This is crazy

Found this little news quip. I took a bit offense to what Charlie Munger said and I'm not even Jewish. Sigh. Here is the link to the story http://www.zerohedge.com/news/charl...only-pre-holocaust-jews-sew-it-their-garments

 

Log in or Sign up to hide this ad.

Lighten up a bit. I know that in the age of political correctness, everyone is trained to be thin-skinned about the things people say when any ethnic group is mentioned. Munger is old - and smart. He is merely recounting a historical event from his younger days when owning gold enabled many Jews to escape the holocaust. Somehow, in his mind this is evidence that gold is a bad holding. I tend to agree with him over very long periods of time, but would also note that gold has outperformed Berkshire Hathaway stock over the past decade or so. Sometimes gold is a bad investment, and sometimes it is the best investment. But the man isn't a racist, and his life makes an interesting study. There are several books about him.

 

I agree with Charlie. You can do much better investing in a strong company

 

As smart as the guy might be, that was a stupid comment. Not simply for the obvious PC reasons that the media jumped on, but also for the either/or mentality. Either you buy stocks or you buy gold. Why not buy both?

I think in-hand precious metals should be a part of every diversified investment portfolio. I know the earnings aren't going to be stellar in the long run compared to small business stocks, but think of it as an insurance policy, because you never know what's going to happen in life...

 

The comment wasn't stupid. It is important to understand that Munger isn't interested in diversification. He has always favored concentration in a small number of high quality investments with a high ROE. He has publically stated that as few as 3 investments are needed to be diversified if you know what you are doing. It would be a good use of anybody's time to study Munger's technique and record. It is okay to disagree with him, but also remember that his investment record is no doubt superior to anybody here.

 

Insurance against what?

 

Life

 

What is going to happen? Most pro gold folks on this forum are usually talking about physical gold. Physical gold has many problems. Lets just say you have a decent portfolio of a million dollars, which is not that unusual. If you want to put 10% into physical gold, do you really want to have $100,000 just laying around the house? So there are insurance costs, storage costs, plus the high spreads of buying and selling physical gold. This all eats into the ROI Of course there is the alternitive of buying the the GLD ETF. No storage issues, no high spreads, extremely liquid. Seems a better way to go.

But wait you say, I want physical gold because when the whole economy breaks down, I will just have a piece of worthless paper, if I don't have physical gold. Well, if things get that bad, I have news for you, since you can't eat, drink, or smoke gold, and it does not keep you warm or dry, there will not be that much demand for gold.

In the case of a total collapse, you will be much better off with canned foods, liquor, cigarettes, warm clothes, and weapons if you are protecting yourself against Armageddon. These things will always have bartering power, so stockpile those.

I'm afraid the only real reason to hold physical gold is becasue you like it. Nothing wrong with that, but I don't think it should be justified as an investment.

Mike

 

I concur. If you want to invest in gold, buy gld. If you are doomsdayer invest in bullets

 

Good Lord, he could have Gypsy family in 1939, a member of the intelligentsia in 1925, or a capitalist chinese person in 1948. The point was the same, and it had nothing to do with anyone's race.

Anyone who takes offense to that remark as offensive to Jewish people I simply believe is looking to be offended IMHO.

Personally, his belittling the portfolio balancing aspect of commodity holding I believe was not needed, but I respect Mr. Munger a lot. He is the one really responsible for Berkshire's growth past the late 70's. He convinced Mr. Buffet of the value of branding in long term value. Mr. Buffett's previous method of value investing had been incorporated into market pricing, so without this insight from Mr Munger Berkshire would have languished.

 

My only disagreement sir is if you wish to avoid the fees associated with an ETF. Holding physical metal in a SDB long term can be a cheaper way of investing in a metal. I agree with your excellent points concerning security. Way too many people are being sold on physical metal and are not considering the security aspect. There has been a string of burglaries across the US targeting East Indians since they are known for holding physical gold. My wife is Thai, also known for holding physical gold, so we make sure her gold jewelry is in the SDB.

 

I'm not a doomsdayer or even a prepper, but I was a Boy Scout growing up and I was in the Army for 11 years. The one thing I take stock in is the simple principle of "Be Prepared".

A lot of people have the same mindset that you have expressed. What value is gold going to have in a total collapse where people are starving? The only scenario I can come up with for a "Total Collapse" where precious metals wouldn't have value is a large scale nuclear war, or some sort of global disaster like a really big asteroid. Even during WWI and WWII, which was the end of the world for a great many people, precious metals still held value.

You have an example of maintaining 10% of a $1,000,000 portfolio in gold, or $100,000. That's already way beyond what I'm advocating. For a $1,000,000 portfolio, I'd probably recommend at most $20,000 in precious metals. Anyone with a $1,000,000 portfolio can afford a high quality floor safe that would do a very good job of protecting that.

But again, I wasn't calling the person stupid, I was saying his comments were stupid. "Civilized people don't buy gold." I assume he says that because in a civilized world, people use money. I got news for ya, sometimes civilized people find themselves thrown into uncivilized circumstances and history has shown us that there are times where the value fiat currency is reduced to zero. Whatcha going to do with all your paper assets then? But hey, this is AMERICA! That couldn't happen here...

 

30-06 = $1
45ACP= $.50
9MM = $.25
38spl= $.10
.380 = $.05
22LR = $.01

Edit: Oops. I forgot to add that this is "humor." Forgot for a moment the lack of a sense of humor here sometimes.

 

Oddly enough, in a SHTF scenario, the .22LR would probably be the most useful.

I like guns. I like them a lot. As such, I have a lot of guns and ammo. Enough that I have more ammo than I can carry in my vehicles because it weighs so much. Yet the value of my ammo is less than the value of precious metals that a person could carry in a backpack. If we're talking gold, it's less than what a person could carry in their pocket.

Even if the worst situations, there are people who plan on surviving and will be willing to trade food and other necessities for precious metals. Try to find an example of a crisis in history where PM's didn't have value.

 

Throughout history, PM only has value if there is somewhere to escape TO. When the mongols were surrounding Samarkand I doubt anyone got out because they had gold. It could save you in WWII because it could bribe your way to Switzerland, it had value in the Napoleanic Wars to save you from being drafted, but in a true SHTF scenario, if there is no place to go TO that is better, who the heck wants PM?

This is why I simply hold PM as an offset to other investments, to even out returns. As a plus, I buy coins I like for bullion value, so I get to enjoy owning the coins as well. Bonus!

 

In Blaubart's case, many people will try to flee to MT, so he is already there.

 

You created a red herring situation to justify your belief that a party should only hold paper investments. An economic collapse, sovereign bankruptcy, bad management driving an investment fund into the ground doesn't mean Armageddon. Most people holding gold are not holding it for the end of the world scenario.

What physical gold does do for you is that it removes all counterparty and judicial risk from your investments. A very good example exists in our own history. In 1933, FDR made all domestic transactions in gold dollars illegal and ordered the people to the banks to turn in their $20 gold coins in return for a $20 Federal Reserve Note. All contracts and investments on paper that were denominated and specified to be paid gold dollars were retroactively changed to FRN USD.

So you say, OK, but the value of what I had didn't change. Oh but it did. Shortly after this took place, FDR then revalued the gold dollars that he paid the people $20 for to $35. Since the rest of the world still used gold, everyone in the USA lost 70% of the value of their paper investments and paper $s instantly. This transfer of wealth to the Federal government was then used to pay for all the social programs created during the 1930s.

For the smart ones, the ones who kept their gold $s, you could go to Mexico, Canada, or Europe exchange the gold you kept for $35. For the suckers that had Federal Reserve notes, their paper was only worth $20. Holding physical gold also removes your wealth from "the system". It makes it very hard for someone to take it from you.

This is a long ago example and one not to be repeated again but it is a very good example of what counter party risk means. If there had been a GLD investment at the time, you would have lost out there too. This is why people hold gold. It's not because they are afraid a CME is coming to destroy the national grid, but instead, to protect themselves against a financial system that people are losing faith in.

BTW, in your example $100,000 is just 3 rolls of AGEs. It's not that hard to store and the last thing you would want to do is to buy insurance for it.

 

Nice post, but can I ask why you believe its "not to be repeated"? What is stopping the president, if he runs into trouble, of simply nationalizing all private gold holdings again at say $200 an ounce? He buys it up cheap, puts it in Ft Knox, and then uses it as collateral to borrow more.

Not saying it WOULD happen, not saying it would solve much, just asking why you believe it is "not to be repeated". Politicians love history if it justifies their ends it appears.

 

Because unlike 1933, the vast majority of the public does not hold physical gold. The ones that do, are hopefully, smart enough not to let anyone know about it. It would be a huge amount of angst for the President to absorb with little payoff.

On the other hand, they can do what they are doing now. Hold interest rates at 0%, well below the rate of real inflation, and punish savers and retirees (who can't take much risk) and transfer great sums of accumulated wealth to the federal government. If they really want to take something from the people, then I suspect they will nationalize retirement accounts. That is, all the paper money you have in 401Ks, IRAs, anything else that you have locked up until age 59.5 for tax avoidance reasons, will be converted to a government bond program and the government promises to pay you guaranteed return on it when you get old. If you hold some of your money is in physical PM, which they don't know about, it's saved from this demise.

So there is no reason to take the people's gold, what little of it there is, from them again.

 

Fair enough. I am nervous as well about 401k's and other savings that may appear appetizing to the politicians. As Maggie Thatcher once said, "The only problem with Socialism is that fairly soon you run out of other people's money to spend".

This is why I simply put assets in a variety of guises, farmland in IA, crop land in Thailand, PM, domestic and foreign stocks, ancient coins, etc. I may not maximize returns, but hopefully will be able to eat come what may.