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My portfolio has been soaring over the last 18 months.
The first quarter of this year finished with a remarkable +22% gain, which come after a stellar +41% performance in 2023.
While Bitcoin and tech stocks have been the main engines of growth over the last year and a half, there's one position in the Patreon Portfolio — the SPDR Gold Shares ETF (GLD) — that has bolstered my portfolio during the recent market downturn.
But while many investors flock to gold due to fears of economic collapse or unsustainable government debt, my rationale for holding gold differs significantly...
..and understanding my reasoning can reshape how you approach investing.
Why Gold is Ramping Higher
I sold my original SPDR Gold Shares (GLD) position back in mid-2022.
This was after it became clear gold was one of the worst inflation hedges out there (among other comparable commodities):
However, I re-opened this position (and subsequently added to it) multiple times starting in October 2023. This was good timing, as my SPDR Gold Shares (GLD) position is +21% since:
But I didn’t buy it because I expected some sort of economic collapse.
Rather, I bought it because other people think that.
You’re the Judge of the Market’s Beauty Content
Have you ever heard of the “Keynesian Beauty Contest”?
It’s an idea from economist John Maynard Keynes to describe how people make decisions in the stock market.
It goes like this: imagine a beauty contest where the goal isn't to pick who you think is the prettiest but to guess who everyone else will think is the prettiest.
In the stock market, it’s similar: investors often choose stocks not based on what they personally believe is the best investment, but on what they think everyone else will buy.
Keynes suggests that successful investing isn't about picking out the face one personally believes to be the prettiest among a set of photographs.
Instead, it's about selecting the face that other participants believe most people will find most attractive. This approach emphasizes the importance of gauging market sentiment and crowd psychology over personal preferences. It’s about predicting others' expectations and trying to stay one step ahead.
And it directly applies to why I still invest in gold.
Gold Isn’t What People Think It Is
I don’t own SPDR Gold Shares (GLD) to hedge against an economic collapse.
In fact, I find these assertions silly and not grounded in reality. Gold performed horribly during the COVID-19 Crash in 2020…
…nor did it perform well when we had high inflation in 2022:
Gold’s performance during these two events proved to me that the narrative that gold benefits from disorder and hedges against inflation is false.
But other people - including major central banks - still believe gold to be a store of value and “safe haven” asset.
I don’t believe this, but other people with lots of money (like central banks) do, and that’s why I own it.
This dynamic became particularly relevant starting in October 2023 when I re-opened my gold position (you can read it for free here). As market volatility persisted and global tensions heightened, I noticed an increasing trend toward risk-aversion among investors. The narrative around gold changed, and sentiments inclined towards its historical role as a perceived store of value during crises.
Recognizing this shift in market psychology allowed me to re-enter the gold market at a strategic point, resulting in a sold gain for me and my 800+ member portfolios.
Staying One Step Ahead
By understanding not only your own beliefs about an asset but also how it is viewed by the masses, you can make more informed and potentially profitable investment decisions.
Because in reality, investing isn't just about what you believe, but also about understanding and anticipating what others believe. This can often be the key to unlocking significant returns.
It's not about clinging blindly to narratives but being agile and aware of how these narratives can drive market movements. This is why, despite my personal views on gold's practical value, I maintain a position in GLD—because in the end, in the markets, perception can drive reality just as powerfully as fundamentals.
So, while I keep an eye on economic indicators and geopolitical developments, I also keep my finger on the pulse of market psychology.
That’s how we stay ahead in this ever-evolving game.
Stay safe out there,
Robert