The GOLD scream room

[ochotona]

Sorry Cortopassi, I know how you feel...
I wonder if there is another asset that has performed as poorly in the entire world over that timeframe.
Not a joke!

Since the 2011 gold peak, oilfield services has done worse (look at XES, it peaked mid-2014). Yeah, I work in oilfield services. It's all commodities and metals, really.

[buddtholomew]

Sorry Cortopassi, I know how you feel...
I wonder if there is another asset that has performed as poorly in the entire world over that timeframe.
Not a joke!

Since the 2011 gold peak, oilfield services has done worse (look at XES, it peaked mid-2014). Yeah, I work in oilfield services. It's all commodities and metals, really.

I’m sure GDX and GDXJ are in the same boat as well.
Question is whether anyone in their right mind would hold XES, GDX or GDXJ at 25% of their portfolio?

Also, all this negativity towards gold I suppose is a signal to some that we have reached the bottom. Only thing is, like Corto, I’ve heard this “back up the truck” dogma countless times before. Maybe you will be luckier than I have been.

I’m not selling and will TLH to offset short-term gains in SCV....again.

[sophie]

I wonder if there is another asset that has performed as poorly in the entire world over that timeframe.
Not a joke!

Not that SPECIFIC timeframe, but the answer to your question is: stocks!!!

In October 1965, the DJIA was 7,668. After that stocks slid until the nadir in August 1982, when it was 2,320. That's a 17 year losing streak, with a loss of almost 70% in that time. OUCH. And oh by the way that's nominal. Real losses would have been much worse.

The next time the DJIA got to the 1965 value was July 1995. That's 30 years of flat stocks, with returns no more than the dividends (~2% at best).

Lest you think that was a one-time thing, stocks did it again in our investing lifetimes. The DJIA in January 2000 was 16,301. The next time that level was reached was May 2013. That's 13 years of stocks returning no more than dividends.

And then there's the first half of the 20th century. Except for the bubblicious peak of 5,056 in 1929, the DJIA wallowed starting from its prior peak of 2,421 in 1915 until it finally regained that level (2,467) in February 1951. That's 36 years of flat stock performance.

All these events occurred for different reasons, which (IMHO) makes the phenomenon a fairly robust one that is likely to recur. So does 7 years of crappy gold performance look so bad, really? Or, do you think there are fundamental reasons why scenarios like the above can't happen again?

This is what makes me nervous about PP variants like the Golden Butterfly that are stock-heavy and backtest well because of what the stock market has been doing since 1982. I've been plenty tempted by it myself, but considerations like the above keep stopping me.

[Cortopassi]

Very good points, Sophie!

[Cortopassi]

Sophie, one point was brought up by a friend... Dow Jones, yes, nowhere from 1965 to 1982. S&P500, though, was significantly better, see the data below.

I think most all of us in the PP would invest in a wider S&P type fund, vs. a fund of just 30 stocks.

[buddtholomew]

That must surely change your perspective Sophie...

[sophie]

Point taken. Historic DJIA data was just easier to come by than S&P 500. I did find a source reporting one data point per year (Jan 1), which is probably good enough. Not quite as spectacularly bad as the DJIA, but it still shows some pretty impressive losing/flat periods.

Also let me just say...it's so easy to cherry pick indexes, stock mixes etc when you're backtesting, but that's not something you get to do for your portfolio - if portfolio A doesn't work out, you can switch to portfolio B going forward but unless you've got Hermione's Time Turner you don't get do-overs in real-life investing.

S&P 500 on Jan 1, 1966: 93.32
S&P 500 on Jan 1, 1982: 117.32, an increase of 20% total over 17 years, not counting dividends. Computing CAGR is left as an exercise for the reader.

S&P 500 on Jan 1, 2000: 1,425.59
S&P 500 on Jan 1, 2013: 1,480.14 (it was less than 1,425 in all the intervening years). That's flat for 13 years.

S&P 500 on Jan 1, 1916: 9.33
The next time the S&P 500 was over 10.0 for 3 years in a row and stayed at that level (i.e. ignoring the 1929 bubble) was 1936. That's 20 years.

So back to Budd's point...gold can certainly act like this too. Not just the recent slide but consider gold's losses 1980-2000. And, we may be in for something like this with bonds. So guess what - we all own stocks AND gold, knowing full well what can happen with each of them. Right??

[Cortopassi]

Sophie, you know better than anyone that so much of this is psychology. "New record highs" are, and have been, touted so often on the news, and drops explained away with having isolated specific reasons, it leaves one with the fear of missing out. There is never a time to not be in the markets, according to 98% of any financial reporter and analysts, because it is their job to keep you in. Earning estimates get tweaked quietly along the way so companies rarely do not beat estimates. And so on.

You don't hear about the S&P dead period between 2000 and 2013. All you hear about is the incredible rise from the low point in 2009.

Conversely, you don't hear about the great run gold had from 2000-2011, you hear about it still being down from the peak in 2011.

If you think about it, it is amazingly one sided. Virtually any news outlet that reports market information as a short segment only ever shows Dow, S&P and Nasdaq. Completely ignoring bonds even though it is a much larger market, rarely touching the dollar and currencies, and almost never on precious metals.

Better to tune it out and stick with something you can live with!

[boglerdude]

Whats the media's motivation? Ad dollars from brokers?

[sophie]

Sophie, you know better than anyone that so much of this is psychology. "New record highs" are, and have been, touted so often on the news, and drops explained away with having isolated specific reasons, it leaves one with the fear of missing out. There is never a time to not be in the markets, according to 98% of any financial reporter and analysts, because it is their job to keep you in. Earning estimates get tweaked quietly along the way so companies rarely do not beat estimates. And so on.

You don't hear about the S&P dead period between 2000 and 2013. All you hear about is the incredible rise from the low point in 2009.

Conversely, you don't hear about the great run gold had from 2000-2011, you hear about it still being down from the peak in 2011.

If you think about it, it is amazingly one sided. Virtually any news outlet that reports market information as a short segment only ever shows Dow, S&P and Nasdaq. Completely ignoring bonds even though it is a much larger market, rarely touching the dollar and currencies, and almost never on precious metals.

Better to tune it out and stick with something you can live with!

+1!!!

I don't really know why stocks have been blessed as the "gold standard" of the investing world. Historically, gold and real estate have fulfilled that role, like the Talmud recommends. Maybe it's just because stocks are so much more suited to investing ADHD than gold or bonds, and lots more fun to report on the news.

In traditional societies like India, China, and the Middle East, gold is still the traditional store of wealth. I think part of gold's runup in the 2000's was due to increased wealth in those countries (probably largely from US importing and outsourcing) leading to increased gold purchases. A friend from Iran who maintains a very traditional lifestyle here in the U.S. will only invest in gold bars. She buys them from a dealer in an Middle Eastern ethnic neighborhood where everyone is doing the same thing. She says she doesn't trust the stock market, considers it something relatively new and non-traditional, and therefore not safe.

[buddtholomew]

I’m waiting for investors to realize interest rates are going lower again and at that point I hope to see gold rally.

Until then bubkis
Just for the record, UUP -.44, gold -.08
Go SCV, make me rich while offsetting my gold losses.
Sad...

[Kbg]

Stocks are the “gold standard” because in a free market system they flat out deliver better results. This is undisputed across all economies (that remained free) and long time periods. They enable participation in economic growth better than any other instrument and have baked in inflation protection to boot.

All the above does not mean stocks don’t suck at times which can last for quite a while and of course they come with a healthy dose of volatility.

[Cortopassi]

Kbg, well, I'm not sure about that. See below. In the 51 years I have been alive, an investment in gold on my birth date would have been better...as it would have at various other start times, as expected. Blue is Dow, Red S&P

http://www.longtermtrends.net/stocks-vs ... omparison/



-----------From the day I started working



----------From the dot com bubble high



---------From the 2009 market low



--------And when you zoom out to 100 years, some disconnect seems to have happened since that 2009 low. Whether it is HFT, or some other process, the rise of stocks seems unprecedented.

[Cortopassi]

That chart since 1967 is not correct. I'm guessing it doesn't include dividends. US stocks have absolutely crushed gold over the past 51 years.

Well dammit, more fake news.

If you have another one, I'd be interested. In the meantime, this interesting article came up:

https://seekingalpha.com/article/405589 ... p-500-gold

[Tyler]

I just checked, and sugar still tastes much better than flour, eggs, and baking powder. The backtesting is very consistent on this, and I'm pretty confident that trend will continue. My next batch of cookies will thus be made with 100% sugar. Wish me luck!

[Kbg]

I'm glad someone flagged the above as deceptive.

Let's try a reputable site (and note starting points make a BIG difference):

https://www.portfoliovisualizer.com/bac ... allocation

100% Gold vs. 100% US Total Stock Mkt (CAGR) through 5/31/18

1/1/72 Start: 7.47/10.37
1/1/82: 3.13/11.24
1/1/92: 4.84/9.55
1/1/02: 9.52/7.98
1/1/12: -3.23/14.92

Same as above, but cherry picking favorable dates for each asset class

1/1/72 - 12/31/80 (Gold Bull): 33.59/8.59
1/1/75 - 12/31/00 (Stock Bull): 1.45/15.73
1/1/81 - 12/31/99 (Gold Bear): -3.65/15.91
1/1/00 - 12/31/11 (Gold Bull): 14.77/1.18
1/1/00 - 12/31/02 (Stock Bear): 5.63/-14.31
1/1/08 - 12/31/08 (Stock Bear): 4.92/-37.04
1/1/11 - 12/31/15 (Gold Bear): -9.16/14.98
1/1/09 - 5/31/18 (Stock Bull): 3.82/14.95

So now that we have some unbiased and deliberately biased data points, what are our conclusions?

Perhaps some data will help...50/50 split between the two assets added to the end of the first table.

1/1/72: 7.47/10.37/10.24
1/1/82: 3.13/11.24/7.89
1/1/92: 4.84/9.55/7.93
1/1/02: 9.52/7.98/9.56
1/1/12: -3.23/14.92/6.34

If one runs the site's Monte Carlo simulation using the default values (the main thing is an annual 4.5% withdrawal rate) and the 10 percentile (bad luck) results you will note the following:

There is a 100% chance of running out of portfolio with a 100% stock or gold portfolio.

Best performance is 50/50 stock gold
Safest is the PP or 1/3rd each to Stk/Gld/LTTs

And for a slight twist...a simple dual momentum approach works quite well and beats a 50/50 port

[Tyler]

That's the agnostic recipe. All other recipes are making a bet that one of those ingredients is more important.

Ha! Touche.

[dualstow]

Everyone keeps telling me the flavor boost is already baked in, and yet I see no option other than to participate.

I just checked, and sugar still tastes much better than flour, eggs, and baking powder. The backtesting is very consistent on this, and I'm pretty confident that trend will continue. My next batch of cookies will thus be made with 100% sugar. Wish me luck!

[eufo]

I thought the most important ingredient in cookies was love.

I dig the cookie analogy.

[buddtholomew]

Who adds the same amount of sugar as flour?

Might as well learn to live with it since it’s staying put.

[dualstow]

Who adds the same amount of sugar as flour?.

https://www.allrecipes.com/recipe/7820/ ... heet-cake/

[ochotona]

Gold bullion is to sugar as a gold ETF is to ... (complete this analogy)

[dualstow]

Gold bullion is to sugar as a gold ETF is to ... (complete this analogy)

A(u)spertame?

[Kriegsspiel]

Sugar-based demurrage currency?

[buddtholomew]

Who adds the same amount of sugar as flour?.

https://www.allrecipes.com/recipe/7820/ ... heet-cake/

Haha...maybe sheet cake and the PP have more in common than I imagined...