Sunday, August 31, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Search of warm sands not a wise investment strategy

sievers column sig

By
From page C1 | March 16, 2014 |

In a popular children’s story, the young hero pins all his hopes on finding one of a handful of “golden tickets” hidden among millions of candy bars. Too often, people approach investing the same way.

The notion that the path to long-term wealth lies in locating secret and previously undiscovered treasures in the global marketplace of securities is one regularly featured in media and market commentary.

For instance, have you seen the magazine feature called “Secret Stocks of Fund Managers,” which refers to supposedly “bargain” stocks the pros hide? Never mind how the stocks can be secret when splashed on magazine stands nationally. Likewise, a popular business broadcaster regularly tells its viewers about the “under-the-radar” stocks that Wall Street analysts don’t want them to know about.

This stuff sells because it plays to a misconception about how markets work: that they are like beaches after a hot day, full of buried treasures. All you need, in this view of investing, is a virtual metal detector to find the money that people left behind.

Someone periodically gets lucky, but basing a long-term investment strategy on stumbling across the equivalent of a mislaid trinket in the sand or a golden ticket in a chocolate wrapper is not likely to be sustainable. This approach is haphazard, relying on chance and requiring a lot of work that is unlikely to be rewarded. Worse, it means taking unnecessary risks by tying one’s fortunes to a handful of securities or to one or two sectors.

Taking big bets on a single sector or commodity is a bit like buying a chocolate bar in the hope of finding a golden ticket. There’s an element of pot luck, and you’re exposing yourself to the specific risk related to that sector or industry.

Speaking of hidden treasures, gold itself can have a special allure for investors, particularly in uncertain times. Indeed, the yellow metal has had a couple of spectacular runs, in the 1970s and in the 2000s. But there have been long lean times and significant volatility in between, which makes gold a highly speculative bet.

In early 2013, an international newspaper carried the headline, “Gold Set to Shine Even More Brightly in 2013.” The rationale was that with investors scouring the world for “safe havens,” gold could reach as high as $2,500 an ounce by the year’s end.

Actually, gold suffered its biggest annual loss in three decades last year, with its spot price falling 28 percent in U.S. dollar terms. From an all-time high of $1,920 in September 2011, gold fell to just over $1,200 by the end of 2013.

Some investors may find some exposure to gold suitable as part of a broadly diversified portfolio, but taking speculative bets on a single commodity, sector or stock is more akin to blind hope than to anything else.

The popularity of media stories about hidden bargains and undiscovered stocks is understandable. Like townsfolk in a bar overhearing the boasting of gold diggers down from the hills, we desperately want to believe in El Dorado. But this sort of speculation is really no different from gambling.

In contrast, sound investment starts with identifying the risks worth taking and minimizing the risks that don’t come with an expected reward, like taking a big bet on gold. You can help reduce risk and increase flexibility by diversifying.

It’s true that you can get lucky the other way, like the boy in the chocolate factory story. But the chances are against you. Keep this in mind: The best investment may not be the golden ticket anyway.

Mark Sievers, president of Epsilon Financial Group, is a certified financial planner with a master’s in business administration from the University of California, Berkeley. Contact him at mark@wealthmatters.com.

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Nurse-family program helps moms, moms-to-be

By Barry Eberling | From Page: A1 | Gallery

 
Garamendi ranks 6th on DC paper’s franking list

By Ryan McCarthy | From Page: A1

 
Area service members promote, graduate

By Nick DeCicco | From Page: C4

Fairfield payments to golf courses expected to drop

By Ryan McCarthy | From Page: A4 | Gallery

 
Fairfield police log: Aug. 29, 2014

By Susan Hiland | From Page: A6

Suisun City police log: Aug. 29, 2014

By Susan Hiland | From Page: A6

 
.

US / World

Angels use 8 pitchers to beat A’s 2-0, extend lead

By The Associated Press | From Page: B1

 
.

Opinion

Thanks to Tomato Alley volunteers

By Letter to the Editor | From Page: A10

 
No justice, peace without effort

By Letter to the Editor | From Page: A10, 1 Comment

Faison identified location properly

By Letter to the Editor | From Page: A10

 
.

Living

1 God, 2 faiths, a marriage

By The Associated Press | From Page: D2

 
Utah approves winery in town with polygamous sect

By The Associated Press | From Page: D2

.

Entertainment

TVGrid

By Daily Republic Syndicated Content | From Page: C5

 
PUBLISHERS WEEKLY BEST-SELLERS

By The Associated Press | From Page: D6

Wilder memoir to give gritty view of prairie life

By The Associated Press | From Page: D6

 
Publisher acquires Robin Williams biography

By The Associated Press | From Page: D6

Amazon starts selling physical books in Brazil

By The Associated Press | From Page: D6

 
.

Sports

Prep football preview: Vacaville still team to beat in MEL

By Brian Arnold | From Page: B1 | Gallery

 
Gordon says Stewart could run strong in Atlanta

By The Associated Press | From Page: B1 | Gallery

Peavy takes no-hitter into 8th of Giants’ 3-1 win

By The Associated Press | From Page: B1

 
Suzann Pettersen tied for Portland Classic lead

By The Associated Press | From Page: B2

Bob Tway shoots 63 for share of Calgary lead

By The Associated Press | From Page: B2

 
With heavy heart, Kuchar hovers around the lead

By The Associated Press | From Page: B2

Isner loses to Kohlschreiber in US Open 3rd round; Serena advances

By The Associated Press | From Page: B3 | Gallery

 
Bocce Federation League results

By Daily Republic | From Page: B3

Bouhanni wins 8th Vuelta stage, Valverde leads

By The Associated Press | From Page: B3

 
Fighter War Machine extradited on assault charges

By The Associated Press | From Page: B3, 1 Comment

Timberwolves have record week after trading Love

By The Associated Press | From Page: B3

 
Schumacher wins Traxxas Nitro Shootout

By The Associated Press | From Page: B3

Kevin Harvick dominates to win Atlanta Nationwide

By The Associated Press | From Page: B3

 
No. 11 Stanford routs UC Davis 45-0 in opener

By The Associated Press | From Page: B5 | Gallery

College football Top 25

By The Associated Press | From Page: B5

 
Raiders cut Little, Ross to get to 53

By The Associated Press | From Page: B6

Champ Bailey, Michael Sam among NFL cuts

By The Associated Press | From Page: B6 | Gallery

 
Jonathan Martin makes 49ers’ 53-man roster

By The Associated Press | From Page: B6

US dominates Finland 114-55 in basketball worlds

By The Associated Press | From Page: B8 | Gallery

 
.

Business

Ferguson fallout: A call for police ‘body cams’

By The Associated Press | From Page: C1

 
Earthquake insurance shunned by vast majority of Californians

By Mcclatchy-Tribune News Service | From Page: C1

Startups offer banking for smartphone users

By The Associated Press | From Page: C2

 
.

Obituaries

Lois C. Clark

By Nancy Green | From Page: A4

 
Hazel Gertrude Wamsley

By Nancy Green | From Page: A4

Jerry Lee Trammell

By Nancy Green | From Page: A4, 5 Comments

 
.

Comics