Not many investors would lump gold and Apple shares in the same conversation. Serious gold fans, after all, are making a long bet on a rather bleak future of high inflation, worthless paper currencies and crumbling economies. Apple lovers, by contrast, are wagering that economies, currencies and consumers will be healthy enough to support exponential market growth for the creator and peddler of some of the world's most iconic products.
Both gambles have looked particularly dreadful of late, and that's a problem for the entire market.
The two investments have had a "religious-type fervour" attached to them, "and all of a sudden they go down," says veteran money manager Arthur Heinmaa, an astute observer of investor psychology at work in the markets. "That's shaking people's belief in markets [generally], because they believed so passionately in both of those. Anything that has a religious aspect to it, you have to be very careful of, because when the disappointment hits, it can overwhelm everybody."
After a remarkable 12-year run, gold has taken a long dive off the ten-metre board, falling more than 25 per cent from its 2011 high, shocking its staunchest advocates and prompting the inevitable dark mutterings of an orchestrated conspiracy to drive the public out of the metal.
Just as inevitably, the gold bulls have rallied to the tattered flag. Eric Sprott, Canada's best-known gold player, sees his favourite metal hitting a new top by the end of the year. John Paulson, the U.S. hedge fund gazillionaire, watched his vast fortune shrink by nearly $1-billion (U.S.) in just a couple of trading days last week over huge gold bets gone bad.
But he too predicts a revival in the near term, thanks to growing demand from the likes of China and India and further purchases by central banks in China and other big emerging markets that are eager to diversify their assets. "While gold can be volatile in the short term and is going through one of its periodic adjustments, we believe the long-term trend of increasing demand for gold in lieu of paper is intact," John Reade, a partner and gold strategist at Paulson & Co., told Bloomberg.
Now, if they could only persuade the investors who yanked a remarkable $3-billion (U.S.) net out of gold funds in the latest week to come back to the gaming tables.
Investors also fled Apple, driving the share price as low as $382 and prompting a gaggle of analysts to pronounce it a terrific buying opportunity. Most of the boosters see the price heading back above $550 to $600 over the next year, which will be cold comfort to the people who plowed their money in at levels closer to $700.
It may well be true, as advocates of both gold and Apple insist, that the selling has been overdone. But that's what happens when the faith goes out of faith-based investments.
"I'm always wary about anything that becomes a religion," says Mr. Heinmaa, whose value-focused portfolios contain neither gold nor Apple.
The rout underscores all-too-common investing mistakes of concentrating bets in one or two hot market segments and failing to properly assess the risks or develop a sound exit strategy.
"Most people want stocks that are going up, and their main questions are: How much is it going to rise and how much money will I make," says Mr. Heinmaa, managing partner of Toron Investment Management in Toronto. "They don't spend enough time thinking about how wrong is it going to be if things go wrong. There are many people sitting on tremendous losses – despite the market having come back – because they've had too much focus on one segment of the market, like gold or oil."
Investing success "depends not so much on forecasting returns, but continually revisiting and managing the risk," says Mr. Heinmaa, whose firm began 25 years ago as a provider of risk management strategies. It's in the process of merging with another Canadian money manager, AMI Partners.
When it comes to something like gold, which produces no cash flow or other typical measures of value, it's impossible to come up with an accurate assessment of its true market worth. Which may explain why the less fervent adherents are so quick to head for the exits when the world is confounding the more dire predictions of the metal's high priests.
As for Apple, its investment value can definitely be weighed against other assets. "We have a price in mind where we think we might be interested. It's getting closer by the day," Mr. Heinmaa says with a chuckle.