investing help

Discussion in 'Bullion Investing' started by papermoney54, Sep 13, 2011.

  1. Azpatriot

    Azpatriot New Member



    Only wish that when I was 22 I knew it all...oh how wonderful life would be.
     
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  3. fatima

    fatima Junior Member

    Oh and BTW, on this:

    "Curious to know if you were even alive in 1975 or all of this knowledge is coming out of a book."

    I turned 22 the year that Reagan took office. I voted for him both times. I agree with you 100%. If I knew then what I know now, I would not have made that silly mistake. Some of us do actually grow up.
     
  4. Azpatriot

    Azpatriot New Member

    Apologies for making assumptions regarding your age.
     
  5. Collector1966

    Collector1966 Senior Member

    You should really check historical prices before making such claims. The price was mostly downward from early 1975 through about September 1976, but after that the trend was mostly up through the rest of the decade.

    http://www.kitco.com/LFgif/au75-79.gif

    O
    n edit: The above link doesn't seem to work, so go here to the bottom of the page and check 1975-1979 in FIVE YEAR GOLD

    http://www.kitco.com/charts/historicalgold.html
     
  6. Collector1966

    Collector1966 Senior Member

    The first 50-60 years of those charts don't really mean anything because the price of gold was kept at $20.67 per ounce for the first 33 years or so of that graph, then it was artificially controlled by Uncle Sam, who didn't let Americans fully participate in the gold market until December 31, 1974.

    In the early 1960s, Uncle Sam had actually tried to make it harder for Americans to own bullion gold coins by severely restricting ownership and sales of foreign gold coins dated after 1960, but by 1967 or 1968 Americans were buying pre-1961 foreign gold bullion coins (especially Mexican gold coins, sovereigns, and 20 francs) in increasing numbers, and essentially the last remaining gold restrictions that Uncle Sam was enforcing were the restrictions on trading in gold bars, and buying modern gold coins from overseas suppliers (you needed a special permit to import modern-- post-1960-- foreign gold coins). At the same time, the melt value of 90% silver was starting to exceed the face value, so really the comparisons should start from that time.

    So let's look at this chart which plots the DOW versus gold from 1968 to 2009. The higher areas on the graph indicate times when stocks had an advantage, while the lower areas on the graph indicate times when gold had the advantage. Gold basically did better than the DJIA from 1968 until 1980, then gold and stocks were essentially keeping apace with each other (with stocks having a slight advantage) until stocks started to take off again after the 1987 crash, and outpaced gold until 1999 or so, when gold began to gain ground on stocks. If this chart were extended to 2011, it would show an even bigger advantage for gold since 1999, and a bigger advantage for gold compared to its 1968 position.

    http://www.chartingstocks.net/2010/05/dowgold-ratio-historical-chart-1968-2009/

    It should also be noted that in just the last 10 years, the stock market has crashed twice-- once in 2001 after the September 11 events, and again in 2008-2009. Today, the Dow Jones Industrial Average is below its 1999 peak, while gold has increased in value 6X from its 1999 high.
     
  7. Cloudsweeper99

    Cloudsweeper99 Treasure Hunter

    If you believe gold is a better investment than stocks at these prices, or over the long run, then by all means put your money into gold. I would just caution you that the charts you are using do not reflect the relative compound total rates of return generated by stocks vs. gold in the past, or what might be expected in the future. They also ignore dividend income and the effect of reinvesting a growing dividend income stream, which has accounted for about 40% of the total return for the DJIA over time. If you don't have that information, your analysis is incomplete at best. Most value investors would look at the fact that stocks have not performed well over the past decade and decide they would rather own stocks at current depressed levels than gold at 6X the decade ago price. I'm not arguing against gold. Since December 2003 I've had a significant part of my equity portfolio invested in gold related investments. But at current levels I'm finding stocks that I like better than gold, and I've begun to shift money out of gold and into stocks. I know there are some new PM investors currently putting new money into gold and silver. In my opinion [which may be right or wrong], they are taking enormous risks. And using charts that end with record high prices for gold to validate a pro gold stances might turn out to be far more dangerous than the pro gold crowd can imagine. Good luck.

    Edit: Let me just add one more thought. Regardless of the long term averages, gold has only been a good investment for two time periods -- the 1970s and the past decade. Over every other time period, stocks or bonds or a combination of the two has been better. So now that gold has had a big run, the probability that it will have another big run over the next decade has greatly diminshed.
     
  8. fatima

    fatima Junior Member

    This falls into the investment fallacy that because something did well in the past, then it will do well in the future. It completely ignores the factors affecting the economy now.
     
  9. coleguy

    coleguy Coin Collector

    No it doesn't. Stocks are still rated high if you invest correctly. I've gained more the past few years on stock than gold has gained in the past 10 years. What economic factors are there to twist that fact into something it's not?
    Guy
     
  10. fatima

    fatima Junior Member

    Of course personal anecdotes that can't be proven or challenged are no proof of anything. Ask me something specific and I will be glad to respond to it.
     
  11. Cloudsweeper99

    Cloudsweeper99 Treasure Hunter

    It isn't a fallacy. Stock returns are based on the return on capital earned by businesses. Over the long run, this has been something like 10-12% with part returned as dividends and part as growth of capital. Gold also has a return based on the depreciation of currencies. If currencies are depreciating by 10-12% then gold returns will be competitive with equities. Which is best depends on where you are in time. Coming out of the bull market of the 1990s when stock returns were very high and the economy was weakening, stocks got ahead of themselves and their earning power. Gold had been in a 20 year bear market and looked undervalued and due for a catch up. So for the past decade gold outperformed while stocks lagged. But now there are many perfectly sound and growing companies selling at 10-12 times earnings, and gold is selling well above the cost of production. So the probability that stocks will outperform gold over the next decade has increased tremendously compared to a few years ago.

    Could this turn out to be wrong? Of course. Nothing in investing is definite. Everything is based on probabilities. If regulatory or other conditions prevent corporations from earning a satisfactory return on capital, stocks will continue to languish. This could also happen if the enormous levels of debt cause a deflationary condition similar to Japan [a repeat of the 1930s seems unlikely]. If, on the other hand, the Fed inflates the currency at a rate sufficiently high to offset the deflationary impact of the debt, then gold might outperform stocks. I own both gold and stocks, but have been shifting money slowly from the gold side to the stock side because that's where the probability of gain seems to reside for the next decade. My equity investments are currently about 40% PMs and 60% stocks. I was a big buyer of gold and silver investments when gold was about $400 and silver was in single digits. But as conditions change, so must the analysis. I'd rather own selected large cap stocks with little or no debt and positive cash flow at 10-12X earnings with 4% dividend yields than gold at $1900.

    That's how I think about the situation, and what I am doing with my own money. Unlike many people here, I don't have a permanent love of gold to defend, and I'm not trying to earn bragging rights for selling exactly at the top. I'm just trying to earn a high rate of return on investment. Everyone must decide this for themselves. Keep in mind that stocks are generally the best buy when conditions appear worst. If you want to buy low and sell high, you have to buy when things look bad and sell when everything is going perfectly. This holds true for gold also.

    If you like gold and expect the collapse of stocks, by all means put all of your money into gold. I won't be following you.
     
  12. coleguy

    coleguy Coin Collector

    I was only responding to your blanket statement as a means to prove it incorrect. But, short of mailing you statements of my assets, I suspect it won't matter to your case.
    Guy
     
  13. Numismania

    Numismania You hockey puck!!

    Three important things I have learned in this hobby, and they are:

    Rule #1 Collect what you like, as long as you enjoy it

    Rule #2 If you don't like a coin 'at first sight', regardless of whether it's a great price, you won't like it tomorrow, or the next day, or.....

    Rule #3 Don't look for investing advice on a public forum.

    (no offense to those that DO know what they are doing)
     
  14. fatima

    fatima Junior Member

    The statement that I made is printed on almost every stock equity prospective that you can purchase in the USA. If you choose to ignore it, discount it, or call it a "blanket statement" that doesn't apply to you then so be it. It doesn't change this fact. Anyone who claims that gold is overbought and to buy stocks instead is simply ignoring the fact that equities have risen 120% in 2 years. Everyone says they make money in the stock market until they don't. That ought to give anyone pause as it suggests there are factors affecting stocks now that have nothing to do with the economy. (hint: massive money printing in QE1, QE2, ....QEn)

    This isn't a statement not to buy stocks as that is up to the individual investor, but because stock averages did well in decades past, is no reason to simply believe its a safe long term investment now.
     
  15. Collector1966

    Collector1966 Senior Member

    I agree-- the days when my grandfather could figuratively throw darts at a stock dartboard and pick a decent stock are long gone. Most of those stocks that he owned, which were moneymakers in their day, have fallen on hard times, or have even disappeared altogether. Past performance is definitely no guarantee of future performance.

    I would also take a big grain of salt when looking upon claims of making more in stocks in the past 10 years than in gold/silver bullion, without any verifiable data to back up the stock performance claims.
     
  16. Cloudsweeper99

    Cloudsweeper99 Treasure Hunter

    It is true that the stock market is not a good place to invest for people unwilling to think. And anybody who believes they should choose a stock today and let it ride for 50 years probably should stay away from stocks [and gold]. Even the components of the major market averages are changed over time. In the past decade, gold has done very well and stocks are still where they were in the late 90s. But rather than proving that stocks are a bad investment, it offers the possibility that stocks are now cheap relative to gold. When gold was $250 and the DJIA was 12,000, gold turned out to be the better investment. But now with the DJIA at 11,000 and gold at $1600+, the situation is entirely different. Anybody who believes that gold requires no thought and will outperform stocks for the next 25 years will probably be greatly disappointed.
     
  17. medoraman

    medoraman Supporter! Supporter

    Its on every prospectus to try to warn investors of risk. If the SEC had the authority, I am sure they would have it printed on prospectus' for gold and silver as well. It is just a general warning. Its true, but just because its on stocks and not on PM does not mean it doesn't apply to all investments.

    As to stock returns, I think you are cherrypicking your dates. You are going back to the bottom of a severe correction. I believe its best to avoid severe market changes to start a comparison date from, as it is misleading. Go back 5 or 10 years if you wish to make such a statement is my suggestion. Absent the bounce back from the correction I do not believe you will find stocks up.

    As for stocks, I agree one can no longer buy GM or ATT or GE and hold for 50 years like they did in the past. My overall problem is what do you do with money? Bonds are horrible returns, PM have gone up x6 or more from when I bought, farmland I bought has gone up x5 in the last decade. Almost every asset class I am interested in is up substantially, bonds give negative returns versus inflation, and stocks are flat over a decade. I just don't know where capital should flow except to try to pick out undervalued, or to try to determine future overperforming, stocks or other equity instruments. My only other thought is real estate, either commercial or residential, but with the overhang still out there, I am not sure what its outlook is.

    I very well could be wrong in these thoughts. I would be open to anyone correcting me, or changing my opinion.

    Chris

    Chris
     
  18. Collector1966

    Collector1966 Senior Member

    You can think all you want about a stock, but it is all for naught if the company lies about its results, or engages in "creative bookkeeping", or dilutes its stock with more stock, or sells products or services that go out of style.

    As you said, things are different today. The SEC is pretty toothless when it comes to punishing companies that lie about their results. And the name of the investment game today is make the numbers at all costs, which is often to the long-term detriment of the company. To make the numbers in today's economy usually means laying off employees, or offshoring jobs, which hurts morale at the US operations and further weakens the US domestic economy. And CEO's and other executives who in earlier years would have been unceremoniously sacked for running a company into the ground are today given golden parachutes that reward them handsomely even if their company goes to pot.

    And this talk about "stocks" is meaningless if specifics aren't mentioned. The generic term "stocks" covers a wide spectrum of equities, ranging from so-called "blue chips" to OTC stocks that may be on their last legs. The "blue chips" are supposed to be the safest, but even they can crash and burn, as has been witnessed very recently with GM and Citigroup. Really, you cannot possibly predict what "stocks" are going to do over the next year, let alone the next 25 years, given what has happened in the past 10 years.
     
  19. Cloudsweeper99

    Cloudsweeper99 Treasure Hunter

    Nobody can "predict" what stocks [or gold] will do over the long run. In the 1990s there was talk of "Dow 40,000." Now there is talk of "Gold 10000." People never change. Anybody who believes GM and Citi were "blue chips" at any time over the past decade should stay out of the market. While it is true that some companies commit fraud, the vast majority don't, and it isn't difficult to tell the difference. Most of what you say about companies and CEOs is irrelevant to investing. Anybody who loads up on pink sheet stocks and those about to go out of business will get what they deserve from engaging in an activity for which they have no training or preparation. But for the average person willing to put in the time and effort, the stock market remains one of the best wealth creation vehicles around. Just because you can't do it doesn't mean everyone should stay away.
     
  20. fatima

    fatima Junior Member

    These are red herring arguments. Nobody here has suggested an investment plan that doesn't require a lot of thinking. Furthermore your simple contention that because stock as done XYZ over the last few decades vs whatever then keep buying stock, is exactly the type of thoughtless investing that you say you are against.

    You suggest that people should not expect things to stay the same for 50 years yet you then, amusingly, ignore this and tell us what stocks have done over decades past, as if that applies now. It doesn't. The stock market of today is a gambling machine which is 100% dependent upon how much money can be stolen from the public and handed over to the finance industry. Nothing more, nothing less. It's certainly not the stock market of times past where it was a vehicle to raise money for American Industry.
     
  21. Cloudsweeper99

    Cloudsweeper99 Treasure Hunter

    What you missed [several times now] is that even if the price of a stock fails to rise for a decade, it doesn't mean that the underlying business is standing still. Earnings and sales continue to grow for many businesses. So a stock that may have sold for 20 times earnings a decade ago may be 10 times earnings now. You look at the stock and see failure. I see opportunity. Studying what works in investing over long periods of tim [e.g., value investing techniques] is not thoughtless investing. It is the key to success. I agree that for you, buying common stocks is pure gambling because you don't understand what makes one company a good buy and another something to be avoided, and aren't willing to put in the work to learn. I see a variety of individual investors and professionals [who should know better] say that investing is harder now than in the past. They choose to forget that investing was, is, and always will be an activity that is always difficult and highly competitive. But your bias is to look at what exists today, become overwhelmed by the complexity, and imagine that during some distant past golden age things were easier. They are never easy for the lazy or those with preconceived ideas about the probability of success.
     
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