Why most people buy PMs for the wrong reasons...

I think it's fair to say that the most common reason given for buying PMs is a fear that "the dollar is worthless" or something along those lines. The problem is that this notion is generally incorrect. PMs do one thing: store value relative to buying power. The problem is that they cost money to acquire, store, and liquidate.

If you're looking for an investment that will protect you in times of hyperinflation, your best bet is the same as in times of normal inflationary environments: securities ("stocks").

Yes, stocks have volatility. This is why you maintain a cash reserve to pull from in case of emergencies or opportunities. However, over the long run, stocks consistently prove to yield the greatest returns. Why? The main reason is that stocks take full advantage of technological innovations. Other reasons include favorable tax status when you liquidate.

To those who claim PMs are the solution to counter hyperinflation, history tells a totally different story. Commodities maintain (due to consumption keeping pace with extraction) or lose (due to innovation improving extraction) value when adjusted for inflation. Yes, there will be pockets where the markets get manipulated through supply restrictions, but the overall trend will be flat relative to inflation.

In contrast, stocks grow relative to the rates of inflation, even during hyperinflation.



As you can see in the above chart, the German stock market kept pace with the US dollar, even in the face of hyperinflationary headwinds. Yes, you would have lost a lot during the initial panic (run on banks) if you sold, but this corrected itself within a year's time.

Of course, if you had to sell during that year, you'd be broke, so PMs have some value as a portion of your cash reserves, but, with the exception of speculation, they have no real place in a portfolio built for long-term investing.

 

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Oh jeez, bt*d? Go with what you know... Any charts that track the German Mark and Markets thru 1945? (lol)

 

Try explaining this to Enron stockholders

 

The Enron stockholders that got really burned were the employees compensated partially by restricted shares they could not sell.

The way for an average investor to avoid an Enron-type wipeout -- which is relatively rare among public companies -- is diversification.

 

I buy PM's that are pretty!

Chris

4.55 ozs. .999+

 

That's arguing from a point of absurdity. I could equally argue "Tulips" as a failure of commodity investing. Or I could equivalently say "Try explaining that to those who owned aluminum at the start of 1886."
The entire point of this thread was that a broad investment in securities will outperform holding your money in PMs over nearly all non-hand-picked periods of time.

 

Hehe - "generally considered the first recorded speculative bubble" ...
https://en.wikipedia.org/wiki/Tulip_mania

 

In normal times I wouldn't argue against the OP's point but these are not normal times. Price discovery has been destroyed via QE, ZIRP, NIRP and God knows what else. ("Knowing the price of everything and the value of nothing" Where's your market price entry point? Cross your fingers and hope!) Central Banks overseas are even purchasing equities outright and Yellen has suggested at some point, ours might as well! The only way to acquire the needed information to invest in these markets is to have a full and impartial audit of the Federal Reserve. Anything less, means participants are speculators, not investors.

None of these "shenanigans" has led to a real "economy" recovery but I can't imagine they're going to stop trying until they have no other choice. That will be my entry point. When they stop fixing prices and let the markets discover price/value and I'm betting my PMs will have retained more purchasing power at that point than dollars.

“This is not going to be any news, Jim Grant is bullish on gold. The degree I would characterize as ‘very’. I would characterize gold not so much as a hedge against monetary disorder, but as an investment in it. People will say well that’s a hedge against armageddon, no, armageddon doesnt’ happen mostly, but what we are in the midst of is monetary shenanigans, and I see no real chance of there being fewer of them, and a great chance there will be more of them.“ - James Grant

 

Let's see what happens when the central banks run out of options, which is not so very far in the future.

 

Yes, diversification is the key to prevent wipeout. My comment was facetious.

I didn't say I disagreed with you.

 

If only given the option to invest in either stocks or precious metals, I would choose stocks, but I do have distrust and hate the corruption. Do you think it is fair that CEO's or CFO's get bonuses of 10's of millions of dollars? (Note this is bonus, not salary) Who do you think is ultimately paying for those bonuses? They also spend tons of money on "expenses". Sorry but I'm not going to contribute to some greedy executive's lobster and wine lunch. And we're not even getting into share price manipulation through creative accounting. This could benefit the shareholder in a short-medium term, but if you're invested for the long term you could be unknowingly putting your money into a rotten basket.

Precious metal market isn't without manipulation though either. For starters, who the hell is to say what something should cost for everyone? A metal might be more valuable in one part of the world for someone than it is for someone elsewhere.

Personally, I would rather invest on my own and into something that has rarity value (like coins ). If you can couple that with something like precious metal or that has a set face value I think it's something that is relatively safe while not sacrificing much upside. And when it's something you enjoy doing then what else is there to think about . That's just my opinion.

EDIT: Just want to add that stock investing through a 401k is solid when the employer contributes (match or partial match an employee's contribution). Free money and deferred taxes = growth.

 

"PMs" what are they?

 

I wasn't sure at first but I believe they're referring to precious metals, since this is in the bullion thread.

 

Well said. I don't think I really "buy" bullion So much as convert some of my dollars into it. The fact that it isn't instantly liquid is a plus for me, less chance of spending it. Last winter when silver hit the low $14's, I got a few thousand ounces to sit on. If I wanted, I could convert it back to dollars and enjoy a nice little profit. Sounds like a good (here it comes... the dreaded "i" word..) investment to me.

 

The key to investment growth is ''asset allocation'' of which diversification and Ag/Au are a part of that strategy.
An 1oz St Gauden in 1930 would have bought you a nice suit, haircut and dinner for the whole family.
It will still do the same today. A dollar back then would also get you a very good meal. What would a buck get you today?
When people fled nazi germany and more recent communist regimes, they did not buy their way to freedom with stock certificates but with physical GOLD!
Nevertheless, keep a balanced approach not only to investing, but to life.

 

That is correct.

 

Although PMs have a place in an investment portfolio, I consider them to be perhaps the most speculative. So they should only be a small portion of any portfolio IMO.

What's that portion? Some say 5 percent, others say 10 percent. Some go with 20 percent. I suppose that's determined by one's willingness for risk and his analysis of the risk-reward ratio. Every investor will differ - and many different strategies can be successful over a given time period.

If it was as easy as connect the dots, we'd all be rich.

 

I always buy low and then sell high.

I have seen a multitude of folks do the opposite.

 

Quality mutual funds and quality real estate have done well for me, despite the up and down economy...diversification, and long term investments are the key, not short term get rich ventures which are extremely volatile. Coins are only a hobby to me, but, if you can make your profit up front, they also may be a sound investment over time. Now that I,m retired, I won,t have enough years left for long term investing, so coins give me an occasional profit. A young investor should put away a portion of their income for the long term. By the way, now that I,ve reached the so called golden years, long term doesn,t seem long any more.

 

That's the truth. Get all you can -- in investment returns and savings -- while you're still young.