Risk

For a millennia, maybe forever, economists have agreed that one unique metal is the safest investment on the face of the planet: gold. Why? Well, in the earlier days of the world, it was versatile. It could be used for many things, such as weapons, but also jewelry. On top of that, people, just about everybody, loved the look of it, so it was used in construction of palaces and opulent homes. Then, as engineering progressed, it was discovered that gold was an excellent conduit of electricity, so it found its way even into things like computers. But always, what has fascinated people about gold is one special thing…the lack of risk.

If you were someone who owned a large portion of gold, you were considered wealthy. Why? It meant that the value of that goal, as deemed by the entire planet, would never completely go away. You would always be able to find someone, somewhere, who would be willing to trade you your piece of gold, for something else you may want…most importantly something called food or clean water, or shelter from a devastating natural disaster like a hurricane or typhoon. So, gold became known as a safe place to store your wealth. So safe, that in mid part of the 1800’s, people all over America rushed to California because huge deposits of gold were discovered, and suddenly we had something in American history called the California Gold Rush. Individuals would risk life, limb, and their families, to get to California, all for the hope of securing possession of land with lots of gold on it, or just to stand in streams with pans, and hope to grab as many gold nuggets as they could. Banks sprung up, powered completely by this surge in wealth. This really was the beginning of California as a global financial force. The third biggest bank in the USA is Wells Fargo, founded almost completely due to the gold rush and by financing the transport of the metal over the Pacific and by ground back to the East Coast.

As the decades passed, such things as the concept of a corporation were formed, where investors would formally invest in companies, and this idea of gold as an amazing instrument of investment started to fall out of favor. Why? Well, a corporation could ask investors for its gold pieces, try to produce some product  or service that it would then market to the outside world as a whole, and then if it failed, well, depending on the structure of the corporation, the gold would be gone. People who thought their gold was rock solid (pardon the pun), had absolutely nothing a few years later. They began to realize that maybe there really was a risk, even in something like gold. But gold had been the standard of success since the dawn of man, what had happened?

People have always had an issue with this simple concept: risk. As little babies, we do not understand that the only thing keeping us from shriveling up and dying is our mother’s breast and the air in our lungs, until both, in tandem, are removed from us. As toddlers, at least for a little while, we do not know that if we step into traffic, we will be run over by that automobile or motorcycle, or maybe even a fast-moving bicycle. But the older we get, the more we come to understand, that at any given moment, something called risk is at play in every single situation.

In the 1960’s, gold had once again found favor as two very scary world wars had many highly developed nations thinking things like banks and governments might turn on them in a flash. The Axis and the Allies had fought tooth and nail, and millions of lives had been lost, but not a single soul could really understand why. So, suddenly you saw families doing things like burying gold coins in chests in their yards. You saw things like nuclear bomb shelters being created underneath homes, as the Cold War ravaged the tensions between the two superpowers, the now very powerful USA and a communist nation, Russia, at that time called the USSR, the United Soviet Socialist Republics. These were the two nations who had come out of World War II as the most powerful. Why? Each one possessed the ability to create and deploy a nuclear bomb, like the two the USA dropped on the Axis power Japan that ended World War II. However, most historians do not completely explain how even though Russia was extremely different than the USA in many ways, without Russia, the Axis powers very easily could have won. Without the hardy fighting and strategic dual going on in the Eastern side of the globe, between Germany and Russia, Germany and the other Axis powers which included Japan and Italy, could have won World War II.

So now people became confused. They had different choices for how to consider risk: conservative, like gold was for quite a while, never losing value, or something like stocks in a corporation or bonds in a government. Bonds were investments with a set value and are still used by many people who do not want the risk of stocks or the changing value of gold. When you buy a bond, the government you buy it from provides a fixed return over a certain time period. So now we have three popular representations of risk: gold, which was considered perfect forever, then other options became available; stocks, where everything could be lost instantly; or bonds, where if you thought somewhere in between, maybe you could sleep at night, or at least feel better about having food on the table the next day.

Well, let me put all that to rest for you. I ask you to consider the following proposition. If you have 100 pounds of gold, or 100 million dollars’ worth of stock, or 100 million dollars’ worth of bonds in your portfolio, which is best? Okay, for the sake of debate, let’s say you pick one third of each, so you can be safest. Now, let’s take it one step further, you have this incredible portfolio, full of 100 million dollars, and let’s wipe the dollars, let’s say bitcoin now that it is 2019. Let’s say it is 100 million bitcoin worth of gold/stock/bonds. So, you have the best portfolio possible. After all, who needs more than 100 million dollars, correct? Well, let’s take it one step further. Let’s say suddenly an innovation occurs, and 100 robotics companies announce that human beings will now live forever. You must be excited about that, right? Well, there is a little bit of a problem with that.

Every single human being on the planet…has always had the choice…to try to live as long as possible…or to just end it all. So, the concept that the money in your bank account somehow controls the risk in your life, well guys, I am afraid that is just a sales tactic used by bankers and people who want investors.