Gold is the Worst Investment in History

It's called a shakedown.

Eric Holder says it's 'egregious.' What he doesn't say is that morons like him berated the SROs (Moody's and S&P) for not relaxing their standards in the 1990's and early-2000's to make crap loans easier to package, sell, and finance. Our illustrious president sued Citibank to get these crap loans for his inner-city clients, with 50% of them promptly defaulting within a few years.

Don't believe what you read about things from people who don't know what they are talking about or who have/had a vested interest in promoting a certain practice for political or financial interests.

 

Log in or Sign up to hide this ad.

The stock market isn't ONLY winners, though. It's the Enrons, the Worldcomms, the Pets.coms and the Lehman Bros. (Remember that firm? How quickly stock investor pretend it never happened.) Hundreds of thousands of shareholder companies lost everything: they're simply OMITTED from your cherry-picked data. That fantastical "7%" ratchets down hard, if you get honest here.

For example, on the safest established capital market in the world, 19th C. survivorship bias was calculated by unbiased economic researchers at 2% per annum. So how much worse in an emerging mkt like the USA, 1802-1870, 3-4%? And how much does that diminish your imaginary CAGR?

http://www.voxeu.org/article/has-equity-always-earned-premium-evidence-nineteenth-century-britain

FEES! Yes: why do you suppose that a retail investor would only spend "1%" to have someone manage his small money in 1802-1870, or even as late as 1950? Mutual funds had much higher fees 1926-80; low cost index funds were UNKNOWN until the 1970s. So what did the average retail broker charge the smallest clients in management fees, each year from 1802-1987?

(Consider what it cost to own shares in the first US mutual fund, "Massachusetts Investors Trust" back in 1926. You paid a broker upfront, what, ~5%? MIT then charged 6% of earned income, annually. Simply calculating 'fund return' omits these very real costs, still as high as 3.5% in 1949. Loads, trading costs, brokerage account fees: the compounded return of real dollars invested falls dramatically, if we get honest.)

No, there's no such thing as a free lunch in equity investing! Tell us what it really cost, not 'Wall Street Make-Believe,' thanks.

 

No it doesn't. The index takes into account ALL stocks, not just winners or losers.

Anybody with 1 or 2 or even 3 stocks isn't investing, they're speculating. We're talking returns from the stock MARKET, not individual stocks.

Data are not strictly comparable pre-1926, it is true. But we have the DJIA going back to the late-1880's I believe. We also have other indices as well.

Also, you can't compare stock investing in 1870 to today. Lots more information, frauds much less likely today. You could buy a railroad stock in the 1880's and it might not even exist because you would need to send a few telegrams to people near the tracks and that would take days to verify.

Don't even get me started on audited financial statements.

Yes, it has. It's called the equity risk premium and it's positive for virtually ALL countries over most time periods, except those that went bankrupt or defaulted on their debt OR got wiped out in World Wars.

There was not modern money management system back then. People invested in individual stocks. Modern funds -- 'trusts' -- didn't get popularized until the 1920's. Tri-Continental Fund (TY) dates back to the 1920's, it's a closed-end mutual fund.

Only 10% of Americans had investments in the stock market during The Roaring Twenties.

I doubt the fund charged that much. It may or may not have been leveraged and you are including the interest paid in the fee calculation.

Regardless, it's not comparable to CEFs or OEFs today.

It's not 'Wall Street Make-Believe', it's basic common-sense and data crunching which you can do with an HP-12C.

If you know of a greater wealth creator or savings/investment program than stocks, please let us know.

 

You're mistaken. Stock survivorship bias is embedded in most studies from Cowles to Siegel. The Index 'drops' stocks all the time: this skews performance upwards.

This is a dirty little secret, but well-known to serious researchers. Wall Street isn't paying for the truth though.

Red herring. But exactly! The imaginary retail investor didn't live in New York, and by the time news reached Topeka, the NY stock had already failed. Stock failures with TOTAL LOSS were much more common than today; an imaginary retail investor would almost certainly be the biggest loser then, as now. Real return was much, MUCH lower than those silly Wall St. #s thrown at and embraced by Greater Fools. Don't we all know better, here?

I've seen stats that claim LESS THAN 1% of Americans had any direct investment in the stock market in 1928. Where do you get "10%"? Again, focus on what's important: REAL INVESTOR COSTS. Telegraphing your broker wasn't free either, circa 1900.

You can believe whatever you want to believe, I've only stated the facts easily found online. And we're not talking about CEFs today: we're talking about REAL historical investing costs for retail investors.

I've done my part, now it's your turn. For $1,000. invested what was the total retail broker cost, to buy and sell shares in
1802:
1803:
1804:
1805:
...
2002:

 

But an index like the S&P 500 doesn't include many small-caps which would bias it upwards. And studies have shown that any bias to Cowles or Siegel's data is miniscule.

You think including losers is going to take a 10% annual return over decades down by hundreds of basis points (100 bp. = 1%) ? 'Aint happening !

What serious researchers ? John Bogle is a critic of Wall Street and even he wouldn't dispute the returns from stocks over decades of investing.

Investing in fraud isn't stock investing. That's like me including investing in those 3 AM infomercial coin shows and paying $200 for a $50 coin and including it in an index of PCGS and NGC investment-quality coins.

An investment in a DJIA or S&P 500 index -- what I am talking about -- would have included comparable companies 150 years ago: telegrams....Standard Oil....oil companies...railroads....newspapers....mining companies.

Very volatile, but positive returns.

I've read lots of books on the markets as a CFA and CFP.

Wikepedia says 16%, I think it's high:

http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

It was much more than 1%, trust me.

It's not about believing what I want to believe, it's about believing FACTS. You didn't cite facts refuting my post, you cited outliers that aren't relevant to the question at hand.

If you believe what you say, than stock investing today and years ago was a Losers Proposition and history has shown that to be false.

I ran the numbers and had them cited on CNBC: if you invested at the PEAK of the 1929 market, with divends reinvested, you got even by 1943.

If you invested an equal amount of $$$ in 1929 and every year thereafter (and bought at the peak of each year, the worst market-timing), you were EVEN by 1936.

Stocks work if you let them. Of course, stock investing was more difficult for the masses in the 1920's and even more so in the late-1800's. If you weren't rich, you probably couldn't take the risk. It was the Wild West of Speculation, not investing.

What retail brokers were around in 1802-1805 ? You're using the days when trading in stocks was done under a tree down at Wall and Broad to illustrate a point ?

We are celebrating the 40th anniversary of the end of fixed commissions on Wall Street in a few months. I'll use my mother's IRA since I manage it to provide examples:

• In 1974, to buy 100 shares of AAPL stock (which she owns because of my online article extolling the company at the bottom in 2013 ) the purchase would be about $12,000 and the commission would be about $400 or about 3%.
• In the 1980's the same commission would cost about $120 or about 1%
• By 2000, the same trade cost about $30 or 0.25%.
• Today, it costs about $12 or 0.1%.

If you know what you are doing -- a key variable, I admit -- it's NEVER been easier to be a DIY investor. But you have to educate yourself and read and learn...and if you don't have the time or want to expend the effort, then pay a pro to do it for you and spread your $$$ around wisely.

 

Your "mother's IRA" could not have had AAPL in 1974. Apple didn't exist in 1974! The company didn't start trading until 1980. Also, ahem, there were no IRAs until 1975, and few investors had one in the mid-1970s. Your mother certainly didn't, in 1974.

You're a serial fabricator? O.k. I'm done with you.

 

You appear to not understand investing or stocks. The use of AAPL wasn't to say she could have invested in it back then, I used it to show what the costs were for a round-lot, 100-share stock with a market value in the low-5 figures ($12,000) back in 1974. I could have said XOM or GE or MSFT or Amazon.com -- whether the stock existed or not is immaterial, it's the cost of the trade that I illustrated.

Ditto for saying it was an IRA (which started in the late-1970's) but there were Keough and Money Purchase TDAs in the 1960's and 1970's. Could be an IRA, a Keough plan, or a regular brokerage account. It doesn't matter but it apparently went over your head.

You appear to not understand investments and the financial markets. The fact that you cite my example as a 'fabrication' shows you may also lack basic reading comprehension skills as well.

To each his own.......

 

You missed the point. You asked for cost of trades, he gave you cost of trades. The specific stock had no relevance on the numbers he provided. Any large cap would have had the same cost of trade.

 

Someone paid attention in grammar school.......

Yeah, I think that he was so fixated on the trees he missed the forest. As he did with his earlier posts on investing. I see that all the time with people who aren't that familiar with finances and then end up making ridiculous statements. Even my friends and family !

 

My Big Picture, since we got distracted: Gold is a speculation (though you can hold it if you like for a small % of your portfolio or as a hedge against disaster), stocks are the best long-term wealth generator (though I am cautious right now), and you need to diversify, have safe investments (bonds, CDs, Treasuries, etc.), watch costs/fees, and know what you are buying.

That's all I am saying....

 

Seems to me, gold and other PM's have a positive in appreciating "off the books"
You can accumulate it in small amounts, keep it in your safe, building up quite a bot over time. The value increases both with volume of assets and appreciation.
When you eventually want to sell, you can also "spread the wealth" a little at a time, here and there.
Thus, no record.
This beats most forms of investing, where everything is carefully recorded, and Uncle Sam has his head way, waaayyy up your rear end. Also, PM's will always be worth something, as opposed to say, Enron stock, or Studebaker. It is, in the end, real money.

 

When I lived in Bangkok in 1969 gold was $30 an oz..........if I had been smart enough to grab a few POUNDS, how can you POSSIBLY tell me thats the worst investment in history?

 

God I'm glad I collect and don't 'invest' (leastways in what you guys is talkin' about) Ignorance is bliss and every once in awhile ya hit a home run.......good enough for me.

Signed:

Two bourbons back of bid.......

 

Gold is not an investment. It is a speculation. True enough, there are people who have made money speculating in gold. There is a word for those people.
Lucky.

 

Many years ago I read that the compliance rate was around 30% and that there were no prosecutions for noncompliance. Many in the upper classes, those most likely to have large quantities of gold, did not turn theirs in, considering Roosevelt a traitor.

 

I don't know about the 'real money' part, but I essentially agree with your well-written post.

 

It's clearly not.

The problem is that gold is highly volatile and to compare any data from the pre- or post-floating exchange rate era (1971) distorts the data. You had a 1-time 20-fold increase in the price of gold as we came off fixed exchange rates....inflation tripled....Watergate....Nixon resigned....Jimmy & Disco....Malaise and Sweaters...etc. etc. etc.

Waiting for a re-run is as likely as baseball cards getting hot again.

I enjoy collecting gold/silver coins...I think investing/speculating in gold/silver with periodic purchases is OK...but it should NOT be a replacement for stocks, bonds, and CDs.

 

I'm not sure what the numbers on, maybe someone can recommend a good book or something online ?

I know my immigrant ancestors handed theirs in. Not that they had that many -- maybe 1 or 2 -- because you simply didn't hang on to a $20 gold piece in the 1930's or even the 1920's.

 

One more data point, Voya corporate leaders trust fund. The fund 'bought equal amounts of stock in 30 major U.S. corporations in 1935 and hasn't picked a new stock' since. I could only find performance data going back to 1942, but since 1942 the annualized return was 11%. This was available to average investors at the time, and was an extreme buy and hold.

Writeup: http://mobile.reuters.com/article/idUSKBN0LV0D120150227?irpc=932

Performace data:

http://quotes.morningstar.com/fund/LEXCX/f?t=LEXCX

No re-balancing effects, no drop out effect, no commission concerns, and it includes total loss for some companies. It shows what a diversified portfolio can do if left completely alone.

 

Interesting. If it includes total loss, it seems to me that it necessarily grows less diversified over time.

I wonder how many similar funds started around the same time, but didn't survive to the present, either because all their companies went under or because all their holders decided to bail?