Gyroscopic Investing

Interesting piece on Fidelity.

https://www.fidelity.com/insights/marke ... its-luster

And just to show why it seems kind of pointless to even read these kinds of articles, here is one from Forbes.....

http://www.forbes.com/sites/greatspecul ... uy-gold/2/

Three words: no meaningful inflation.

Pointedstick wrote: Three words: no meaningful inflation.

Yes, we do seem to be in some sort of deflationary cycle we can't get out of. Jim Rogers says this happens about every 20 years. Don't know if he's right or not but he's been investing a lot longer than me.

FWIW, I just bought a bunch of gold today with a monthly contribution. As un-fun as it is to buy a falling asset, another way to frame it it that it's great fun to buy a cheap asset! It helped to be mechanical and zombie-like throughout the process to prevent my brain from convincing me to put it into an asset that's done great and is probably due for a correction.

Pointedstick wrote: Three words: no meaningful inflation.

It's funny how there has been this belief since at least 2008 that a serious inflationary spiral was about the start, even though no one could ever explain how it would sustain itself against a backdrop of stagnant wages and contracting credit.

Gold investors seem to have finally started to come around to the realization that deflation is a vastly greater risk than inflation, and that maybe the Fed was actually trying to fill up a lake with a garden hose, rather than spraying a fire hose into a bathtub.

I think there is certainly a bull case to be made for gold, but it's more nuanced than the narrative of the Fed devaluing the dollar through its efforts to reflate the economy.

Part of what we are seeing right now is the inevitable result of ever commodity boom--a commodity bust.  It should come as no surprise to anyone that higher commodity prices would trigger over-production of those commodities.  It's what happens in every commodity boom.  The good news is that 5-10 years (or more) of low oil prices starting now can be a catalyst for some serious economic growth.  Look at the 20 year period of low oil prices between 1982 and 2002 and the incredible economic growth that it facilitated.  Contrary to what many people are saying today, the world still runs on fossil fuels, and it runs really well on cheap fossil fuels.

Fred,

Good to see another Jim Rogers reader. 

Jim says he'll buy at $950 but it may be going a lot lower.  Jim and the Permanent Portfolio philosophy help me implement a strategy of doing nothing as often as possible.

Black Monday

Interesting that gold is down 0.43% on the day, as of 3:32 Eastern USA time. If it were "working as intended", it would be up. way up. VIX is hugely up, but gold is down. Safe haven or just another commodity, like oil and copper?

ochotona wrote: Black Monday

Interesting that gold is down 0.43% on the day, as of 3:32 Eastern USA time. If it were "working as intended", it would be up. way up. VIX is hugely up, but gold is down. Safe haven or just another commodity, like oil and copper?

"Near-zero correlation" doesn't mean that when A goes down, B goes up. It means that their fluctuations are independent of one another. So the fact that gold did almost nothing today while the stock market was plunging is perfectly understandable, because gold has almost a zero correlation with stocks.

Also, on looking at the original article, I can't believe they left out the most obvious one: that you can't eat it.

Libertarian666 wrote:

ochotona wrote: Black Monday

Interesting that gold is down 0.43% on the day, as of 3:32 Eastern USA time. If it were "working as intended", it would be up. way up. VIX is hugely up, but gold is down. Safe haven or just another commodity, like oil and copper?

"Near-zero correlation" doesn't mean that when A goes down, B goes up. It means that their fluctuations are independent of one another. So the fact that gold did almost nothing today while the stock market was plunging is perfectly understandable, because gold has almost a zero correlation with stocks.

This bears repeating. Too many people seem to think "uncorrelated" means "inversely correlated."

ochotona wrote: Black Monday

Interesting that gold is down 0.43% on the day, as of 3:32 Eastern USA time. If it were "working as intended", it would be up. way up. VIX is hugely up, but gold is down. Safe haven or just another commodity, like oil and copper?

Also, I don't think 'working as intended' would include same-day lockstep movement even if it were perfectly inversely correlated, which as has been pointed out, it isn't.

gold has not lost its shine , it never had one . 

the fact is gold has just been the worst place to put money for most of  our history .

175 bucks  in gold back in 1975 , which was golds value  is only worth 1088 today . 4.60% average  gain .  so for those who bring up the store of value aspect cash did a better job .

that same 175  dollars in

cash would be worth more at 1206.00 a 4.90% average gain . (1 month t-bills rolling over )

short term bonds 2151.00  6.40%

60/40 mix 18,555  12.20%

global stocks  63.995.00  15.70%


in reality you reach a point where you can lose so much money in an event and still not over come the damage done by holding gold and waiting for it to have its day in the sun .

even if the above numbers were off by 50% the damage done by holding gold waiting is huge .

for all we talk about cash losing ground it looks like t-bills beat gold as a place to put money .

rebalancing would apply  with the other assets used in a portfolio too making them better or worse .

rebalancing does not always make things better . it can cut short gains on assets with longer up trends and buy assets that have not swung around nor may swing around .

it is all variable by what happens over that time frame . rebalancing from equity's to gold the last 5 years would have hurt you as an example .

i have not researched he numbers but did see this reference .


Gold, pegged at $175 in 1975, has been by far the worst investment that most people would have seriously considered, made, and held on to for the last 4+ decades.  Its +4.6% annual returns are even worse than risk-free cash.  Rolling over 1-month T-bills returned +0.3% per year more than gold with a tiny fraction of the risk.  - See more at: http://www.servowealth.com/resources/ar ... dZFq6.dpuf

one  correction , i wrote per dollar in the above comparison , it is per 175 dollars which is the price gold was .  so actually 1 month treas . bills just rolled over  beat gold as an inflation hedge since 1975  .

Desert wrote: Hey, just for fun, and in honor of a former poster, I present to you the 50/50 stock/gold portfolio.  Since 1972, it has outperformed a 60/40 Boglehead portfolio with LESS volatility and smaller drawdowns. 

Note: it doesn't work nearly as well when you start in 1975, darnit. 

or the majority of most any other time frame .

Desert wrote: Hey, just for fun, and in honor of a former poster, I present to you the 50/50 stock/gold portfolio.  Since 1972, it has outperformed a 60/40 Boglehead portfolio with LESS volatility and smaller drawdowns. 

Note: it doesn't work nearly as well when you start in 1975, darnit. 

try instead of rolling in to gold in 1972 you rolled in to those 1 month t-bills,  is that better or worse ?

but the fact was in 1972 gold was not allowed to float freely yet so the price is really bogus in the scheme of things .

for all it's myths and legends it really ended up lagging the thing it is supposed to protect against  and that is cash depreciation  as it dropped the ball and  t-bills surpassed it as  a better investment  or insurance , call it as you like

historically  gold is the insurance that just about constantly cost more to buy  than what it is protecting .

when you figure out that if gold finally doubled or even tripled you are likely so far behind the curve that the assets you are trying to offset could lose more than 50% and still be way a head .

you can dream up all the circumstances you like with what if's but the fact is historically it is the worst place to put your money based on any reason to date with a few speed bump exceptions .

mathjak107 wrote: historically  gold is the insurance that just about constantly cost more to buy  than what it is protecting .

when you figure out that if gold finally doubled or even tripled you are likely so far behind the curve that the assets you are trying to offset could lose more than 50% and still be way a head .

you can dream up all the circumstances you like with what if's but the fact is historically it is the worst place to put your money based on any reason to date with a few speed bump exceptions .

And yet when you put gold into a portfolio like the PP, you are steadily harvesting gains in gold that occur either as a result of secular bull markets in gold OR simply because of the volatility of the asset.

Looking at gold in isolation in a PP discussion has never seemed that useful to me.

MediumTex wrote: And yet when you put gold into a portfolio like the PP, you are steadily harvesting gains in gold that occur either as a result of secular bull markets in gold OR simply because of the volatility of the asset.

I found that someone starting a PP before the 90s would have gotten 7% annualized return on gold sold -09.

If Matjak thinks about it ut should be reasonable this happens in the future also unless gold becomes worthless. Losing the gold is a bigger threat than losing money on gold.

AnotherSwede wrote:

MediumTex wrote: And yet when you put gold into a portfolio like the PP, you are steadily harvesting gains in gold that occur either as a result of secular bull markets in gold OR simply because of the volatility of the asset.

I found that someone starting a PP before the 90s would have gotten 7% annualized return on gold sold -09.

If Matjak thinks about it ut should be reasonable this happens in the future also unless gold becomes worthless. Losing the gold is a bigger threat than losing money on gold.

Some people are just not temperamentally suited to gold ownership, and those people should not use the PP.  It will drive them crazy, even if they get the returns they were expecting. 

I have found that no matter how it fits into a diversified portfolio, some people believe that owning any amount of gold at any time is a foolish speculative activity and no matter how much you try to explain the role that gold plays in this particular portfolio, they still have that voice in their head that says "But it's gold!".

we really don't know what role it is gold is supposed to play anymore  short of the remote chance of a total dollar collapse and even that is fuzzy .

it has been the worst so far at keeping us ahead of any inflation and was the all time laggard .  so we don't know what role it is protecting against because it sure isn't fear or inflation since just about any other asset did it better and left you with a bigger balance to counter inflation ,  even cash instruments . .

the biggest risk with gold is that few are ultimately going to sit with money in something that for decades goes no where  or has gone down  . eventually i would say most rationale folks throw the towel in and then lose even more money and worse valuable time not compounding that money elsewhere .

that is a big factor and i think most folks who owned gold  long term with little success at some point ended up dumping it anyway .

if i could bet i would say if gold falls or does nothing for another few years so many of those already complaining about gold will have given up on it

how many in 1975 would have sat 40 years with a dog like gold  not even beating a t-bill when other investments were soaring around them ? .

If you had bought in -75 you would've sold some in -79, and more -80.
Longest historic period is buying 1981 and not "being allowed" to sell until 2003. I agree that's a long time! Almost as long as japanese waiting for the stock market to recover. They're still waiting.

it sure is a long time . the reality is most are not going to wait decades for a profit that  even if it doubled would not likely  recover what was given up elsewhere .

mathjak107 wrote: how many in 1975 would have sat 40 years with a dog like gold  not even beating a t-bill when other investments were soaring around them ? .

If one's only goal is growth, then sure.  But the PP isn't a "growth" allocation, it's a defensive allocation, no?  Sure, it has provided modest gains, but it's more about not losing what you already have rather than making you rich.

I see gold as being part of my allocation to help protect me from losing my wealth in certain scenarios.  If those scenarios never play out?  Great -- the rest of my portfolio still has its value, and hopefully it has grown some as well.