investing help

That is true, in selective terms like you posted. But in that same time I made over 800% on my investments, if not more, and that wasn't on risky stocks.

I have to assume you're quite young, because the reasons I'm hearing now are the same reasons I heard 20 years ago. Remember, people who have a vested interest in bullion's growth make up all kinds of fabrications and predictions to justify their futures. I still stand by my remark about bullion being the Vegas of investments, for those reasons alone.

I couldn't agree more...if we were talking traditional investments. Bullion, housing, and food commodities have always been on fairly predictable cycles. But again, people who are heavily invested in such investments rarely want to hear that and choose to read the stats that don't raise their blood pressure. Why, just a few years ago people were telling me I should buy a home because the market was hot and not going to slow down again. Most of those people filed for multiple bankruptcies since. Yes, there is a difference between gold and houses, but the fact that the only thing that drives their prices is demand, makes them very similar. And you can't live in gold.

But, alas, I jumped ship on this subject because I saw what was going to happen. All the predicting in the world won't stop the inevitable.
Guy

 

Log in or Sign up to hide this ad.

I was making the term "stocks" to mean either one of the established indexes or the entier market. Of course "stocks" cannot mean any individual stock, in investment parlance it is assumed you have removed the alpha risk. If you are still incurring alpha, then you are getting too little return for the risk.

I disagree as to the timeframe as well. Why is it unfair to compare stock and PM performance since 1910? Both were legal to own, and silver has been legal to own the entire time. For you to pick your timeframe that started with a rise of silver seems to be an attempt to justify your argument by picking and choosing dates of your liking. I can do that too, and make any PM performance to be simply brutal versus stocks. I was attempting to be fair in the timeframes picked.

Edit: The real answer here is to own both. Owning multiple types of assets smooths out these timing issues, which is why I have always advocated keeping a portion of a portfolio in PM, stocks, and real estate. They are contra assets to each other usually. I "lost" a lot of money in the 90's buy buying my silver and not buying stocks. That "loss" then turned into some decent gains as silver went from $4 to $40. There should never, in my eyes, be an either/or decision. If someone is all PM, or all stock, then I say either decision is too risky. Lowering your risk versus a stated return is the game man, and its proven adding PM to stock holding can lower risk, just like its proven adding stocks to PM holding ALSO lowers overall risk. It seems too many are either/or, and I am saying either extreme is wrong in my eyes, since the future is unknowable.

Arguing over which percentage to allocate between the two, however, is fair game in my eyes, and I am sure will be an endless, unprovable debate here. I am happy with that as long as everyone is debating percentages between the two, and not absolute one or the other. To me on the face of it cannot be the optimum solution as proven by past results.

 

Your assumptions on my age are irrelevant. It doesn't change what happened. If you are offering your "opinion" that PMs are gambling, I've got no problem with that as I do not seek to change your opinion. Beyond your assumptions on my age and your opinion, you haven't offered up anything else. If you want to actually discuss what happened to the gold bubble in 1980, then let me know and I can restate, again, why what happened at that time, does not apply now.

BTW, the gold bubble being referred to happened 30 years ago.

 

Meanwhile stocks are up and metals are at fresh lows today on the news that banking has gone global, as European banks are getting bailed out by the European Central Bank, the Bank of England, the Swiss National Bank, the Bank of Japan, and the Federal Reserve. Yes, the Federal Reserve is now giving money to Europe. This is huge.

This kneejerk reaction (thanks to 'risk-on') shows bearishness for the metals, but the new money creation points to further inflation which is bullish, as well as the reality that banker intervention is increasing in frequency to keep the wheels on the road. Buying opportunity IMO.

http://online.wsj.com/article/BT-CO-20110915-709450.html

[Edit]
Here are some other links since the first one requires membership:
http://www.reuters.com/article/2011/09/15/markets-global-idUSS1E78E0TJ20110915
http://news.businessweek.com/article.asp?documentKey=1376-LRJUJF0D9L3601-68KEPGEC6N19VLQLVSSNU0GHVU
http://www.bloomberg.com/news/2011-...ve-in-lending-dollars-to-euro-area-banks.html
[/Edit]

 

I can make the blanket statement because it is true. Stocks outperform PMs in the long run. Of course you can cherry pick a few disasters, but that doesn't change the fact. And right now, after a period of a decade where PMs have outperformed stocks, there is a very high probability that a regression to the mean will take place and that PMs will underperform for anyone with a long term horizon. Anyone who thinks it's a good idea to load up on PMs AFTER a decade of great performance, and thinks it's a good idea to sell stocks AFTER a decade of underperformance probably shouldn't be investing at all.

 

If you look at the historical DOW/Gold ratio we are not yet done reverting to the mean which is 4:1. As you can see after the first bubble it went down to 2:1, after the second bubble it went down to 1:1, and this even larger bubble indicates it may go even lower than that where the price of Gold is higher than the DOW.

 

http://www.stocks-for-beginners.com/gold-market-price.html


If these charts and data are correct the past 110 years have seen an average yearly return of 6.07% and an average yearly return of 4.91%. Of course data and statistics can be manipulated in so many way's but I suspect these numbers are closer to the truth then not.

 

Let me ask a "silly" question. What do the two things have in common? WHY should there be any relationship?

This is a distinct danger. I once too the price of avacados and compared it versus the S&P and "predicted" a relationship of stock prices versus avacados. I did this to show my students any two things can be compared, and from that comparison mathematically "predict" a relationship and predict the future. Does avacados predict the S&P?

My point is NO chart, NO relationship is meaningful unless you also prove out WHY there is a relationship between the two. If there is a relationship, is is mutual or does one drive the other? If so which one?

Just saying these are the critical decisions which needs to be asked before blindly accepting a comparison. Are these charts truthful? Yes, but so was my "Avacado Index". It was truthful but valueless, as it intentionally was meant to be.

Edit: Btw Inflexion I am not saying this to poke fun, I am asking this so you can think about the answer so yourself will have better understanding. Maybe you believe there is a direct correlation, and if so please let us know. Again, its healthy for others to challenge our assumptions so we ourselves better understand our beliefs.

 

Gold, silver, stocks, currencies, real estate, are all measures of value. Avocados are not.

 

Yes. Please enlighten me. Just don't post links to sites promoting bullion, as thats the not the source of anything factual.

LOL! Avocados are a multi-billion dollar industry here in CA. If thats not value, what is?
Guy

 

The price of a case of avacados in CA wholesalers is a measure of value. I also used an inverse relationship to central valley mean temps and a couple of other modefiers to be able to backfit a relationship. It was all BS made up to make a point Inflexion. Backfitting is the most nefarious, dangerous game in Finance since it LOOKS GOOD, and it LOOKS like it predicts the future very well. Backfitted patterns is how the moderately sophisticated get swindled, since the swindle is harder to see.

Anyway, my point sir is WHY is that chart worth the virtual paper its printed on? WHY do you believe those trends will continue? WHY do you believe there will be a reversion to the mean on that graph? Those answers are the important ones, not the graph itself. A graph showing something without a reason why might as well be the "avacado index".

 

Let me rephrase. Avocados are not a store of value. Technically everything is a measure of value.

As to the why's, because history is right more often than humanity. The chart isn't worth anything, but the data it provides is telling. I believe the trends will continue, because they have done so in the past.

[edit]
I would also add, that at the time of the chart I used (2003) the DOW/Gold ratio was over 20. Today it is less than 7, so anybody who would have identified the trend in 2003 would have been rewarded so far had they acted on it. I don't see any reason why the trend should suddenly reverse when fiscal policy refuses to do so.
[/edit]

 

Since I don't want to post it again, I refer you to this post I already made in reference to the 1980 bullion bubble compared to now. Please read it in context. If you still have questions, please feel free to ask.

http://www.cointalk.com/t191545-4/#post1261924

 

I remember reading that, and agree with you on some points about what is driving it up now. But, I don't see where you explained what drove it in the 80's. Care to expand on that, as I'm curious as to what the differences are in your opinion. War, inflation, housing bubble burst, joblessness...all that was going on in the 80's at the time, as well as today, so where do they differ exactly and how is that difference relevant to the driving force behind bullion today? I think the world was in worse shape 30 years ago than it is today, so what are we looking ahead to?
Guy

 

Not so fast. I answered your question. Your turn now. Tell us what war existed between 1975 and 1980 and the other relevant details if you think the economy then is like now. I've already stated why they are not.

 

Cold war, much more expensive that our current wars in real dollar terms.

 

75-80...when gold was falling? I thought we were talking rising gold, which took place before 75 and after 80. In those cases we saw the Vietnam war before 75 and our involvement in a whole slew of messes after 80, such as Nicaragua, Grenada and Iran/Iraq, just to name a few.

The economy, during the bubble of the early 80's was suffering from a jobless rate of over 10%. Inflation was out of control. Banks and investment firms were failing daily. The housing market all but died. The main difference I see is that the economy reversed after just a few years. Sounds a lot like today. The reason the economy 30 years ago tanked was the same reason it did in recent years....a contradictory monetary police and a world-wide energy crisis.
Guy

 

I turn the chart upside down to see the gold bubbles of the past and the one now forming. But you are correct that as long as the Dow/Gold chart is above the long term average, it provides evidence that stocks have outperformed gold. And your chart doesn't even account for the reinvestment of dividends which provides as much as 40% of stock returns over the long run. So, YES, stocks are way ahead of gold over the long run.

 

If you look at the span from 1900 to 1950 it is obvious that the spike in stocks was the blip on the radar, and that gold was humming right along prior to banker intervention. Turning the chart upside down merely provides a ceiling as the baseline instead of the floor.

Using the Great Depression as an example, you can see how the bubble in stocks was just beginning to form in 1924, and peaked in 1930 which is was a contributing factor in causing the depression which started in 1929. Stocks are ahead of gold right now, but they weren't in 1932 or 1980, and if the trend continues at it's current trajectory we may be saying the same about 2015.

 

I would say stocks were ahead in 1932 and 1980 because your chart ignores the reinvestment of dividend income which was much higher in the first half of the 20th century than it is today. I don't consider $10,000 gold to be a high probability event.

But if you like gold and have analyzed it to your satisfaction and believe it will outperform stocks in the future, then by all means that is what you should buy. My experience is that sometimes PMs are better, and most of the time stocks are better. By way of full disclosure, I have been slowly selling PM investments and putting the proceeds into either cash or stocks since Q4 last year. Just last week I sold some CEF and put the proceeds into INTC. If PMs continue to rise, I'll continue to sell.