Become Your Own Bank

Photo: Become Your Own Bank

Last week I wrote about why and how I purchase gold. This week I will share a story about how and why I have used it. I am not recommending that you do this.

I own gold primarily for psychological benefit. I am a simple, primitive ape. Owning a stone that civilizations have coveted for thousands of years brings me peace. If that is all it ever brings me, c'est la vie.

You never actually own a Patek Philippe. You merely look after it for the next generation…

I’ve acquired my gold through passive long-term dollar cost averaging. I have never invested a disruptively large sum of my net worth at any time. The opportunity cost has been a bottle of wine, and I don’t drink alcohol.

Over the years (and I applied the same strategy to bitcoin, throw your jabs), the sum has grown to a material amount. I recently tried a little experiment.

I have wanted a rental property in the town where I live. It is a very small city of 20,000 residents, but growing quickly. Over the last twenty years, it has been one of the fastest-growing cities in Canada.

Consequently, it is bustling with several infrastructure projects that will span the next 15-20 years. The demand for young, temporary workers and limited housing inventory makes me long-term bullish on the rental market.

Not loving local real estate valuations over the last few years, I have been sitting on the sidelines, but during the stock market liquidation last spring, I found a seller in distress. I made a lowball offer, with my realtor telling me that I was wasting my time - “nothing goes for under asking around here…

But I, and she, were surprised when the seller accepted the offer without hesitation. Immediately, of course, I felt foolish for being too passive.

Due to the unexpected acceptance and expediency of the close, I was suddenly squeezed on liquidity.

I decided to try an experiment. To date, gold has been a buy-only asset for me; it is strictly something I put aside for future Jay. But as real-time Jay was short on cash for an appealing opportunity, future Jay had bank reserves. I decided to ask for a loan.

The Bank of Jay was not easy to deal with, but after much haggling, the loan was authorized at some fairly egregious terms.

I wrote myself a promissory note to account for the principal ounces borrowed, some covenants, the term of the loan and, in this case, a flat fee in lieu of interest.

I bought the property and have since repaid the principal in gold, with the additional fee of ounces due before the year's end to avoid a default.

I understand this is silly - giving myself a “loan” - but here is the deal…

First - Wouldn’t this have been more convenient had I just put aside cash instead of gold?

No. A mentor once told me to “become my own bank.” There was absolute utility in the inconvenience of the accessibility. It added a layer of criticism to my real estate transaction (valuable for someone who tends to fire, then aim) and forced me to set repayment terms that promoted austerity, increasing my savings rate for six months.

Obviously, I didn’t have to repay the loan - I could have defaulted on the terms, and there was no consequential downside (other than the skull-crushing loss of integrity…). The Bank of Jay was not going to seize my house. While the downside might not inspire discipline, the upside was notable. When the loan terms were met, the principal borrowed was returned, alongside the significant fee, and the war chest grew faster than the historical annual rate. More importantly, the process affirmed and enhanced my personal sovereignty - every inch of which promotes better mental health.

The loan terms were so egregious because the BOJ perceived me to be selling an asset at what could be considered cheap (gold) and buying an asset that could be considered expensive (real estate). Still, my multi-decade time horizon on real estate modified this risk enough for me to make a bet. The most vulnerable point in the process was a gold market catching wind before I had repaid the ounces. I had a lot of anxiety about that, which inspired the repayment to occur ahead of schedule.

This is not investment advice. I am not a professional investor. I am a merchant. I buy and sell things.

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Enjoy your Sunday.

Jay Martin
CEO, Cambridge House