with interest in gold and silver thought would blog on it

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larryswedroe
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with interest in gold and silver thought would blog on it

Post by larryswedroe »

Actually wrote this Sunday before leaving for trip to NYC where am now. Doing some press and media interviews and seminar for our clients.

Thought might find this of interest

http://moneywatch.bnet.com/investing/bl ... blog-river
FredPeterson
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Post by FredPeterson »

I very much want to ask a question about what you said, but it would just get stomped because of forum policy even though it is something everyone on the board would want to know.
jmbkb4
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Post by jmbkb4 »

What about the Gold ETFs that are holding physical gold.

This is a new phenomenon since Gold's last bubble burst.

Oh, and btw, you can't predict future results by basing those assumptions on prior ones.

Isn't that the BH mantra??
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G-Money
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Post by G-Money »

FredPeterson wrote:I very much want to ask a question about what you said, but it would just get stomped because of forum policy even though it is something everyone on the board would want to know.
You can always ask the question on Larry's blog. In the past, he's been very responsive.
DblDoc
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Post by DblDoc »

jmbkb4 wrote:What about the Gold ETFs that are holding physical gold.

This is a new phenomenon since Gold's last bubble burst.

Oh, and btw, you can't predict future results by basing those assumptions on prior ones.

Isn't that the BH mantra??
As is the" this time its different" :roll:

Oh wait. Silver has fallen 25% in the last 5 trading days...

And I thought REITS were volatile.

DD
dryfly
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Post by dryfly »

Is there anything said in Mr. Swedroe's comments that could not also be said about equities?

Most of the negative comments about gold/silver/commodities I see on this forum seem to imply speculation or performance chasing, things a prudent investor would never do with equities.

If these commodity holdings are part of a structured asset allocation plan how do they differ from equities or fixed income?
FredPeterson
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Post by FredPeterson »

dryfly wrote:Is there anything said in Mr. Swedroe's comments that could not also be said about equities?

Most of the negative comments about gold/silver/commodities I see on this forum seem to imply speculation or performance chasing, things a prudent investor would never do with equities.

If these commodity holdings are part of a structured asset allocation plan how do they differ from equities or fixed income?
They will tell you its because equities have a dividend and the underlying company has earnings. It doesn't sit there staring back at you waiting for you to do something. Equities and fixed income "do something" - they make money.
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Noobvestor
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Post by Noobvestor »

FredPeterson wrote:
dryfly wrote:Is there anything said in Mr. Swedroe's comments that could not also be said about equities?

Most of the negative comments about gold/silver/commodities I see on this forum seem to imply speculation or performance chasing, things a prudent investor would never do with equities.

If these commodity holdings are part of a structured asset allocation plan how do they differ from equities or fixed income?
They will tell you its because equities have a dividend and the underlying company has earnings. It doesn't sit there staring back at you waiting for you to do something. Equities and fixed income "do something" - they make money.
I'm still waiting for someone to explain why the difference is anything short of arbitrary. There are certain instruments that predictably perform at or under inflation levels, but are still advocated on this forum. Yet gold and silver, which historically track inflation (yes, with wide swings to either side, I'll admit - but still) are somehow different. Why? A savings account tossing off .01% interest a year (to make a point) would be less attractive to me than gold in a long-term-investment sense. Even at .5% they don't make much sense to me - likely to lag inflation most of the time.

If I tell you you can have something that 'just sits there' but returns the real dollars you put into it, or 'makes money' but returns less, which would you choose? We can argue about whether that applies to gold or silver or any commodity in particular, but really, that's where this line of reasoning leads, and I'm curious to know the answer. Or does it just have to make some 'nominal dollars' to be a 'real investment option'? And what if it has a 5% risk of default, but returns 5%, or something else that is a break-even proposition in terms of risk/reward, but still 'makes money'? I just feel like there are flaws in this logic, or maybe I just don't get it yet :P
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
pauliec84
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Post by pauliec84 »

I'm still waiting for someone to explain why the difference is anything short of arbitrary.
One explanation (I am sure one of many, but the first that comes to my head) is production/expected production.

Another explanation, are there more/different uses for silver versus gold. Different demand for these uses could lead to differences in the price.


Per the rest of your statements, the logic seems sound to me.
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Noobvestor
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Post by Noobvestor »

pauliec84 wrote:
I'm still waiting for someone to explain why the difference is anything short of arbitrary.
One explanation (I am sure one of many, but the first that comes to my head) is production/expected production.

Another explanation, are there more/different uses for silver versus gold. Different demand for these uses could lead to differences in the price.


Per the rest of your statements, the logic seems sound to me.
I think I wasn't completely clear - I mean: what is the difference between things that 'make money' (e.g. dividend-producing stocks, bond funds, etc...) versus things that don't (e.g. metals). I mean aside from the definitional difference, if both things add expected return and/or reduce risk in a useful way, what does it matter that gold just 'sits there' (and, as you point out above, it doesn't - it gets used in things, too, even if those things don't produce dividends as such).
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
pauliec84
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Post by pauliec84 »

I think I wasn't completely clear - I mean: what is the difference between things that 'make money' (e.g. dividend-producing stocks, bond funds, etc...) versus things that don't (e.g. metals). I mean aside from the definitional difference, if both things add expected return and/or reduce risk in a useful way, what does it matter that gold just 'sits there' (and, as you point out above, it doesn't - it gets used in things, too, even if those things don't produce dividends as such).
My mistake. I think the argument stems from the school of thought that asset prices are determined by the discounted value of the cash flows they generate.

Something that "makes money" has value because of the cash flows it generates. I am not sure what the cash flows are for gold beyond that you can always make it into jewelry to help win a womans affection.
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Noobvestor
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Post by Noobvestor »

pauliec84 wrote:
I think I wasn't completely clear - I mean: what is the difference between things that 'make money' (e.g. dividend-producing stocks, bond funds, etc...) versus things that don't (e.g. metals). I mean aside from the definitional difference, if both things add expected return and/or reduce risk in a useful way, what does it matter that gold just 'sits there' (and, as you point out above, it doesn't - it gets used in things, too, even if those things don't produce dividends as such).
My mistake. I think the argument stems from the school of thought that asset prices are determined by the discounted value of the cash flows they generate.

Something that "makes money" has value because of the cash flows it generates. I am not sure what the cash flows are for gold beyond that you can always make it into jewelry to help win a womans affection.
No worries - I wasn't exactly clear anyway :)

To play a bit o Devil's Advocate here: if we assume (just as a premise for the purposes of discussion) that gold will track the price of inflation, with fluctuations, over time, couldn't we argue that it we have the equivalent of discounted cash flow vis a vis the future sale of that commodity at a future (same) real-dollar price (likely to be higher in value in terms of current nominal dollars)? I'm getting out of my depth, just trying to understand. Meanwhile, my girlfriend *does* seem to like her necklace, and (I think I have Fama or French to thank for this) that is a nice, if non-monetary, dividend regardless :D
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
pauliec84
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Post by pauliec84 »

To play a bit o Devil's Advocate here: if we assume (just as a premise for the purposes of discussion) that gold will track the price of inflation, with fluctuations, over time, couldn't we argue that it we have the equivalent of discounted cash flow vis a vis the future sale of that commodity at a future (same) real-dollar price (likely to be higher in value in terms of current nominal dollars)?
I don't think it counts as Devil's Advocate if I agree with you.

Minus storage costs the same can be said for any commodity.

So I think the issue is then, why would you prefer a commodity as compared to say a TIP which guarantees to track inflation + a real return and has no storage cost?

Additionally "fluctuations" are generally not good, although granted if negatively correlated turn to good. As just a store of real value though fluctuation would be a bad thing.
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