News stories of high-frequency trading, market rigging and interest rate manipulations make the average individual investor feel like they have no chance of making any money in the markets. It seems like the guys on the inside track, such as the hedge funds, private equity funds and other “accredited investors,” only have access to all of the great deals. But there is a huge advantage you, as an individual investor, have over Wall Street and the entire investment management industry – independence.
What I mean by this is you as an investor of your own money only have to answer to yourself. Almost every hedge fund or investment manager in the industry is managing money for someone else and therefore have to answer to to their clients every month or quarter and report on their performance. This is of course a good thing in itself, but it can be a hindrance to the manager and something you can use to your advantage.
For example, hedge fund manager David Einhorn has recently been under fire for his bet on gold. His publicly traded reinsurer, Greenlight Capital Re, is down 18% year-to-date partly due to the fund’s gold position as well as other positions that have not been working out.
This is despite Mr. Einhorn having solid reasons for owning gold. In fact, many of his comments have echoed or matched what we have been writing about here at Anthem Vault. At a conference in April he stated, “Monetary policy and regulations have combined like a failed chemistry experiment to create a potentially destructive force that should not exist outside of fiction.” He also famously likened the Fed’s stimulus policy and zero interest rates to eating too many jelly donuts.
Unfortunately, while Einhorn may be correct in the long-term, his timing may be off, which in the investment world is as good as dead wrong. This can lead to his clients taking their money out and pressuring him and other fund managers to reverse course. But individual investors face no such constraints.
As long as you are handling your own money for retirement or other long-term savings goals, the short-to-medium fluctuations shouldn’t bother you and can actually be an opportunity to buy. You only have to worry about your own long-term timeline and your own capital. Nobody will be calling you with angry complaints about performance or asking you why you keep investing in something that is currently underperforming.
This is not to say bucking the trend is easy. The flip side of this advantage is individual investors must possess an incredibly strong willpower and determination to hold fast in the face of losses. Reviewing the reasons for owning gold and precious metals, as well as history of fiat currencies, can help in reminding you why it is important to keep a set percentage of your portfolio in gold.
As more and more websites, newspaper and magazine articles continue to proclaim the death of gold, it is hard for the individual investor to endure the pain. But this can actually be a good omen as it shows everyone, including the retail investor, finally throwing in the towel. The sentiment surrounding gold is so bad it seems like it can’t get a whole lot worse. Once everyone has capitulated, then the sellers are exhausted, clearing the way for gold to rise again.
So take heart as an individual investor – being independent in your thinking and keeping your emotions intact can bring huge rewards.
Chris Kuiper, CFA is currently a student and researcher at George Mason University, pursuing a Master’s of Economics. His previous experience includes asset management, investing and banking.