Stock to PM's

Good idea. I think real estate is not a bad area either right now. In some areas its still kind of pricey versus incomes. I would look at your areas median income versus housing values 10 years ago versus today to see if it looks attractive. Don't fall into the trap of comparing them versus the recent highs, as those numbers are meaningless. The value of a home will always be tied to the ability of the residents to afford it.

 

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You are correct in saying that it depends on your area or location.

 

Not to deliberately repeat other posts, but the owner of my local coin shop told me if he would have invested in bullion instead of rare coins he would have retired already. Me personally, I like metal for metal. Collectibility comes with premiums, and requires that if/when you plan to sell that the premium is still recoverable. If your goal is wealth preservation then gold is a no brainer. If your goal is to have a metal that is becoming increasingly rare (7-10 times less available than gold above ground), and that is the most undervalued (silver has the highest margin requirement of any commodity) and necessary for technological devices then I would go for silver. $30K is a lot of silver, so if you go for mostly silver make sure you have a big heavy gun safe that's not easy to move. All this being said, the base case for metals is inflationary monetary policy. If that doesn't happen you may not be in line for the returns you'd hope. Stocks could outperform, but the thing that makes metals attractive is that they always have value even if you lose some of that value. Stocks can go to zero if a company goes out of business, bonds can go to zero if a government gets overthrown, and we've already seen that the futures market can have customer funds stolen without any repercussions or refunding of the stolen funds due to the MF Global precedent. The one thing I would point to, and it's open to interpretation and debate, is that the DOW/gold ratio is currently in a downtrend in favor of gold, and based on trends over the last century still has room to go before the downtrend is over.

 

And you just proved why there have to be rules and regulations which dictate behavior in the markets. You are giving an emotional response to a business issue. Investors have no interest in the emotional state of the CEOs of companies as they have no way to evaluate it. Your reaction could be nothing more than a ruse to distract from the real issue at hand. The point is there is no way to tell and thus this is why emotions of officers are irrelevant in business discussions. Instead investors rely solely on business reporting as dictated by the rules, laws and regulations put forth by the Congress and enforced by the SEC and executed by the Finance Industry. When that system falls apart is when it's time to get the H'll out of Dodge.

This is what has happened with the equities market in the USA. Any investor who ignores this is fooling themselves. CEOs and CFOs should also be concerned and taking steps to protect their companies instead of taking offense at questions about it. Given that there seems to be no effort at all by any of the concerned parties to fix it, then IMO, the age old advice to put your trust in the stock market no longer applies. This is why people, in ever increasing numbers, are getting out and putting their investments in things such as gold & silver.

 

What's funny is now that oil is $100 again, the same economists and talking heads (especially Kudlow) that back in 2008 said $100 oil was a devastating tax on the economy are now saying $100 oil is a sign of strength. These so-called "pros" just don't learn. That's why I never listen to the vast majority of them. They let their biases get in the way of their logic. Good investing is about being indifferent.

The vast majority of them have been wrong about gold and silver too.

 

If everyone "buys low" and "sells high", the highs become the lows and the lows become the highs...somebody has to be wrong.

I think of PMs as a hedge against the "Wealth Tax" that's imposed on us whenever the FED expands the money supply. As long as you think the money supply will continue to grow, PMs should remain stable. However, I don't believe the intrinsic value of PMs can support these prices if conditions change (jmho).

 

You approach is exactly the correct mindset that is needed for investment success. The "gold is always best" crowd can learn a lot from your post.

 

I have yet to run into anyone who says that Gold is always best. I've run into plenty that will say that Stock is always best including you. This isn't a simple black and white color choice.

My position is and has always been, that past results are not an indication of the future. The investor should look at conditions now and move forward with a strategy based on that. The point being made is that when the system of regulation has been destroyed, a point that you always ignore, then there is simply no way for someone to judge risk in a reasonable manner and thus caution is advised.

Re-characterizing this as an "gold is always best" argument is nonsense. If the Fed turned around and raised interest rates to 15% tomorrow, I'd be lining up at the local gold bookie to get rid of my gold as fast as possible. Will this happen? Most likely not because it will take down too much of the status quo. One has to move forward based on reasonable expectations on what the future holds, and not what happened when granddad was starting out. Hopefully most reading this topic, who are willing to listen, understand some of this now.

 

I have to say that the contributions made here and elsewhere by well informed and articulate investors are enthralling. The case is well made for both sides. I hold a mix of stocks, mutual funds and even some PM assets and as we bought our home primarily as a medium term investment (a large but dilapidated house in a good neighborhood) I reckon we have a stake in the real estate market too. Of these three investment types it seems to my uneducated eye that PMs are stuck on a very high plateau, stocks are poised to adjust upwards and the real estate market will follow the overall economy. If there is a further collapse in any one element the shift in focus to either of the others will make up for any short term losses.

This is my admittedly simple view of things and while I can't explain it as eloquently as others or back it up with impressive citations I'm doing OK and don't lose any sleep about it. My own stock picks, reasearched as well as my limited understanding allows, and with an eye on the chicanery so well explained by Fatima, are significantly outperforming those investments we leave in the hands of "experts". Through nothing more than dumb good luck we have managed to enter each part of the market at the bottom of the trough, must be good karma from a previous life I reckon.

Anyway, keep up the excellent debate, I lurk a lot but read much and while some of it doesn't make sense or more likely I don't fully understand it, it remains a great learning experience.

 

Something to consider is that these talking heads might not be employed if the status quo isn't maintained. I don't think it's that they don't learn, but that they aren't willing or able to say something that would jeopardize the system that keeps them in business. I don't bother with mainstream media unless I want a contrarian indicator.

 

I watched a Mike Maloney interview earlier where he stated that only 6% of the currency (not money which is only gold and silver) supply is what the Fed prints for fractional reserve banking. The other 94% is created by the credit system when a loan is created, because the currency is conjured into existence as a credit to the bank for that loan. I am beginning to question the actual impact of their quantiative easing programs on precious metals as being more psychological than anything else, as people begin to perceive the erosion of their currency that has already mostly taken place.

 

Everyone is entitled to their viewpoint, and I'm not an investment advisor by any stretch, however to me it's as simple as supply and demand. Gold has demand as a hedge against inflation. Silver has that plus industrial demand. The silver eagle set may be a good investment due to popular demand, but you could still get any 5 ounces of silver for much less, and if the spot price goes up it will eat into any premiums paid.

There are way more houses than people willing or able to buy them right now, so I don't see why that market has to have reached a bottom. Price is an indicator of value, not of sentiment.

 

Regarding (1), you haven't been paying attention. I"ve repeatedly pointed out the dangers of being in the stock market during the bubble of the late 1990s. And I've consistently pointed out to the folks who like index funds that it is necessary to have some technique for varying the proportion of cash to stock in the portfolio. So I guess you haven't been paying attention.

Regarding (2), I agree that you and many others will wait until conditions for gold are bad and will stand in line to sell, no doubt surrendering most or all of your profits in the frenzy. It generally happens this way for people who don't have the investment dicipline to sell on the way up.

 

Nobody can call the bottom, although many people will tell you they did it. The right time to invest is when prices are low enough for the investment to make economic sense.

And price is always an indicator of sentiment, never an indicator of value. The value investment technique relies on calculating the intrinsic value of an investment, then comparing it to the price. Investor opportunities arise when the intrinsic value exceeds the price by a wide margin.

 

Over the long term I agree with this. However, my investment goals are not preservation of wealth, but increase in wealth. Simply put, historically there are other investments whose long term track record generates much greater returns than holding a commodity. Commodities have a negative return, costing you money each year to hold them. Therefor they have to beat inflation every year just to maintain their purchasing power. Couple that with buy/sell spreads, and it makes it harder for them to simply keep up with inflation long term. Yes, PM has had a good run, but that simply means you are buying at a much higher price than those of us who bought 20 years ago did. Therefor, its even harder to double or triple your money today than it was in the past with these.

 

Isn't that the truth.

The closest I have ever come to a low or a high was buying silver for around $4 an ounce. That was simply blind luck since it coincided with when I started to have money to invest, and it lasted for a long time.

 

I don't follow you here. You can't know sentiment without knowing previous price. Current price is merely a measurement of how much something is worth, aka value. Without previous price to compare current price to, there is no way to know sentiment.

 

Price is not worth. Price will include, as Cloud alludes, investor sentiment towards a company, industry, economy, etc. Remember that most financial investing looks toward future earnings growth and outlook. If sentiment turns sour, investors may very well be too pessimistic on their outlook and severely undervalue a company. This is what happened in early 2009, and I was like a kid in the candy store buying underpriced stocks. I didn't have the bankroll like many others, but I easily quadrupled my money on those purchases to date.

 

Price and value are different measurements. Let me give you an example. From using the financial statements of a company for the past several years, I can calculate the approximate intrinsic value of the stock of the company. Only after that does an investor need to compare the calculation to the current market price to make a buy sell decision. Comps are widely used in residential real estate because the buying and selling is all based on supply, demand and sentiment. With common stocks, it is more profitable and logical to make sure the intrinsic value exceeds the market price.

Note: People don't have to be able to calculate the value of a company to do this. Other measures such as price to earnings [or cash flow] or price to net asset value work very well also.

 

I disagree that your broad generalization of gold and possibly other PMs have commodity type holding costs. They don't .

Gold isn't a commodity that will go bad like a train full of potatoes which have to be transported from the farm to market each year. People with gold coins, can put them in their safe, and it doesn't cost them much if anything at all. It's a mistake to equate commodity behavior to a commodity item like hog jowls. My gold isn't costing me anything to hold.

"Inflation", the definition of, is something which must be established before making claims about wealth preservation and investment. Only then, can someone attempt to make a claim that commodity pricing = inflation.