Why should I invest in Gold coins?

The stock in question has two values at the time you mention. I will restrict this to common stock. Common stock in your healthy company will first have a "par value". This represents your only claim on the assets of the company and it is carried on the firm's balance sheet. Normally the par value is set to $1 or less. The stock will also have a "market value". This is the worth of the stock on the stock market. Generally the market value is much higher than the par value.

Outside of a bankruptcy, the intrinsic value of the stock is its par value. So $1.

 

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I'm not sure most people on PM boards care about past (or even future) performance of the stock market. Once you get into the mindset that all paper money is about to soon become worthless, then I think (?) that even stocks are treated with the same suspicion.

In some bizarre post-apocalyptic world (financial, or otherwise), you can't buy canned goods or water with stock certificates, so once into that mindset, there's almost no other investment that's worth considering besides G&S......but personally, I tend to agree with your thinking on the valuations of stocks vs. PM right now.....

 

Sorry but that is completely wrong. A par value is NOT the only claim of stock on a firm, absent any higher claim, (like debt), the stock has a TOTAL claim on the firm. Common stock is legally the residual claim, but absent higher claims, it is the ONLY claim. There IS NO other owner but the stock holder, so by definition the stock holders own EVERYTHING. Par is completely and utterly irrelevant, so much so it is never even mentioned by investment professionals. It is an archaic relic useless in today's business.

Ok, now knowing that the stock is the only ownership of this company, what is the value of it?

 

That is absolutely incorrect - Par Value is nothing more than a promise by the issuing Company that no share will be issued for an amount lower than the stated par value.

 

And a lot of common stock today is issued with no par value.

 

You guys are getting upset to a question which has no correct answer. I tried to give one as it relates to this topic in that does stock have intrinsic value like gold? Answer NO. I've It has none for the simple fact that common stock isn't non-negotiable as demonstrated by the bankruptcy laws. A single stroke of a judge's pin, and the stock has no value but the company can go on. I've quoted the relevant SEC statement to this effect. ANY investment that can be zeroed out simply by moving a pen on paper has no intrinsic value. Intrinsic value is absolute. It's either there or isn't.

Note that gold does not have this issue which is what this entire topic is about. No judge can declare you gold worth $0. No inept management can make your gold worth 0$. No lax regulation can make your gold go to $0. That is, if you were sensible enough to purchase coins or bullion and take physical control of it. Promises to hold your gold have the same intrinsic value as that of stock, $0.

 

But no judge can declare the stock in the example I cited as having zero money. Only if there are other creditors can the common stock be worth nothing, since there ARE ASSETS, (I listed them at $30 million) and listed no other creditors.

This is 5 posts now where you refuse to answer and simply argue points that are irrelevant. The original question was not even posed to you, it was posed to help Inflexion understand stock values. Sorry, but I am simply done even discussing this point, or trying to help you understand. You do not wish to have a conversation, but to simply argue details that are irrelevant.

Inflexion, if you wish to answer, (or anyone else on this board besides Fatima who thinks stocks are valueless), I would be happy to discuss this. The premise is:

Silver miner, $30 million in fixed assets, profit of $10 million per year, 1 million shares outstanding. What value per share would you assign to this company? Do you believe the stock has no innate value?

 

Of course the silver mine has an intrinsic value based on the assets and income stream. The amazing thing is that this is beyond fatima's comprehension! LOL. What fatima might be missing here is that bankruptcy is a legal procedure for determining ownership of the assets and the business. It doesn't mean the business or assets have no value. It's the same for gold. You can lose your gold in a bankruptcy or divorce or due to theft, and the intrinsic value to you will be zero -- but not to the new owner -- the same as common stock.

 

That is fair Woody, and I agree many do not trust stocks any longer. The point about a post apocalypto world, though while fair that maybe some believe that, bears examining. If the stuff really does hit the fan, why would anyone want any metal that was not a gun or bullets?

Gold is an excellent contra asset to help smooth out returns of other assets. It has done this the last few years. Its also an excellent store of value. It could also be a good investment if you are expecting prolonged inflation or a currency shock in the nation you live in. In a healthy economy or a post apocolyptic world, its a poor investment. Most of us here invest in gold and/or PM as either a hedge to other assets, or with the expectation of inflation. If those are your goals then I think its a great investment. If its for an expected doomsday, I would suggest rifles, ammo, and vegetable seeds living on an acreage away from civilization. I am not making fun of such thoughts, just clarifying what would be valuable. However, if you think only YOUR country is going to heck, a stash of gold could help you move to soemwhere better. That also has been a historical use of gold, to let people leave France in WWII and get to Switzerland, etc.

 

IMO major advantages of owning pm coins are:

1. They are a hard asset, (what you have cannot be easily created with a press of a button unlike the Fed budget for instance) .
2. Easy to sell/trade in internet or at LCS/pawn shops etc.
3. No/Low maintenance costs.
4. Does not depreciate over time.
5. Good hedge against any depreciation in currency value.

 

IMO, the advantages of owning common stock are:

1. It represents fractional ownership in a business that may be difficult to duplicate, like Exxon or Coke.
2. Easy to sell or trade on the internet.
3. Low maintenance costs.
4. May appreciate over time faster than the rate of inflation.
5. Is a good hedge against currency devaluation.
6. Receive favorable tax treatment upon sale, gift or inheritance.
7. Can throw off a rising income stream.

 

Then your hypothetical example is irrelevant. You absolutely were referring to "Intrinsic Value" and I gave you the reason why common stock, as governed in the USA, has no intrinsic value. Intrinsic value is a property of something and is absolute. It either has intrinsic value or it doesn't. Intrinsic value has nothing to do with "stock value" which you tried to switch the argument to once this fact was pointed out.

Any company can go into bankruptcy. It's a perfectly legal strategy for reorganizing a company to meet it's obligations. Since you made up a hypothetical company and now demand that we address the "intrinsic value" of the stock, then you first have to present a balance sheet that defines this value. (assuming common stock) This is something you haven't done, so the argument simply becomes religious in nature.

 

Air ball!

 

Once again i think you demonstrate your lack of real trading experiance, that makes no sense what so ever if currency devalues stocks are going to get hit hard since the cash and assets in hand also decline. Just look at Sensex (indian companies like Tata beat estimates) and European stocks which have been badly clobbered as their respective currencies have devalued.

 

You are assuming a lot. What makes you think the firms he is talking about is purely denominated in one currency? What makes you think they are isolated to one geography? I simply do not see anything in Cloud's post "demonstrating his lack of real trading experience". The two examples he cited are excellent examples of his position that they can hedge versus currency devaluation. Companies are only at risk of a currency devaluation if all of their income is from a certain currency and you hold a different currency. Other than that, then stocks can be a hedge. He never said a perfect hedge.

Chris

Edit: IMO both of you were right, so therefor were, (combined), showing the value of not holding only one or the other.

 

Because he mentioned common stocks i assuming publicly traded DoW30 companies since that's what he was emphasizing people must trade in previous pages. All those companies will get hit in case of currency de-valuation of course there are ways to hedge against that but it is not as simple as the way he seemed to put it buy publicly traded stock and be protected against currency devaluation.

Be side he seems to be trolling the discussion is regarding gold coins not various ways to play the market. Heck i do trade in Forex but i am not here talking about it am i .

 

I had hoped that providing the definition of the word "intrinsic" would clear things up. I never said stocks have no value, but if you put the word "intrinsic" in there it changes the entire meaning of the sentence. I agree that the value of stocks is there, obviously that is indisputable. Where I disagree is that the value is intrinsic to the nature of the stock. If stocks had intrinsic value then their value would not depend on the company they represent. Instead, the value would depend on what the stock itself consists of from a physical standpoint. If stocks have intrinsic value, then so do FRN's, so do bonds, and so do silver certificates that nobody would pay you the price of silver that they claim to represent. I don't understand why there's so much blowback on this. Take the word "intrinsic" away and I have no disagreement about any of this.

 

Inflexion. The bankruptcy example clearly settles the issue of intrinsic value. Stock can be made worthless during a bankruptcy. Gold bullion can't be made worthless. Hence stocks have no intrinsic value and gold does. The other arguments, as you have said, are nothing but distractions from that.

Gold is the hedge against the paper system because it removes your wealth from the paper system. Stocks are part of the paper system and by definition, can't have intrinsic value. This is why one holds gold coins. It has many many advantages over paper for that reason alone.

 

Inflexion, does the company I described have an intrinsic value? If you owned the whole company, would it intrinsically be worth anything? That is what it boils down to. I agree that higher worth above its asset value would not be intrinsic, but ownership percent does not matter. Just think, if you owned the whole company, (or 100% or the stock, same thing), is it intrinsically valuable? The land, the equipment, everything?

 

Well this sort of makes your OP a complete contradiction at the start. As it utilizes the performance of leveraged paper measured in terms of paper dollars over a specific period of time to produce a return for a physical commodity.

Gold is currently trading at $1606.10 per ounce. The intrinsic value of $1.00 equals zero. $1606.10 times zero equals zero. Therefore the intrinsic value of 1 ounce of gold equals zero.