The GOLD scream room

Discussion of the Gold portion of the Permanent Portfolio

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sophie
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Re: The GOLD scream room

Post by sophie » Sun Jul 08, 2018 11:32 am

Weird how in the past two pages there are three different sets of numbers for gold vs stocks since 1967. The chart that shows gold beating the pants off stocks over a 51 year period, by the way, DOES include dividends.

The original point is that you don't want to get hung up watching any particular asset slide, like stocks at various times OR gold in the past 7 years. Because, the slides can last a LONG time for either asset. This is why you want to own both even if one asset is in the crapper. It's because the duration of those slides is very large compared to your investing time horizon.

In other words and continuing this awesome Tyler analogy - bake your cookies with the oven light off and go take a walk or something instead of watching them! The antidote to short investing time horizons isn't to brood over which type of chocolate chip is melting the fastest, it's to hold more cash (storebought cookies?) so you can avoid digging into your cookies for long periods if necessary.
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Re: The GOLD scream room

Post by l82start » Sun Jul 08, 2018 11:46 am

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Re: The GOLD scream room

Post by dualstow » Sun Jul 08, 2018 12:12 pm

O0
sophie wrote:
Sun Jul 08, 2018 11:32 am
...
In other words and continuing this awesome Tyler analogy - bake your cookies with the oven light off and go take a walk or something instead of watching them! The antidote to short investing time horizons isn't to brood over which type of chocolate chip is melting the fastest, it's to hold more cash (storebought cookies?) so you can avoid digging into your cookies for long periods if necessary.
Cash is the flour. Hey, at least I didn't say dough.
RIP Marcello Gandini
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Re: The GOLD scream room

Post by Cortopassi » Mon Jul 09, 2018 8:16 am

desert,

If you look at the underlying data on those charts, there is no data for gold before 12/31/1968 (that I could see). Don't know if that is inferred because it was static, but anyway, my chosen start of 5/17/1967 is close enough to the 1/1/1968 when the data started.

If I look at the prices then and now:
---------------------
Gold: 1968: $35.18, 2018: $1254, gain of 35.64x

S&P: 1968: 95.04, 2018: 2633, gain of 27.7x
----------------------
So assuming that underlying data is correct, gold still is ahead (unsure of whether dividends are added in)

https://www.quandl.com/data/MULTPL/SP50 ... e-by-Month

https://www.quandl.com/data/LBMA/GOLD-G ... don-Fixing
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Re: The GOLD scream room

Post by Cortopassi » Mon Jul 09, 2018 10:34 am

desert, thanks.

Yeah, it is quite annoying/frustrating when you run into a website touting gold that has selective dates on the charts they show, especially around the 2011 peak, and then not continuing forward to current day, even though the articles are "current." If that sucks people in, it is unfortunate.
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Re: The GOLD scream room

Post by Kbg » Mon Jul 09, 2018 11:37 am

Desert wrote:
Mon Jul 09, 2018 10:36 am
Cortopassi wrote:
Mon Jul 09, 2018 10:34 am
desert, thanks.

Yeah, it is quite annoying/frustrating when you run into a website touting gold that has selective dates on the charts they show, especially around the 2011 peak, and then not continuing forward to current day, even though the articles are "current." If that sucks people in, it is unfortunate.
Yeah, I agree. Thanks.
There is a a lot of this out there...single starting point (date) analysis is really a useless exercise in self-deception. I stopped banging this drum a while back, but what the heck...one more bang. It's not the asset class you should be focusing on...its the portfolio.
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Re: The GOLD scream room

Post by Pet Hog » Mon Jul 09, 2018 5:11 pm

I've done a bit of sleuthing about the S&P 500 and whether it includes dividends or not. The Longtermtrends site claims that the S&P 500 is a total return index with dividends included:
Also, the S&P 500 is a total return index, in which all resulting cash payouts (including dividends) are automatically reinvested back into the fund itself.
That's somewhat true, depending which S&P 500 data you look at. If you visit the quandl site they provide as their source of S&P 500 data, you'll see that the latest value is 2633.45:
Latest Values

Date
2018-04-01
Value
2,633.45
That's the "price return" (PR) value of the S&P 500: the commonly quoted value. It's not the "total return" (TR) value, including dividends. From the "Methodology" pdf available from the S&P website:
S&P Dow Jones Indices calculates multiple return types which vary based on the treatment of regular cash dividends. The classification of regular cash dividends is determined by S&P Dow Jones Indices.
 Price Return (PR) versions are calculated without adjustments for regular cash dividends.
 Gross Total Return (TR) versions reinvest regular cash dividends at the close on the ex-date
without consideration for withholding taxes.
 Net Total Return (NTR) versions, if available, reinvest regular cash dividends at the close on the ex-date after the deduction of applicable withholding taxes.
Also, from wikipedia:
The "S&P 500" generally quoted is a price return index
The total return value of the S&P 500 is, according to the factsheet available at the S&P website, 5350.83, as of June 29, 2018 (price return value is 2718.37). So, pretty much double the return, since inception, with dividends reinvested. In other words, the S&P 500 beat gold handsomely over the last 50 years and those charts at Longtermtrends should be trusted only with the knowledge that the stock data do not consider dividends.
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Re: The GOLD scream room

Post by Cortopassi » Mon Jul 09, 2018 7:44 pm

This is the kind of stuff I wish I had someone around to teach me when I was 22. Sigh.
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Re: The GOLD scream room

Post by sophie » Tue Jul 10, 2018 6:52 am

Yes, the point of gold is not about returns, it's about stabilizing portfolio value over the short term. Which can be quite long from the point of view of an individual investor.

My original point wasn't about cherry picking dates, it was that there have been long stretches where stocks perform very poorly. The typical response to this of "but look at how well the S&P 500 performs over a 50 year period!" is not helpful, unless your investing time horizon is that long. For most people, a 5 year time horizon is about as good as it gets.

I still don't get the return #s you're all quoting though. 10% CAGR over the long term for stocks sounds great, but it ignores a lot of realities. There is a huge boost from inflation that gold was unable to participate in by definition, prior to 1972 - sort of like how your crappy salary in the 1970s provides an outsize contribution to your social security calculation because it includes an inflation factor. You'll note that CAGR in more recent times is lower than that (~5-6%) because it doesn't get to benefit from inflation. I think ~6% is frankly a more realistic expectation for stocks.
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Re: The GOLD scream room

Post by Kbg » Tue Jul 10, 2018 11:28 am

Hopefully everyone has figured this out...the posts showing gold beating stocks when measured by total return are wrong. End of story. A free market in gold did not exist in the US from the Great Depression to the early 70s (and due to gold's tie to the US dollar and its economic dominance in the world at the time the gold market was controlled and warped similar to how fiat currencies are today).

I think my post on 7/6 was/is very helpful to anyone who will spend the time to study it. There are a lot of good lessons to be learned from it. Sophie's point is exactly correct...there are long stretches of time when gold out performs (but they are reasonably rare when compared to stocks). However, there are long stretches of time when any asset will underperform. The investor has three basic strategies to deal with this fact of life. Assume you can't predict the future and diversify (PP being one option for this), use momentum or use value (which is really mean reversion at its root).

Advanced investors will normally implement any of the above with a significant does of negative or non-correlation when picking assets. The PP is very much in that mode.

Side note: Meb Faber (with good reason) refers to what he calls the 5/2/1 rule which is basically over the long haul you get 5% real from stocks, 2% real from bonds and 1% real for bills. Gold is also in the 1% category but with a whopping larger dose of volatility over bills.

http://mebfaber.com/2016/09/27/the-521-rule/
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Re: The GOLD scream room

Post by sophie » Tue Jul 10, 2018 9:26 pm

Wha?

I completely agree that for money that you will stash away and not look at, access, or otherwise deal with for at least 20-30 years, 100% stocks is a great choice. If that were compatible with the human condition, there would be no need for the Permanent Portfolio, or indeed any stock/bond portfolio mixture. All I was trying to say is that any asset - gold included - can have multi-year losing streaks, where "multi" can reach into double digits. Reading between the lines, I *think* your response to that is that in the case of stocks it's irrelevant because of the performance of the S&P 500 over the last 50+ years.

And I think all this started when buddtholomew posted something about gold having a losing streak of 7 years and asking what other asset could do that. So I answered.
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Re: The GOLD scream room

Post by Kbg » Tue Jul 10, 2018 10:39 pm

I think the horse has been beaten down to glue now. :)
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Re: The GOLD scream room

Post by buddtholomew » Wed Jul 11, 2018 8:15 am

sophie wrote:
Tue Jul 10, 2018 9:26 pm
Wha?

I completely agree that for money that you will stash away and not look at, access, or otherwise deal with for at least 20-30 years, 100% stocks is a great choice. If that were compatible with the human condition, there would be no need for the Permanent Portfolio, or indeed any stock/bond portfolio mixture. All I was trying to say is that any asset - gold included - can have multi-year losing streaks, where "multi" can reach into double digits. Reading between the lines, I *think* your response to that is that in the case of stocks it's irrelevant because of the performance of the S&P 500 over the last 50+ years.

And I think all this started when buddtholomew posted something about gold having a losing streak of 7 years and asking what other asset could do that. So I answered.
Thats not what I said.
I said it has performed the “worst” of all assets over the 7-year timeframe I have been invested.
You manipulated to make your point which was wrong.
Stocks outperformed Gold when including dividends.

Oh by the way, wholesale inflation jumps and your precious gold declines. Remarkable really, stocks and bonds are outperforming gold even today...trade et al.
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Re: The GOLD scream room

Post by Cortopassi » Wed Jul 11, 2018 9:36 am

Conversely, tariffs kick in and stocks jump. Yeah, down a little today, but looking like they'll probably end green.

Nothing makes a lot of sense.

From Slope of Hope: "In a normal, rational market, a United States President openly declaring a trade war on the biggest economy on the planet and ratcheting it up with tariffs on $200 billion in goods would be a LIMIT-DOWN situation (followed by similar limit-down days, day after day, until he backpedaled). In this insane asylum, however, the NQ has already bounced 50 points off its panic low, and the ES is cheerfully healing itself."

Tell me stocks make sense in their reactions. About as much as gold.
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Re: The GOLD scream room

Post by buddtholomew » Wed Jul 11, 2018 9:44 am

Cortopassi wrote:
Wed Jul 11, 2018 9:36 am
Conversely, tariffs kick in and stocks jump. Yeah, down a little today, but looking like they'll probably end green.

Nothing makes a lot of sense.

From Slope of Hope: "In a normal, rational market, a United States President openly declaring a trade war on the biggest economy on the planet and ratcheting it up with tariffs on $200 billion in goods would be a LIMIT-DOWN situation (followed by similar limit-down days, day after day, until he backpedaled). In this insane asylum, however, the NQ has already bounced 50 points off its panic low, and the ES is cheerfully healing itself."

Tell me stocks make sense in their reactions. About as much as gold.
Agree that nothing makes sense at all...
But the one common denominator is stocks +, gold - or stocks -, gold -.
That is clear as day.
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Re: The GOLD scream room

Post by Cortopassi » Wed Jul 11, 2018 11:43 am

buddtholomew wrote:
Wed Jul 11, 2018 9:44 am
Cortopassi wrote:
Wed Jul 11, 2018 9:36 am
Conversely, tariffs kick in and stocks jump. Yeah, down a little today, but looking like they'll probably end green.

Nothing makes a lot of sense.

From Slope of Hope: "In a normal, rational market, a United States President openly declaring a trade war on the biggest economy on the planet and ratcheting it up with tariffs on $200 billion in goods would be a LIMIT-DOWN situation (followed by similar limit-down days, day after day, until he backpedaled). In this insane asylum, however, the NQ has already bounced 50 points off its panic low, and the ES is cheerfully healing itself."

Tell me stocks make sense in their reactions. About as much as gold.
Agree that nothing makes sense at all...
But the one common denominator is stocks +, gold - or stocks -, gold -.
That is clear as day.
You yanking my chain? Back to Sophie's point about long periods. Budd, what would you have been saying about the 6 year period I show below? You think it can't/won't happen again?

If anything, these excursions seem to get greater as time goes on. So I'd fully expect for the next stock downturn to be worse than 2008.

Image

Or this even much longer period (I forgot I could use SPY). Actually this chart is likely wrong, GLD only goes back to late 2004, so gold would be higher.

Image

Here's Kitco from 2000 to now. Gold blew the pants off stocks for 11 years.

Image
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Re: The GOLD scream room

Post by buddtholomew » Wed Jul 11, 2018 12:28 pm

dupe
Last edited by buddtholomew on Wed Jul 11, 2018 12:29 pm, edited 1 time in total.
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Re: The GOLD scream room

Post by buddtholomew » Wed Jul 11, 2018 12:28 pm

Cortopassi wrote:
Wed Jul 11, 2018 11:43 am
buddtholomew wrote:
Wed Jul 11, 2018 9:44 am
Cortopassi wrote:
Wed Jul 11, 2018 9:36 am
Conversely, tariffs kick in and stocks jump. Yeah, down a little today, but looking like they'll probably end green.

Nothing makes a lot of sense.

From Slope of Hope: "In a normal, rational market, a United States President openly declaring a trade war on the biggest economy on the planet and ratcheting it up with tariffs on $200 billion in goods would be a LIMIT-DOWN situation (followed by similar limit-down days, day after day, until he backpedaled). In this insane asylum, however, the NQ has already bounced 50 points off its panic low, and the ES is cheerfully healing itself."

Tell me stocks make sense in their reactions. About as much as gold.
Agree that nothing makes sense at all...
But the one common denominator is stocks +, gold - or stocks -, gold -.
That is clear as day.
You yanking my chain? Back to Sophie's point about long periods. Budd, what would you have been saying about the 6 year period I show below? You think it can't/won't happen again?

If anything, these excursions seem to get greater as time goes on. So I'd fully expect for the next stock downturn to be worse than 2008.

Image

Or this even much longer period (I forgot I could use SPY). Actually this chart is likely wrong, GLD only goes back to late 2004, so gold would be higher.

Image

Here's Kitco from 2000 to now. Gold blew the pants off stocks for 11 years.

Image
If I was invested in the PP over that timeframe I would have been posting in the Stock Scream room.
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Re: The GOLD scream room

Post by Cortopassi » Mon Jul 16, 2018 10:32 am

Budd, no worries about having to post in the stock scream room anytime soon.

I think there should be another gold topic called the 5 stages of owning gold. Somewhere between depression and acceptance right now...
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Re: The GOLD scream room

Post by buddtholomew » Mon Jul 16, 2018 11:03 am

Yes, I am at acceptance now Corto.
At some point you are just beaten into submission.
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Re: The GOLD scream room

Post by ochotona » Mon Jul 16, 2018 11:28 am

I don't think we've really hit the bottom of sentiment. Honestly... a goodly fraction of Baby Boomers who hold gold are going to have to die, and then their Millennial heirs are going to sell it off when they inherit. Gold may go lower.

Someday we will hit a geological peak gold scenario, and then the US budget and debt problem will eventually flare up.

That's why I only hold 10%. Because it will be hard to hold onto through crap like we are going through now for year after year, but it could really take off, we just don't know when. Could be in 10 years. Then you won't be able to get physical when you need to. My 10% will rise to 25% of my portfolio, then I'll have a PP.
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Re: The GOLD scream room

Post by barrett » Mon Jul 16, 2018 5:10 pm

ochotona wrote:
Mon Jul 16, 2018 11:28 am
I don't think we've really hit the bottom of sentiment. Honestly... a goodly fraction of Baby Boomers who hold gold are going to have to die, and then their Millennial heirs are going to sell it off when they inherit. Gold may go lower.
Ocho, Do you have any good links on what percentage of his or her wealth the average Boomer has in gold? I would think it would be quite low (and that some of it might be stashed in long-forgotten hiding places!).

I found this little bit of terrible investing advice while searching for the answer to the above:

http://www.wyattresearch.com/article/wh ... -buy-gold/

For those of you uninterested in reading the link, it's a short article from late 2011 saying that one should hold off on buying stocks until an ounce of gold is worth roughly the same as the level of the Dow Industrial Index ("So for instance, if the Dow drops to 5000 and gold rises to $5,000 an ounce, I would sell my gold and buy the Dow.").

Ouch!!!
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Re: The GOLD scream room

Post by ochotona » Mon Jul 16, 2018 5:28 pm

I am sure the "average" Boomer has way less than 1% in gold, but what I mean is that many gold investors are grey haired. This is an asset class that most Millenials bypass. It's too old fashioned.
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Re: The GOLD scream room

Post by dualstow » Mon Jul 16, 2018 6:11 pm

(barrett wrote)
For those of you uninterested in reading the link, it's a short article from late 2011 saying that one should hold off on buying stocks until an ounce of gold is worth roughly the same as the level of the Dow Industrial Index ("So for instance, if the Dow drops to 5000 and gold rises to $5,000 an ounce, I would sell my gold and buy the Dow.").

Ouch!!!
ha!
RIP Marcello Gandini
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Re: The GOLD scream room

Post by Cortopassi » Tue Jul 17, 2018 7:54 am

barrett wrote:
Mon Jul 16, 2018 5:10 pm


I found this little bit of terrible investing advice while searching for the answer to the above:

http://www.wyattresearch.com/article/wh ... -buy-gold/

People get married to an idea or position and have a hard time letting go, with pretty much anything. Here is a guy (who I used to read) who has been haranguing against Amazon for years... you can go go back to 2015 posts about him talking about shorting Amazon, and him doing it, and being underwater, but not worried. AMZN was $350. It is what, over $1800 now? And he still talks about their fraud and ponzi accounting (I assume waiting for the day they do crash, and then claim he was right).

http://investmentresearchdynamics.com/t ... rt-amazon/

From Apr 28, 2015: "Although shorting AMZN requires the ability and willingness to actively manage your risk exposure, it will ultimately be a grand-slam home run trade. "

But I am sure somehow it is justified in his mind that if it did go down a couple % for a short while after he posted his article, he was right.
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