Gold is the Worst Investment in History

Now there is an editor who understands clickbait

http://www.dailyfinance.com/2015/02/05/gold-worst-investment-history/

 

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So, if you bought $1 worth of gold in 1802, then sold it in 2006, you would find it was worth $1.95?

Tell me another one more.

Edit: Ah, "inflation adjusted". My bad.

 

I do see good points, though I disagree with confiscation. It did happen in the past, but I'm certain it won't again. All of the gold in the country won't make a difference in all the dept we owe now. What would their motive be to do this today?

Plus, back in 1933, we were paid for the gold that was taken. This means the feds have to pay us in cash what we had in gold, and trust me, this is not something smart the government would do with all this dept. Secondly, they can't possibly know every person who is buying precious metal. Are they going to knock down doors from house to house and hope they find a little gold? Yeah... Even thinking about this is ridiculous.

Not every transaction is reported to the government. Especially if someone gradually buys an ounce of gold at a local coin shop every 2 weeks, over a period let's say 50 years. Are there ANY records of what that person has done? NOPE.

 

It's my understanding that most people in the 1930s agreed with the policy, and voluntarily surrendered their gold. There apparently wasn't nearly as much widespread hatred and contempt for the government as there is today.

 

I only read as far as the writer saying he read Siegel and figured i was wasting time reading on.

 

Gold ended 2006 around $635. You could buy an 1801 Capped Bust Eagle at the time of issue for $10; containing, according to Krause, .5159 Oz of gold. Or one dollar's worth would be .5159 /10=0.05159 0z. of gold. So $1 of gold from 1801 would be 0.05159 X $635 = $32.75. Is that correct?

Yeah, that's nothing to write home about either. But why should I believe anything else that's in that article? Especially when he sounds like he should have wallstreet pom-poms duct taped to his hands.

 

What was the cost basis of trading stocks on Wall Street in 1802? Could you actually buy a US Treasury Bond for $1 in 1802? Siegel's make-believe supposes there's an 1802 stock or bond still trading in 2015 and at no cost, eh?

This, I know exists.

 

"Worst investment in history" is a pretty strong statement. As I read it, if I can find one investment that was worse than gold, then the statement is false.

First, the author compares many different asset classes to gold, which is not an asset class. If he wants to single out gold from its asset class, then I should be able to single out MCI WorldComm or Enron from their asset class, which of course would prove him wrong since growing $1 to $1.95 is much better than $1 to $0.

Second, why examine the performance of gold and other investment vehicles over a period of 204 years? Probably because he based some of his analysis on the book "Stocks for the Long Run". But, has any individual held any of these investments for 204 years?

Third, since he assumes a person bought and held gold, which is one particular commodity, for a period of 204 years, why not do the same with stocks? The conclusion that the author of Stocks for the Long Run reached was based on the averages of dividend yields and equity growth of the entire market. However, if we had to limit ourselves to one company, there's a very good chance that our stock would be worth $0 since there aren't many stocks from 204 years ago that could be redeemed for anything today. For example, there are only two companies that were founded in 1802 that are still in business today: DuPont and Scovill. No companies that were founded in 1803-1805 are still in business today. Of course some of those companies would have paid dividends before eventually going under, and some of them were acquired instead of going bankrupt, so you wouldn't necessarily be at $0.

However, the article does seem to assume one buys gold and sits on it for 204 years. I think it's only fair to assume the same should be true of all the other investments. How much would a government bond from 1802 be worth today if one never renewed it when it matured?

Of course, there's also this:

"But the problem with that thesis is that the U.S. government has the right, any time it wants, to confiscate gold owned by private individuals."

How much gold did the government "seize"? Has the government ever seized anything besides gold? Have other entities ever seized assets? How about secured creditors and bond owners in the event of a bankruptcy? If you picked one company to buy stock in and it goes bankrupt, it doesn't really matter how much was seized by the government or private entities, the end result is much the same. In the event of a large scale financial collapse, how much gold do you suppose the government might seize? How much money do you suppose would "evaporate" from the financial markets? How many companies might go bankrupt resulting in ordinary shareholders receiving $0 for their shares? In the event of a government bankruptcy or collapse, how much are those bonds usually worth?

I'd be willing to bet that the value of assets seized under such circumstances vastly outweighs the amount of gold "seized" by the government under FDR's executive order.

Here's a good project for the author: Since index funds, sector funds, mutual funds and most other such investment vehicles didn't exist in 1802, and since he picked gold and compared it to other asset classes, why not do a similar experiment with stocks? Take a look at each publicly traded stock that existed in 1802 and see what a $1 investment in each particular stock would be worth today.

 

Then adjust for inflation.

 

Du Pont de Nemours, Père et Fils et Cie existed, yes, but a single share cost $2,000. in gold. There were just 18 shares, six shareholders only one or two individuals?

I don't know ANY shares trading in New York 1802 cost under $2. And we still don't know or haven't factored trading costs for what part of the period, 150+ years?

Gold wasnt an investment in 1802, it was money! It generated no income dividend or yield unless it was loaned. There was risk putting money in a bank, banks failed, and no of this is factored correctly in Siegel, the Stock Hypster. Of course, why would you expect him to tell the truth?

 

I assumed the author wasn't literally talking about a $1 investment, but rather comparing investments dollar for dollar.

But the share price of $2000 and the limited number of shares available does show how expensive and how difficult it would have been to obtain a wide enough variety of stocks to protect oneself from the chosen corporation(s) going bankrupt.

 

Also, oddly missing from his article is how various investments actually fare in a government bankruptcy or collapse. Since the US hasn't yet collapsed, he only touched on the possibility briefly and quickly dismissed the benefit of gold in such a situation based on the possibility that our government could seize our gold.

However, many other countries have collapsed in the past 213 years and it is possible to learn from those events. How much is a government bond issued in Cameroon in the year 2000 worth today? Answer: $0 How much is an ounce of gold from 2000 worth today? How about bonds from Nigeria from 1980, or 1985, or 1990, or 2000, or 2003? Again - $0. How much is an ounce of gold from 1980, or 1985, or 1990, or 2000, or 2003 worth today? How about Ecuador's bonds from 1825, 1867, 1892, 1904, 1907, 1912, 1930, 1936, or 1980? ...and that ounce of gold?

How about one trillion dollars in Zimbabwe bonds from 2008?

I think you get the picture...

 

Yeah, I forgot about that. But that presumes the 755k from wallstreet was also adjusted for inflation. One dollar in 1802 invested in the stock market and followed up with panics, depressions, a civil war and two world wars was worth 755k in 2006 adjusted for inflation? Sorry I don't even think soros could do that.

Edit: I'm sure to be fair to PM's he calculated how much of todays stock price is due to fed coddling and backed that out, right?

 

Scovill wasn't formed as a joint stock company until 1850. Abel Porter Co. (1802) had partner shares, but I cannot find valuations; Scovill was an investor in 1811, but the bank didn't recognize him in a very funny episode of that year. In 1827, a half-interest was ~ $10,000. ; I'm guessing shares originally valued about $1,000./ea. Anyway, it was private equity.

Siegel is misleading: $1. bought you no stock on Wall Street. The number of contemporary investors qualified or afforded anything like a "diversified portfolio" (built into Sielgel's assumption) with the necessary capital was mere hundreds, perhaps just a few dozen rich merchants, back in the day.

In other words, it's almost IMPOSSIBLE anyone could have earned on Wall Street what Siegel claims, period. You're right to point out the unknown business risk, to the hypothetical capital holder: most 1802 companies probably failed (survivorship bias) within a decade or so, and we have no idea how many paid dividends and with what regularity anyway. Share trading costs are totally omitted! Postal and banking costs were higher, too. All of this would have cost the 1802 investor, in real life.

Siegel's work is fraudulent, in its pretense of cost-free stock investing since 1802.

Otoh, who could have actually owned a gold $2.50 piece at some point in 1802? Most Americans.

 

When all else fails:
1) Pick winners, ignore losers. Omit 90% of the stock market? Survivorship bias will juice returns ~2% per annum in the 19th C.
2) Ignore rebalancing, trading costs, anything a real investor pays to own the pricey investment.
3) Fabricate dividends, to make the investment look better.
4) Send results to a stock-pumper like Jeremy Siegel. Remember Dow 36,000 in 1999, anyone? We're at ~18,000 in 2015. Here's a very useful flashback to read:
http://knowledge.wharton.upenn.edu/article/dow-36000-future-or-fiction/

(Great insight on CSCO in that discussion "Hassett: If you can start the next Cisco Systems, you should definitely do it right now. But if you can’t do it, you should buy their stock." ... was $69.19 10/27/99, now it's $29.63 2/24/15! Gold was then $290.60, now it's $1,204.75 ... gosh, which was the better "investment" the last 15 years?)

 

Now I'm wondering which of my ancestors gave my 1822 Half Eagle to some saloon trollope.

 

It's called a REVALUATION which meant after the suckers, er people, gave their gold in at $20.67/oz., it was suddenly worth $35/oz.

Today, you don't need to revalue gold or find more gold to print more money...we have the Bureau of Engraving & Printing.

Also, gold is not an investment...it's a SPECULATION. Please remember that, folks:

• Gold has no intrinsic value.
• Gold is subject to multiple sources of supply.
• Gold is highly volatile.
• Gold does not pay any interest or dividends.

 

So what's to learn? What fool would invest in any type of precious metal? Gold/silver should be used as a hedge against inflation. Nothing more.........

 

You'll be the first to visit the re-education camp after we take over.

 

Back in the olden days I made a little money off a Kruggerand I paid $200 for. Of course 15% inflation, Soviets invading Afghanistan, and Iran taking 55 hostages, I think, helped a lot.

Today, Martians could land in Times Square and the only ones who would get riled about it would be the Martians after they got jacked.

It'll be too funny if teenie-weenie Greece ends up being the one who upsets the world apple cart.