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A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.
Justin Dyer: Hey everyone.
Welcome back to another
episode of A WM Insights.
We're gonna talk about gold today.
It's at all times high, all time highs As
of, uh, recording this podcast, it, it's,
uh, bouncing around just a little bit.
But, uh, for all intents and purposes,
it's probably one of the bigger items
in the news and has been in the news,
um, on and off throughout the year.
We've touched on it, we've alluded to
this topic, um, coming up and we certainly
talked, talked about this in years past,
but it's time again to, to address it.
Um, you know, I think it, it's, it's.
Normal to ask questions
and, and revisit topics.
Hey, let's we do it internally.
Let's talk about this.
It's, it's something that's
garnering attention or should
be garnering attention.
Does, has our opinion changed?
Should our opinion change?
And we're gonna walk through kind of
the steps and process and questions that
we think about when we're looking at a
headline like gold at all time Highs.
And we'll weave in some similar type.
Uh, topics, whether it be
collectibles, art, cryptocurrencies,
like there's a, there's a, a lot
of differences in those assets.
I will acknowledge that, but there's
a lot of similarities as well.
The, the most important one being
that none of these really derive or
drive any, uh, cash flow from them.
Now.
Cryptocurrencies I'm using in a, in a
kind of broad, top, broad sense, right?
There's difference between
blockchain technology and
tokenization, et cetera, et cetera.
For this conversation today, we're gonna
be talking about kind of the, the broad,
most commonly accepted, um, understanding
crypto, bitcoin, NFTs, et cetera.
Um, and let me start by framing
things a little bit further, right?
Let's, let's jump into
this conversation by.
Kicking it off with a kind of a question,
well, what gives something value
when it doesn't produce cash flows?
Or maybe said differently if
something doesn't produce cash
flows, does it even have value?
I mean, uh, the short answer is,
yeah, I guess with gold it, it
does, but we like to think about.
Valuation and investing in a kind of
the typical, what you call valuation
theory framework where we can look
at cash flows that are being produced
or just cash, think about it, that
are being produced and come up with
some sort of valuation for that.
Right.
Um.
and,
and these types of assets
are quite different from it.
There's a lot of psychological
appeal, uh, concern about the future.
Um, just narratives that get caught
up within this world of, uh, of
social media that we exist within.
Uh, and, and that drives value.
It's not to say that's
good value or bad value.
We tend to steer away from value
that's derived from those type
of, um, uh, actions or forces.
Let's get into it.
So Mina Gold specifically give
us the kind of quick history
narrative, et cetera, around gold.
Mena Hanna: Yeah.
And, and gold's in the news because it
crossed that $4,000 an ounce threshold.
And people just love thresholds.
So once anything gets breached, you
will hear about it all the time.
Same thing with crypto going, um,
especially when Bitcoin passes, uh,
those $10,000 increments, you can call
'em, uh, everyone, everyone freaks
out and you hear it everywhere, but.
Gold historically is an asset class
that people invest in because they
think that the demand of the asset
is going to outpace the supply.
Obviously gold is a semi finite resource.
There's people mining for it right
now currently, and they produce there.
There's more gold every single year.
Um, there's gold that goes into
industrial uses, jewelry, all that stuff.
But the whole concept is that supply.
That's relatively steady is going
to be outpaced by the demand.
And this asset is going to be worth more
because more people are going to want it.
More people are gonna want to
consume it, wear it, you know,
have phones that have gold in them.
Uh, gold has a lot of
electronical, obviously uses.
That is, that is really
your only, your only hope.
And I wanna say the word
hope, because there is nothing
fundamentally backing gold.
You don't have cash flows.
You're not, maybe you're renting
your gold out and, and making some
money on it, that would be clever.
But I don't see many people doing that.
So it's just sitting there and you're
hoping that it's worth more in the
future, which is a hope, and that's not
how we like to make investment decisions.
Justin Dyer: Yeah.
Well, and just let, let's, let's throw
out, uh, let's wait until someone
lands on an asteroid and bring, brings
back, uh, uh, what do you call it?
Ship loads, spaceship loads of gold.
Um, that, and then the supply demand
dynamics completely get obliterated.
One thing, we'll, we'll kind of
give some data around, but the, the
perception that it's, uh, uh, kind of
a hedge against infl inflation, uh,
store of value, et cetera, um, I think.
Yeah, there's some evidence of that.
But if you go back over long periods
of time and critical periods of time
where inflation was quite high, the
the data doesn't totally support that.
Whereas we take the stance that one
of the best ways to protect against
inflation is through investing in
stocks where companies are able to
increase prices or at least keep up.
Uh, keep their prices up with inflation as
a just basically direct inflation hedge.
And that is, has been proven
out within, uh, the data.
Certainly.
So, um, kind of moving on here, right?
Let you talked about gold.
I think there's.
Uh, a, a new digital gold narrative going
on with respect to Bitcoin specifically,
maybe crypto more broadly speaking.
And a lot of what you said,
Mina, uh, still applies there.
Um, you know, I guess with Bitcoin
it's truly finite, but then, you know,
there's all these copycat, uh, crypto
tokens out there that are trying
to take market share, et cetera.
But inherently, at least
the way in which we've.
View Bitcoin is no different
than the way we view gold, right?
There's no way in which we can
apply some sort of valuation
methodology to cash flows.
'cause they just don't happen.
It really truly is speculative.
Now that's different in our opinion.
Um.
Applying.
That's different.
When we look at something like
blockchain, blockchain is a technology
that crypto and Bitcoin specifically are
using, and that is really interesting.
We've got exposure there.
In the world of venture, uh, the
public markets now have exposure
to, to technology and public market
Companies are using that and it's.
It's really, really, really fascinating
and, and driving a lot of efficiency.
And that's kind of the picks and shovels
type approach where we can take a
technology, create something with it,
and create value with it basically.
And gold doesn't really have
those same attributes and, and
at least Bitcoin, uh, presently
doesn't have those same attributes.
You can look at things like stable
coins, maybe those, those do have
value, but those companies are the
ones, uh, the companies of the,
that are creating stable coins.
Et cetera are actually where the value So.
Um, let's talk a little
bit about collectibles.
Uh, Mina, we right, we, we've talked a,
we've compared them a little bit, but
anything that you want to compare and
contrast when it comes to collectibles
versus gold or cryptos, et cetera.
Mena Hanna: I think it's the same.
It's, it's the same scarcity complex
that's going on here with a few more
nuances, obviously collectibles,
that, that's a very wide range
of items, watches, cars, wines,
art, lot of different things.
Um, and it's hard to speak
about them holistically in, in
a topic or, or generalize and
make any statements there, but.
You are, you are investing in
something that you hope is going
to be more in demand in the future.
And for a lot of these items as
well, there's carrying costs that
people rarely factor in for watches.
Cars, you know, those are
things that you have to store
service for art, it's definitely
something that you have to store.
And there's, there's a lot of wines
the same way, a lot of creative
ways that you can do that, but.
I think what the majority of people
don't see is they don't see the
opportunity cost of owning some of these
collectibles for investment purposes
versus investing in a traditional
way where you are realizing value.
For the entire period of time, you
know, you own a share of Apple, you
kind of make a little bit of money.
Anytime someone buys an iPhone, a
pair of AirPods, you're making value,
you're making money all of the time.
Versus with some of these physical
items, you don't make value or you don't
make any money, and value isn't given
back to you until you actually sell it.
So very different dynamics there.
Um, very hard to account for.
The true return of some of these
collectibles, and I'll say especially on
the art side, there's a lot of interesting
accounting that goes on behind the
scenes that kind of changes what, what
the investment's purpose actually is.
And it's more of a, call it a loophole
than it is an actual investment or
something that you are planning on.
Potentially selling in the future
and, and, you know, utilizing
those funds to buy a second house
or pay for your kids' down payment
or wedding, something like that.
So I think there's a lot of nuance here.
Um, one, one area I'll say, and
it kind of ties in collectibles
and crypto together, NFTs.
There have been studies that have
come out that show that 95% of minted
NFTs in the last five years are
actually pretty much worthless, so.
That's, that's crazy.
But that, that was a huge, you know,
hype cycle, huge bubble that ended
up bursting, um, where people got
way, way too far ahead of themselves.
Like you see social media personalities
buying some of these NFTs for five,
six, $700,000 and now they're worth.
Under $10, um, which is crazy.
So yeah, kind of, kind of have to
be very, very cautious when you are
investing in hype cycles and in these
asset classes that are really just
demand based and demand focused.
Justin Dyer: Yeah, I think it's
a great place to try to start to,
to wrap here, bring this home.
Right.
What the, the, the concept or
the danger around narrative
based or psychological, uh.
Based investment approaches
is exactly what you just said.
Right.
Where does the line of, uh, the
collective wisdom end, and then
where does the, the, the, the line
of collective, uh, uh, silliness?
There's probably a better term there.
I'm coming it up with it on the
fly, but just like collective
bad behavior start, right?
Like that line is very fine.
We saw a ton over the last.
Five, six years with crypto
and NFTs specifically.
Way back when you had Tulip mania,
you know, gold has been one that has.
Stayed around, but then you do
look at this, uh, the data, right?
I kind of referred to this earlier
around this, this perceived inflation
hedge store value, et cetera, and the
data kind of doesn't support it, right?
The point being is.
We are just hitting inflation adjusted
all time highs today that were last reach.
When was that?
1978.
1979.
Right.
That's a huge period of time
between the peaks in gold price
on an inflation adjusted basis.
And so that's a great
thing to remind yourself.
We generally take the approach
of, uh, fundamental valuation.
Um, applications when it comes to
investing, we wanna look at investments
that are generating cash flows or
have the very strong likely potential
to generate cash flows that can keep
up with inflation, um, in, in all
of our portfolios, whether it be.
In the public markets or private markets.
And we tend to steer away from
things like gold, things like Bitcoin
because the valuation side of it is
so, um, subjective, really, right?
You're, you're, you're subject or,
or beholden to these narratives
that, uh, you kind of have to
predict the future to get right.
And, and as many of you know,
we just don't play that game.
So hopefully this is an
interesting conversation.
If you have any follow up
questions, shoot us a text.
What's the
Mena Hanna: Yeah.
6 2 6 8 6 2 0 3 5 5.
Justin Dyer: Awesome.
And we'd love to dig into this topic
or any other topic much, much further.
Keep questions coming.
They make this podcast way more
informative, way more interesting
for us to prepare for and talk about.
Um, but until then, own your wealth,
make an impact, and always be a pro.