What My Stock Broker Doesn’t Get
Monday, May 1st, 2006
By Michael Lombardi, MBA for Profit Confidential
Call me old fashioned. Call me traditional. Whatever it may be, I still use a real broker when I invest in stocks. Yes, I’d probably save money by using one of the many on-line trading services available on the internet, or even a discount broker. But, I like using a traditional broker for two reasons.
Firstly, I just like a real voice over a computer screen when it comes to making an investment. When I call my broker, I’m not looking for advice, I’m telling the broker what to buy or sell. I just like doing that with a live voice. Secondly, and most importantly, since the broker I deal with is a senior vice-president at a major brokerage house, I love to probe and hear his stories on what retail investors in a group are either getting into or getting out of. I like to hear this because I’m usually doing the opposite.
Last week we met for our annual lunch to go over my account, talk about the economy, the stock market and usual the stuff two financial guys would talk about when they meet.
“Congratulations,” the broker told me. He was referring to how well my gold stocks have performed over the past year. “Because of your gold holdings, you’ve done better in the past year than any of my other clients.”
Here was my question to him: “How many of your several hundred clients have taken a position in gold?” The answer came as I expected: Less than 5%. Now, here’s where our conversation became very interesting.
Despite my investments in gold, and I assume because we’ve known each other for two decades so he feels comfortable, my stock broker asked: “Why would any one want to own gold anyway? It doesn’t pay a return. I can’t go into a car dealership and pay for a car with gold. Won’t the metal just collapse in value with oil once the China boom is over? I’m feeling the tech boom all over again.”
This is where my broker just doesn’t get it. Yes, I do agree that the boom in China has continued without a correction. But, on the other hand, I think the new and younger regime running China is too smart to let it happen. And yes, gold has gone straight-up like a line from $250 to $640 without a major correction (I wouldn’t be surprised at all to see gold swing down $50 or more on a correction).
What my broker doesn’t understand is history. For thousands of years, gold has been considered the real currency. It’s considered real money because men (and now these days women too) have to work hard to mine the metal.
Throughout history, various types of fiat money (paper money) have become popular in replacing gold as real money. Right now, the U.S. dollar is the standard reserve for 70% of world currencies, making the greenback today’s most popular form of money. But, like all other currencies, in time, as the country issuing the currency falls on difficult times, investors drop fiat paper for gold. It’s happened with the British pound, Caesar’s lire, Napoleon’s franc and even Hitler’s mark.
The country ruling or leading the world is the country whose paper money is often worth the most–the one investors want. But, when those countries lose their power, investors run to gold until another country emerges as the new world power.
There is no doubt today that the United States is the military and economic power of the world. But, there is also no doubt the U.S. has overextended itself financially. It may take decades for China to take over from the U.S. as the next world economy. But today, investors are simply leaving U.S. dollars for other forms of security. And, the only alternative to the U.S. dollar, until another paper currency becomes popular, is gold.
The broker himself said less than 5% of retail investors have a position in gold. Imagine what will happen to the price of gold if all of the sudden 20% to 25% of investors want in? This is what my broker doesn’t understand.
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Tags: gold, gold stocks, U.S. dollar
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
