it should be doing better than it is, then buy.

If you can’t even buy when you think something’s undervalued, what are you even doing here?

You might not always be right, but this is investing.

I don’t know. It’s not my best ever argument. But it fits in neatly with my belief that investing is as psychological and emotional as it is economic and financial.

The Money Map

Experience can be a great help when such tough decisions present themselves.

Charlie Morris has it in spades, and happens to be something of a gold expert.

He has developed an interactive map – the “Money Map” – which helps him and other investors navigate the waves of inflation and interest rates.

His “fair valuation” for gold suggests it is trading at a deep discount to what it should be at the moment – a good sign for gold bugs.

Charlie is a brilliant investing mind, and in a world where inflation and interest rates are the most talked about and significant factors in portfolio construction, there has rarely been a better time to acquaint yourself with his work.

See for yourself by clicking this link.

All the best,

Kit Winder
Co-editor, Exponential Investor