Precious Metals Fund (VGPMX)

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Fat-Tailed Contagion
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Precious Metals Fund (VGPMX)

Post by Fat-Tailed Contagion » Fri Nov 27, 2015 7:36 pm

Getting absolutely hammered.

It's been a rough run the last decade (6.95% annualized over 15 years), any thoughts from the Boglehead spectators ?

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Last edited by Fat-Tailed Contagion on Fri Nov 27, 2015 7:56 pm, edited 1 time in total.
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czeckers
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Re: Precious Metals Fund (VGPMX)

Post by czeckers » Fri Nov 27, 2015 7:52 pm

Down 15% in the last month and 85% from the peak. I'm much more excited about this fund as a diversifier at these prices than when it was at its peak. However, it sure does have some serious downward momentum right now. One might consider waiting until the momentum reverses and then jumping in.
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Re: Precious Metals Fund (VGPMX)

Post by tibbitts » Fri Nov 27, 2015 7:57 pm

Fat-Tailed Contagion wrote:Getting absolutely hammered.

It's been a rough run of last decade (6.95% annualized over 15 years), any thoughts from the Boglehead spectators ?
It doesn't appear to be "getting absolutely hammered" relative to at least some benchmarks. However someone else will have to comment as to whether which benchmarks are appropriate and whether the fund has behaved reasonably relative to comparable investments.

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Rx 4 investing
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Re: Precious Metals Fund (VGPMX)

Post by Rx 4 investing » Fri Nov 27, 2015 8:51 pm

One way to look at valuation level for the metals is the Dow/Gold Ratio. Currently with the Dow around 17,800 and gold trading at $1,057 the ratio is approximately 17 -to- 1 (rounded up). On a long-term basis (log scale chart) the Dow / Gold ratio is close to average valuation.

Although the mining companies share prices (VGPMX) are less than the actual physical metals that they mine, a global economic downturn would cause precious and industrial metals to drop further. This would negatively impact mining companies profits and share prices would likely go even lower. Dollar- cost averaging, as opposed to a lump sum, over the next few years into VGPMX is probably a sensible approach.

czeckers commented that an investor might want to wait until momentum of the commodity complex turned positive. FYI... Meb Faber's website tracks the 10- month simple moving average of commodities, updated daily.

http://mebfaber.com/timing-model/

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Dow / Gold ratio source: Fred's Intelligent Bear website

Link: http://home.earthlink.net/~intelligentb ... dow-au.htm

Disclosure: I am slowly building a position in VGPMX.
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Re: Precious Metals Fund (VGPMX)

Post by Stonebr » Fri Nov 27, 2015 9:34 pm

Having lived through the 20 year bear market in mining stocks from 1980 to the final bottom in the years immediately after y2k, I can safely say that this could get way worse. You could also see a sucker rally. I went bottom-fishing in 1982, and in 1986, and in 1990, and in 1994 and in 1998, and... Well, I finally got it right in 2002. All through the bear market there were reasons why gold had to skyrocket -- national debt, collapsing currency, sunspot activity, demand from Indian brides, y2k, sasquatch, whatever.

Precious metals don't have to go up just because they've been down for a while. Gold is great for electronics, jewelry and dental work. Platinum and Palladium also have industrial uses. But most of these uses are either luxury/discretionary or there are substitutes.

By all means try your luck, look at momentum, charts, technical indicators; but this is not informed investing -- it's just speculation.
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Re: Precious Metals Fund (VGPMX)

Post by William Million » Fri Nov 27, 2015 9:37 pm

While I'm mostly a Boglehead index guy, I do occasionally pick up very cheap assets when a unique situation arises. I recently bought some VALE (Brazilian company Vale do Rio Doce), a play on minerals and also on the depreciated Brazilian real. Not for the faint of heart.

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Re: Precious Metals Fund (VGPMX)

Post by David Jay » Fri Nov 27, 2015 9:48 pm

Fat-Tailed Contagion wrote:...the Boglehead spectators...
That is a fairly small community.
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Re: Precious Metals Fund (VGPMX)

Post by small_index » Fri Nov 27, 2015 10:00 pm

...
Last edited by small_index on Sat Dec 12, 2015 1:09 am, edited 1 time in total.

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Re: Precious Metals Fund (VGPMX)

Post by lack_ey » Fri Nov 27, 2015 11:25 pm

small_index wrote:Vanguard's Precious Metals fund (VGPMX) is down -74% in five years... but gold is only down -23% (as measured by iShares Gold Trust ETF, "IAU"). In looking at Portfolio Visualizer, I only saw gold's value for investors who withdraw money during a crisis. During the dot-com crash and 2008 for example, if you were retired and taking withdrawals, you could cash out profits in gold and rebalance the rest. Outside a crisis, it's expensive insurance that can lose money every year.

One side thought: the factor tilts were studied for stocks. So it's fair to say if VGPMX has momentum or not. But has momentum been studied for commodities like gold? I would think it's high volatility and lack of expected real return would make it far different than stocks. I wonder if gold prices have momentum, in the same sense that a momentum factor has been observed for stocks.
Both time-series momentum (trends continuing more often than not) and cross-sectional momentum (recently outperforming assets within a category such as stocks doing better on average than recently underperforming assets within that same category) have been identified—or tortured out of the data, for the skeptics—for a number of asset classes including commodities. I don't know about gold in particular. With the time-series momentum you're asking about whether or not a recent trend is predictive of future returns in a statistical sense (greater than noise, pure chance, but not reliable at all), which is I think what you're getting at. With the latter, you'd be looking at gold performance relative to other precious metals or other commodities, which I have not investigated.

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Re: Precious Metals Fund (VGPMX)

Post by Jack FFR1846 » Sat Nov 28, 2015 8:19 am

There are a lot of pressures directly pushing gold prices. China's demand and play to become a controlling interest on gold prices.....and disclosure that they hold way less physical gold than anyone expected. The stock market slowly increasing. Gold is a hedge when the stock market drops.

I pay attention to the fact that the miners aren't worried about the direction of gold, but on the price of gold. Most have had difficulty getting continued financing. With gold prices down, and the potential for interest rates to rise...probably next month...those miners looking for another round of financing may not get it or will have to cut back, giving up mining leases or even selling assets.

I am no expert an am not invested in gold or miners, just interested and I see absolutely nothing that tells me it'll go up. If the miners all tank, I will not be surprised whatsoever. And by tank, I mean going to 10% of their present day valuation.
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Re: Precious Metals Fund (VGPMX)

Post by Maynard F. Speer » Sat Nov 28, 2015 9:46 am

This is why I use PEG ratios ... Cheap is so relative, and doesn't always reflect a falling price

VGPMX
--------
P/E 23.44
Earnings Grwth 10.26

PEG = 2.3

It looks like earnings and growth are being revised down - which means as the price falls, it's potentially getting more expensive ... Using this crude measure - unless we're at an inflection point and the analysts are wrong - I'd see it falling another 50-60% before it reaches fair value, and that is if earnings aren't downgraded again
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Re: Precious Metals Fund (VGPMX)

Post by nisiprius » Sat Nov 28, 2015 10:00 am

Well, what did you expect? What was your plan?

And what's so terrible about 6.95% annualized over the last 15 years?

Odd... Morningstar is showing 15-year VGPMX return as of 11/27/2015 as 5.78%, not 6.95%... Ah, got it. It's the difference between "daily" and "monthly" trailing total returns. Obviously there's something I don't get about "total return." It it all just because the endpoint is one month later?

For 15-year return, Morningstar is showing me 5.61% for VTSMX, 5.78% for VGPMX, so not sure how to explain the difference from your numbers...

The 15-year Sharpe ratio 0.29 for VTSMX versus is 0.33 for VGPMX.

Morally I'd call that a tie but in fact you won by a nose both in return and in risk-adjusted return.
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Re: Precious Metals Fund (VGPMX)

Post by Castanea_d. » Sat Nov 28, 2015 11:35 am

I agree with Jack’s concerns about the price of gold (rather than its momentum up or down) and its impact on the ability of the companies to get financing. A few months back I spent some time reading the reports of some of the top ten holdings in VGPMX. The overall picture I got was of relatively sound businesses but with razor-thin margins. A rise in high-yield rates would be hard on them; so would a rise in energy prices, which have been one of the few bright spots for them.

To my not-very-skilled eye, the chart looks terrible, like the price is poised to keep going down, maybe a lot. On the other hand, I look at the Price/Book ratio, which is probably less than one (as of the last report, 7/31, P/B = 1.0, with a share price of $7.23. Current price = $6.37), and that looks like a bargain.

Maynard, I am going to explore your suggestion about Price/Earnings Growth as an indicator. Thank you for posting it. One issue I would have with using it for VGPMX at present is that the P/E numbers have been all over the place, I think because the “E” is so near zero. I have been writing down the numbers from the VGPMX annual and semi-annual reports for a while:

1/31/14 – P/E = (84)
7/31/14 – P/E = (22.8)
1/31/15 – P/E = 388.2 (!!!!)
7/31/15 – P/E = 55.5

The takeaway is that these are companies that are struggling, and a position in VGPMX must be viewed as speculative. It could turn out very well over the long term (and I suspect it will, which is why I maintain a position in it, and will be rebalancing into it to maintain allocation if it drops a little further).

Or not.

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Re: Precious Metals Fund (VGPMX)

Post by nedsaid » Sat Nov 28, 2015 12:39 pm

Castanea_d. wrote:I agree with Jack’s concerns about the price of gold (rather than its momentum up or down) and its impact on the ability of the companies to get financing. A few months back I spent some time reading the reports of some of the top ten holdings in VGPMX. The overall picture I got was of relatively sound businesses but with razor-thin margins. A rise in high-yield rates would be hard on them; so would a rise in energy prices, which have been one of the few bright spots for them.

To my not-very-skilled eye, the chart looks terrible, like the price is poised to keep going down, maybe a lot. On the other hand, I look at the Price/Book ratio, which is probably less than one (as of the last report, 7/31, P/B = 1.0, with a share price of $7.23. Current price = $6.37), and that looks like a bargain.

Maynard, I am going to explore your suggestion about Price/Earnings Growth as an indicator. Thank you for posting it. One issue I would have with using it for VGPMX at present is that the P/E numbers have been all over the place, I think because the “E” is so near zero. I have been writing down the numbers from the VGPMX annual and semi-annual reports for a while:

1/31/14 – P/E = (84)
7/31/14 – P/E = (22.8)
1/31/15 – P/E = 388.2 (!!!!)
7/31/15 – P/E = 55.5

The takeaway is that these are companies that are struggling, and a position in VGPMX must be viewed as speculative. It could turn out very well over the long term (and I suspect it will, which is why I maintain a position in it, and will be rebalancing into it to maintain allocation if it drops a little further).

Or not.
I have toyed with the idea of buying shares in such a fund. A family member recommended to me a Gold fund at my favorite mutual fund company. That was when Gold and Gold stocks were just rocking. I decided not to invest. Part of my thinking was that my stock funds had very similar returns at the time and I didn't see any additional benefit to owning it.

Let's look at the current numbers. Down -24.83% Year to Date. Down -13.33 1 Year. Down -32.5% each year over 3 Years. Wow. That is per year. Just brutal. Down -21.84 per year over 5 years. 10 years was down -3.15 a year. Lifetime return is a positive 0.32% since 8/16/1988. Awful.

There is a contrarian part of me that likes to buy what is cheap and what is hated. However, this shows all the classic signs of a falling knife. No bottom in sight. The fund still has $221 million in it so there are some true believers out there.

The trouble is for me is that the underlying metal is down a lot from its peak but not in the territory that I would call cheap. A further drop in the price of Gold could not be good for the gold miners. I wonder if a lot of these companies will just cease to exist.
A fool and his money are good for business.

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Re: Precious Metals Fund (VGPMX)

Post by Sammy_M » Sat Nov 28, 2015 12:57 pm

Bill Bernstein wrote:What percentage of investors has the discipline to stay the course with an asset capable of withering away for an entire generation before reverting to its mean? ... I wouldn’t even venture a guess, but I’m pretty sure that the answer is not too far above zero.

I can tell you the disenchantment that will follow the inevitable next period of underperformance will make the flight from tech stocks in the 1990s look like an infant’s post-bottle burp.
http://www.efficientfrontier.com/ef/adhoc/gold.htm

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Runalong
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Re: Precious Metals Fund (VGPMX)

Post by Runalong » Wed Dec 02, 2015 6:40 pm

I recently analyzed 24 Fidelity sector funds over the past 25 years, looking at how far they fell from each high and how they did over the subsequent 66 months. Only 3 times did a sector fund ever drop more than 80% (tech (-84%) and telecom (-82%) ca the 2000 crash, and consumer finance (-88%) ca '08-09 crash). On average they more than doubled over the next 66 months but they were basically just tracking the market as a whole at that time.

On the other hand, in the 8 instances of a sector dropping between 70-79% from it's high, these subsequently tripled (on average, the median was also approx 200%) over the next 66 months, vastly outperforming the market.

That pretty much settles the debate, right? ;)

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Re: Precious Metals Fund (VGPMX)

Post by jdb » Wed Dec 02, 2015 9:18 pm

This discussion brings back memories. It wasn't that many years ago that this fund was so popular that it was a closed fund, couldn't make investments. And on day that it finally opened to new investors I logged onto Vanguard account and put in investment order at 6am to be sure was there at market open since concerned that it would quickly close again. See how the mighty have fallen. Glad to report that I got out of it within a year and never looked back. But it once was a highflier.

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Re: Precious Metals Fund (VGPMX)

Post by IlliniDave » Thu Dec 03, 2015 5:38 am

I bought a dollop with my 2014 backdoor Roth contribution, in part because it seemed to have low correlation with the other assets in the account, and in part because it seemed "cheap" at the time. Of course the price is down a lot even from then, so as a timing move it was not great. Time will tell if it has any benefit as a diversifier. One thing for sure is that it has zagged a lot while most everything else I own has zigged a little over the same time frame.
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Re: Precious Metals Fund (VGPMX)

Post by Swampy » Thu Dec 03, 2015 6:13 am

Probably the best precious metal one can buy in today's environment is copper clad lead.
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Re: Precious Metals Fund (VGPMX)

Post by White Coat Investor » Thu Dec 03, 2015 8:54 am

czeckers wrote:Down 15% in the last month and 85% from the peak. I'm much more excited about this fund as a diversifier at these prices than when it was at its peak. However, it sure does have some serious downward momentum right now. One might consider waiting until the momentum reverses and then jumping in.
I bought it recently, tax loss harvested into USAGX (USAA Precious Metals) and am sitting on a gain there. If it drops again after 60 days, I'll TLH back into the Vanguard fund. If it goes up significantly, I'll donate it next year as part of my charitable contributions.
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