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'Defensive' is not always defensive
Gold mining shares are notoriously volatile. That is normal, because
they depend on the price of the underlying metal, gold and silver, and
input costs such as energy, labour and materials, which are volatile as
well. As a group, gold mining shares, represented by the HUI-index, have
a higher beta than the market average, meaning they rise and fall
faster than the market on average.
But volatility, once again, is not the same thing as risky. Risk is
the permanent loss of capital. An investment that is not volatile, i.e. a
German government bond, may be extremely risky if exogenous factors
such as interest rate hikes, hyperinflation and default destroy the
principal investment.
To many investors, gold mining shares are very volatile, therefore
they are risky. We believe this is a fallacy. In the current market
environment, very few sectors of the economy are increasing margins,
expanding production or increasing top line. Gold mining shares are
completely discarded by the investor community. Most investors are not
aware of the fact that fundamentals are improving by the day. To us, it
is a miracle why gold mining shares have underperformed the underlying
metal by such a wide margin over the past few months.
In the current market environment, many investors are positioned in
what they perceive to be ‘defensive’ market segments, such as
healthcare, telecoms, staples and utilities. To us, this is the wrong
choice. Healthcare firms are struggling with patent expiries, telecoms
and utilities revenues are low-hanging fruit for greedy governments, and
staples are confronted with rising input costs.
In Belgium, discount retailer Colruyt, which has a great long-term
track record and is commonly perceived as a defensive stock, saw its
stock price plummet by 12% on Tuesday because the company reported
disappointing earnings and rising costs.
So make no mistake, the only defensive options at the moment are
cash, gold and gold mining shares. The latter are more volatile than the
market average, but we are convinced that in the end they will prove to
be less risky and will outperform mightily in a market setting that
will be dominated by inflation, currency debasement and sovereign
default risk.
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no defense like a good offense. stick with equities. What was the nickname of that Washington DC "Redskin" receiving crew? "The Smurfs"? Let's see...there was Papa Smurf, Handy Smurf, Grumpy Smurf, Brainy Smurf...and they had a song they song--what was it again?
If you hold cash till the coming stock market crash, and then when it bottoms out invest your cash in Gold and Silver mining shares you can buy mining shares at very discounted price, and then watch it rise exponetially.
++++
been my plan all along
It just seems that if the market as a whole is in the tank your gold and silver mining companies are also down. Defensive stocks do not necessarily mean big profits to be gleaned, but do offer you less of a downturn and in fact pay you a dividend. I'll take the 4-7% dividend, and wait out the market thank you. Conclusion...you only get screwed less. You can always just cash it all in, and go short the market....
Guns, Bullets, Food and Gold Bitchezz and don;t forget rope. I have lots of tall trees just short rope witll do for the baksters and their buddies in Fucking Congress. Time for the hanging is now
I'll be opening a taco stand soon to have some additional income. I will also be offering sides of pitchforks and torches with the orders.
gasmask comes to mind...
I think a redefinition of "defensive", as you say, is needed. It is not "defensive to keep moving to the highest point on a sinking ship. But if one cannot bring oneself to believe it's actually sinking, that is precisely what one would do. Jumping into a lifeboat, in that frame of mind, would seem... "over-wrought".
A logical extension of the term "defensive" should be a definition that ensures the availability of basic needs. But to do that, one has to decide/determine how bad it will get. Even gold-related investments betray a belief that somehow, the current "normal" will merely be redefined, not permanently scrapped. In an extreme case, the preservation of capital is abandoned to the more pressing need of the preservation of life.
All I'm saying is, secure the very basics first- arable land (i.e. land with water), the skills needed to make it grow food without fossil fuel inputs, and the skills to provide shelter and clothing from resources locally available. Then, with one's remaining capital, invest in gold and gold stocks.
I think in this scenario the author was talking about "defensive" in terms of "market investment" and not necessarily in a broader term, like say, a .308 rifle.
I do agree that the standard measure of "risk" is volatility of an investment and not the realized "risk" of loss of capital. Again, it depends on how you are looking at things. If you a retiree and you depend on some of your capital for monthly income and the value of the capital went down, then you have problems. Volatility is still a very real risk to most people. It's just another in a line of "risks" like market, interest rate, exchange rate, etc., etc.
That being said, yeah, the value of your currency suddenly going "poof" is another risk and should obviously be taken into consideration.
With that said, securing the basics is a good idea. But I would suggest that people look to historical economic collapses to compare and I would highly suggest reading this guy's blog and getting his book as it is a first hand account of living through the Argentina collapse. http://www.themodernsurvivalist.com/
+100
The stock sales community has been not been forthcoming on the inherent leverage of corp. earnings. A small drop in sales can cause a big drop in earnings and stock price.
personally, my favorite defensive investment is spooled concertina wire
That was a fantastic comment.