Stocks vs. Precious Metals vs. Bonds vs. Real Estate

Shelby wrote:...I think it is instructive to view a stock promoter's performance on all his/her picks, not just while he/she held them but what they did after he/she sold them. A good performing (low risk, high reward) pick would be one that continues to significantly outgrow inflation even after sold by the promoter, not one with a stock price that returns to below the price the promoter initially recommended buying. And this is the metric by which I will judge any person who promotes stocks. I think it will be very sobering for me.

...gambler's fallacy is the mistaken notion that the odds for something with a fixed probability increase or decrease depending upon recent occurrences...

Shelby wrote:Watch the video, and keep your eye on the ball, if you can:

http://www.free4him.org/dougblog/?p=306#more-306

The ties into my prior 2 posts in this thread.

Btw, I failed the test, because I let my emotions get involved, as you will see. Maybe also because I only have vision in 1 eye.

I think this explains why people missed this credit implosion, and continue to miss how much worse it will get.

Thanks to Jeremy for posting this to the Hommel forum, wish he had posted in this forum as well.

I programmed that rule automatically into http://Miningpedia.com, but the problem is that our projections may be wildly inaccurate in either direction. The more stable the business, then usually the lower the standard deviation of the forecast, but also usually the higher the P/E ratio and thus already fully valued and perhaps only keeps up with inflation in the case of Coca-Cola example:

https://goldwetrust.forumotion.com/general-f1/stocks-vs-precious-metals-vs-bonds-vs-real-estate-t11.htm#17

So again I maintain as in the linked post above, we rarely beat the market, and we do not get ahead in stock market, we just ride the population growth rate and inflation. Only investors who buy based on inside or intimate knowledge of a business, typically do better over the long-haul, e.g. Warren Buffet.

Face it, we are mostly just speculators, gambling with the money we made from our brow in real work.

Btw, I assert it is this reality of risk, and hard work it takes to invest to be better than average, that drives so many people to bonds (usury), which is what drives a paper fiat economy via credit and eventually into the ground every 100 years or so. There have been 100s of paper fiat currencies, and they all ended up at their intrinsic value of zero after usually much less than a few decades. This is a sad fact of reality of the way economics works and some people even have a religious slant on that (but let's not go there as that is not focus of this forum).

..Wells Fargo & Co., Berkshire's No. 2 investment...

...investigate whether some government officials who formerly worked at Goldman let their "relationships" cloud their judgment during the merger of Wells Fargo and Wachovia...

...Specifically, Grassley is concerned about a tax code change that paved the way for the acquisition of Wachovia by Wells Fargo...

...American Express Co., the credit-card company that is one of Berkshire's top 10 stock holdings..

...$37 billion bet on world equity values more than a decade from now. Buffett sold contracts to undisclosed counterparties for $4.85 billion protecting the buyers against declines in four stock indexes including the S&P 500.

Under the agreements, Berkshire will pay as much as $37 billion if, on specific dates beginning in 2019, the indexes are below the point where they were when he made the agreements...

...The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, has more than tripled in two months.

The swaps jumped to 475 basis points today from 129 points two months ago, according to CMA Datavision. That translates to $475,000 a year to protect $10 million for five years...

Jim Willie - 'Golden Jackass' wrote:...A VERY QUEER ANOMALY

We are working toward a nasty climax of historic proportions. Notice that the US Treasury Bill has an artificially high price, with staggering huge volume, which is backwards. This condition defies Mother Economic Nature. Notice that gold has an artificially low price on the paper contracts, with staggering huge demand for physical metal, which is also backwards. This condition defies Mother Economic Nature.

The US Treasurys, given the staggering high volume, should be valued lower. The gold bullion, with its staggering high demand, should be valued higher. Something must break, and break soon. Regard these two anomalies as temporary distress symptoms of ass-backward price mechanisms. The natural tendencies of man, full of human emotions like vengeance and retribution, will soon be unleashed to correct the PHONY HIGH USTBILL PRICE AND PHONY LOW GOLD PRICE. All kinds of key evidence points to a COMEX default in December, discussed in the November Gold & Currency Report. The keys are in the Open Interest, which for gold is collapsing. But the December OI is holding up at relatively high levels. The interpretation from Mr Market, who is a distant cousin of Mother Economic Nature, is “The paper gold market is flawed, and people want no part of it. What physical gold becomes available is being grabbed immediately.”...

Shelby wrote:....So the more important question is what does the world demand next?

In my view, the world (including China & Russia) will resist a hard money (e.g. gold & silver) standard for as long as possible, as it is not in any one's interest. And thus there will be a dearth of hard assets (resources), by the time the world finally goes kicking and screaming to hard capital money.

So the relevant question is not inflation or deflation, as these are relative terms that can never have precise meanings when on a rubberband credit system.

The relevant question is, how far will the world go in malinvestment before it returns to hard money?

The longer the delay, the more astronomical the value of hard assets will be in the end. And thus the more dangerous it will be to hold/own them...

Shelby wrote:....The big question is how long does it take to occur.

The hyperinflation will manifest as soon as the world's bond holders become aware that they are being debased at double-digit negative real interest rates (see the money base inflation chart above, note M3 inflation is still in double digits as well). It seems that bond holders are currently focused on the imploding credit, not on the money supply. It is going to be whiplash in the bond markets sometime in 2009 or 2010. Then all hell will break lose...

...Jimmy Rogers states, "I'm now selling long-term U.S. government bonds short. That's the last bubble I can find in the U.S. I cannot imagine why anybody would give money to the U.S. government for 30 years for less than a 4% yield. I certainly wouldn't. There are going to be gigantic amounts of bonds coming to the market, and inflation will be coming back."...

> remember i ask you about my friends stocks? i guess she want to get out
> from that stocks and get a better one...i told her that you will
> tell me or you to buy silver coins and keep it....should i tell her
> that???

...On gold, I said it would rise, as it has. I had the timing accurate. I said EVERYONE will be talking, and buying, gold. Then it will drop, bottoming in June 2010…a higher bottom. Around $550 to $650. Then will begin an erratic rise, that will become steeper and accelerated from 2011 till peaking in 2013. That will be the point of global depression, marked by inflation here, and deflation abroad…the opposite of the Great Depression. In 2013 will be the start of a 3 year world war. Again…all these were said in 1999. Also, I stated that people that are jumping into gold en-masse would lose their shorts. And when it becomes time to really take the plunge; no one will listen. Much like in 1976, June, when I said that gold would go to $300 to $400 for certain, maybe even $500 to $600. It was $120 at that time, and 20 major publications came out saying that gold was dead...

Shelby wrote:I have this theory that the stock market basically exists to lets a small group of insiders cash out quickly the lifetime POTENTIAL value of the future company profit, leaving the stockholders holding the bag for all the years or decades of risk and opportunity cost. Thus I think the long-term hold strategy does not pay...

...One way to see through the smoke is to realize that what Buffett buys has no bearing on you. Certainly, Buffett is great value investor. But once you understand a few things, you might not be that impressed by him. You see, Buffett invests in businesses that generate large cash flows. This provides Berkshire Hathaway with cash on-hand to take advantage of buying opportunities. Every time his favorite stocks go down he buys more, lowering the cost basis. But he doesn’t buy risky stocks. He doesn’t need to. He buys well-known, conservative blue chips. He doesn’t know how to use market timing strategies. He doesn’t need to (although he would be a much better investor). He just buys more of his favorite gems when they decline in price.

Buffett might buy Johnson & Johnson at $70. You might follow his lead and buy some for yourself. But what happens when the stock falls to $35? Buffett will be able to buy enough to lower his cost basis to $36 if he wants. You can’t do that. Even if you had enough cash to do it, it’s unlikely you would because you hadn’t prepared for that possibility in advance.

The insurance industry is one of the best cash flow machines in the world. Now you know why Berkshire owns Geico. This cost-basis lowering approach is similar to that used by large mutual funds and pensions. Similar to Buffett, they also focus on buying large, conservative companies. Mutual fund managers aren’t able to get out of the market during sell-offs. In other words, they really don’t have any ways to reduce market risk. Instead, they use their continuous supply of cash to lower the cost basis of their holdings. During a bull market anyone can do well using that strategy. All it takes is a large pool of cash, some common sense and a conservative approach. The only problem is this strategy can be disastrous during bear markets because their supply of cash declines because investors tend sell.

Buffett also gets exclusive investment deals. Instead of buying a stock, he might purchase the convertible bonds with warrants. This is usually a much better deal than a direct purchase of the common stock. It certainly has less risk. Or he might pay below-market rates for securities. These transactions are done privately or out of the market, shielding these opportunities from individual investors.

Buffett also buys entire companies or takes controlling interests so he can influence managerial decisions. That makes Buffett an active investor because he has direct control over the companies he invests in. We can’t do that. We are passive investors. Therefore, it’s critical for us to actively manage our securities positions. One of the best ways to do that is to reduce market risk by selling in the early stages of a bear market.

Finally, what Buffett invests in might not be suitable for you or me because our investment objectives, horizons and financial resources are different. If you had an infinite investment horizon and hundreds of businesses that generated huge cash flows, you’d probably deliver nice returns if you were offered exclusive deals and used dollar-cost averaging for a portfolio of safe stocks like Coca-Cola, Procter & Gamble and Johnson & Johnson.

All of these considerations aside, let’s concede that Buffett is a great value investor. But he’s not so good at tech investing, derivatives, foreign currencies, emerging markets. And his investment management skills are limited to diversification and lowering the cost basis of his positions. He certainly doesn’t have expertise in shorting or market timing techniques. But remember, he doesn’t have to.

In all fairness, Buffett is very good at distressed securities analysis. Most important, he knows what he does not know and (usually) stays away from uncertainty. But even Buffett has made some big investment mistakes, as history shows. He’s only human after all. But there is one very valuable thing to learn from Buffett. Stick with what you’re good at and don’t wander into territories you’re less knowledgeable in. If you’re able to do that, you’ll have many more winners than losers over time. This approach will help you develop consistency – one of the keys to investment success.

If you have confidence in Buffett, just buy Berkshire Hathaway, plain and simple. I have no interest in Berkshire for a very good reason. It’s a value fund but it doesn’t distribute cash dividends. This violates one of the basic tenants of investing...

> What is your opinion on investing in gold & silver stocks at this point?
>
...
>
> Will shares of metal stocks hold up during the coming mayhem?
>
> Just trying to figure out what to do besides buying physical.

Shelby wrote:...As for timing, I think later this year comes another downleg in the stock market, and I think the mining shares will not be entirely immune, especially to the degree they have been run up exponentially before them. The time to buy mining stocks was the same time to buy silver, late last year at $9. If you bought the AGQ then, you would be up 155% (2.5x value).

...buy and hold a basket of Gold mining stocks or buy a Gold stock mutual fund or ETF (like GDX). There's only one catch, and it's a minor one: you should wait until the price comes down from current lofty levels...

...this chart, it utterly shatters the popular notion among traders today that a stock bear can't end until we see 7x earnings. While a secular bear won't end until such low valuations are seen, cyclical bears can end regardless of where valuations happen to be because valuations are not what drive these cyclical moves within secular trends...

Shelby wrote:About gambling vs speculation, there is no mathematical distinction in these paper markets. And the inability to know this, is what suckers in many sheep for the slaughter by Wall street.

I will attempt to explain to you mathematically why any one who bets on Wall Street, is a loser in the long-run to the casino house.

In Las Vegas, the variables of a card game are deterministic (they were before they moved to multiple decks, shuffling the cards before each hand, etc), and if you were smart enough to count all the cards, then you were banned from the casino. Ditto on Wall street, if you are somehow able to count the probabilities (Martin Armstrong?), then you will be defeated in some other way (e.g. a planned take down at some point). But more salient, it is nearly impossible for you to count the probabilities in these markets, because the world is a very complex and random house.

There are those who think they have a formula, and they consistently are making say 20 - 40% per annum gains at this time. The problem with that is that the fiat is being debased at about the same rate, so they are not getting ahead. And worse, when the moment of truth comes, they won't be holding physical gold, and they will lose everything by decree, as will everyone else invested in the paper casino.

No I am sorry, nature will not reward you for the production of speculating on paper. And if we had time to do a thorough research paper on this, I could prove this to you mathematically.

You are chasing folklore, just as the banksters want you to do. You do not understand what Buffet knows, which is only income from production and compounding, will truely amass wealth. He started as a newspaper boy and he does not invest in speculations. Unfortunately most are not smart enough to understand this.

Shelby wrote:Sorry for triple post, I do care about the gold bugs, and I urge them to study and think about the Gambler's Fallacy:

https://goldwetrust.forumotion.com/economics-f4/stocks-vs-precious-metals-vs-bonds-vs-real-estate-t11-15.htm#2967

And to consider what I wrote above. All the traders are capturing mathematically over the long-run is the debasement of the fiat. You do not earn real money (gold), by speculating in the paper casino (over the long-run, you might have a good year, then a bad year). If you can find one speculator with a consistent return above the true monetary inflation over many decades, then I will eat my words. I am not referring to speculations on real estate and hard assets (e.g. Doug Casey), those are investments. For example, if I can buy prime land near a city of 2 million people in Asia for $500 per acre, then that is not gambling. It is a fact of nature, that the land values much go up here.

Shelby wrote:However if someone was buying copper right now, I would call that gambling, because it is dependent on China's bubble continuing. What I meant to write, is that buying highly undervalued tangible assets for the long-term holding, is not a speculation. Silver would be a prime example. But you must have a long-term view. Ditto gold. Ditto land in an overpopulated asian country that does not yet allow foreigners to buy land (if you are wise enough as to how to lock up this land).

Shelby wrote:Herb, the price of precious metals may dip (even severely), but the top of this secular bull market in PMs will not occur until the REAL interest rates are positive, which won't be until after the western economies implode:

http://www.marketoracle.co.uk/Article20327.html#comment94202

Go out into the street and do a survey of how many people own PHYSICAL gold and for that matter SILVER, and you find that less than 1 in 1000 own physical gold bullion and less than 1 in 10,000 own physical silver bullion. People own jewelry but in insignificant quantities relative to their networth.