"All That Glitters" Is Sold

The model portfolios recently sold off a significant position in gold and precious metals owned through a no-load mutual fund holding. The sale doesn’t alter our long run belief that gold may be an important hedge against the declining value of the dollar. However, the discipline has been pushing for this sale for a couple of months, and as the portfolio accumulated other “hard asset” investments that have been doing better, recently (such as energy), we felt that it was time to sell the fund and move the money into areas that have been performing better.

Gold stocks moved up strongly last Fall, even doing better than the price of the underlying commodity. The stocks have leveled off since mid-November while the rest of the U.S. market has performed very well. It was almost as if the “normalization” of the U.S. economy, in turn, takes some of the “panic trade” out of the gold stocks. Still, the underlying commodity has been able to continue making new highs. Whether the commodity is just catching up to where the companies were already trading remains to be seen.

My personal belief is that it won’t be too long before the gold stocks go back into the portfolio. However, with roughly 30 percent of the portfolio already in other energy and commodity investments, it was a little disconcerting to watch the portfolio go down full force when commodity investments were selling off, but only have part of those investments participate on the up days.

After dragging my feet for a couple of months, while the discipline said “sell” but my gut said “hold on,” I finally caved in and decided to follow the discipline and sell the holding, at least for now. 

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies .

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