Let us tell you the true story of two friends. Both are bright. Both are disciplined and experienced investors. And most telling, both have enjoyed an impressive winning streak in the past by mostly following conventional wisdom.
Yet as the financial world we have all known has changed under our feet, our two friends have reacted in completely different ways. One of these friends has listened to his inner voice that all is not well, rechecked his premises, and applied life-long common-sense lessons to changing circumstances. He is a bold, informed, outside-the-box thinker.
Our other friend has simply dug himself in – even mocking the idea conventional thinking is wrong.
Thinking Outside the Box:
Necessary for Out-Pacing the Herd
We recently enjoyed a holiday chat with friend “Chuck” who followed our suggestion to convert some of his dollars over to silver when it was still $16 per ounce. So when the subject came up, we congratulated Chuck for looking past the facade of King Dollar. That is no small task given politically manipulated, unreliable government statistics and their influence on billions of investment decisions – as well as the wearying chant from paper-pushing commission collectors in the mainstream investment establishment.
Chuck and a handful of his friends got tired of this Wall Street carnival barking, pooled their resources, and organized themselves to acquire quite a bit of physical silver. It was decisive and nicely executed – and they are up.
To say the least, Chuck & Co. are enjoying the rewards and satisfaction of being brave enough to ignore the dogma when it counted.
Human psychology is a constant. Remember why so many people died in the Titanic disaster. When the great ship stopped and appeared to be stable in the water, few had the foresight to leave the warm interior of the Titanic for an uncomfortable rowboat in the desolate, freezing ocean. Which is why so many boats initially pulled away half to two-thirds empty. It wasn’t until the great liner started listing and sending off rockets that the masses caught on and swamped the remaining escape boats.
Similarly, the world’s disembarking from a sinking dollar could eventually lead to a panic.
Unlearning Old Realities
Can Be Extremely Difficult
Let’s call our other friend “Peter.” He is also quite well educated. But he is deeply ensconced in what we see as a corrupt New York Times Keynesian mindset. Talk economics with him, and you get a macho attitude about dollar supremacy (derived from more than half a century of the dollar being the center of the global fiat currency system).
Although he is politically conservative and claims to believe in free markets, he is, for whatever reason, unwilling to carefully question his premises. Even with gentle prodding as one does between friends, Peter is just not willing to consider the notion that the debt-consumption party can end, and that his investment strategies – even if long held – may have to be fundamentally reconsidered.
When we first urged friend Peter to diversify out of the greenback, he lectured about gold being in a bubble (gold was well under $800 an ounce at the time). The idea that America could march toward banana republic status? Patently absurd!
At the time, we teasingly threatened Peter that we would eventually reference these types of conversations as a learning tool for others. The cost and extreme hazard of being a dollar jingoist still afflicts so many of our fellow citizens, friends, and family members – many of whom should know better.
Just because you love America does not justify refusing to acknowledge the horrific economic fundamentals staring this country in the face over the past decade. To the contrary, love of country is exactly what should drive us to sound the alarm – before it’s too late.