Friday, August 20, 2010

Worth repeating and, yes, gold again

But first my comments

Two previous postings tried to put gold in perspective. “Gold: Be sure you know what you’ve hedged” (April 5) and “Gold again” (May 15) seemed to say all The Hedged Economist had to say about gold. But, “Gold again” mentioned relative performance of an example stock over the first half of 2010. Six months seemed relevant to the short-run interest that is characteristic of much of what is said about gold, although people seem to pick a period based on how well it supports their recommendation.

The article from which the excerpt below is taken provides comparisons for a variety of other periods. It also mentions some different example stocks. Thus, it lends some perspective. The perspective makes it worth repeating.

Is this some sort of recommendation? Not hardly. Recommendations are overrated. It is far better to have insight that allows one to make one’s own decisions. After all, one has to live with one’s decisions. Having someone to blame for mistakes doesn’t change that. If the reader wants recommendations, go to the source for the article, TechTicker (, but be forewarned; the article right before “Buying Gold is a Mistake” encourages gold purchases. Such are recommendations. Better one should just be sure one knows why one owns or doesn’t own gold. In “Gold: Be sure you know what you’ve hedged” you’ll find the only reason that will make sense over time.

Buying Gold Is a Mistake -- Stocks Offer Better Returns, James Altucher Says
Posted Aug 19, 2010 02:24pm EDT by Peter Gorenstein in Investing, Recession
Related: gld, gdx, gold, fcx, jnj, pg, mcd. SOURCE;
Through the tumult of the last two years, few assets have held up better than gold. That, however, is no reason to buy the shiny metal, says James Altucher.
"It's had its run because we've had enormous fear in the market," says the Formula Capital founder in this clip. "Whenever there's such huge investment uncertainty, like we've had for the past decade, gold is going to go up."
It sure has.
Gold has increased five-fold in the last decade and currently trades for more than $1,200 an ounce. But, compared with stocks, gold is a laggard, he writes in a recent Wall Street Journal column:
"Gold reached its peak in 1980 when it reached $800 an ounce, which is $2,000 in today's dollars. So in real terms, gold has lost about 40% of its value since 1980. In the meantime, the stock market has gone up about 500% in real terms.
"Some other time frames for comparison: From 1975 (post the U.S. getting off the gold standard) to now, gold is up 500%. The Dow is up 900%. Gold was worth about $20 an ounce in 1800. Since then it's averaged a 2% gross return. Subtract out the costs of mining and storing gold, and what you have is basically a worthless rock that has a net negative return as an investment."
Besides, "gold will never write you a check," he says, comparing gold to dividend-yielding stocks. Altucher would much rather buy stocks that "consistently grow earnings and dividends over time." Not only will stocks like McDonald's, Procter & Gamble and Johnson & Johnson pay a dividend, they, like gold, act as a hedge on the U.S. dollar, thanks to their large and growing international businesses.

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