Forum Archive Index - February 2003

[Travis Morien <travismorien@yahoo.com>]

--- "tennyson@caverock.net.nz"
<tennyson@caverock.net.nz> wrote:
> Hi Nick,
>  
> >Snoopy wrote
> > " In what way is having gold bars stashed under
> your mattress 
> > productive? I guess since the government haven't

> I don't doubt that some do profit by speculating in
> gold.  But I can 
> just imagine sixteen year olds who have just left
> school, people who 
> attend bingo nights, and those who bet on the horses
> all suddenly 
> becoming experts in gold trading and blowing all
> their dough.  Or 
> stashing gold bars under their bed and getting them
> nicked leaving 
> the government with no tax money to support them! 
> The fact that the 
> government hasn't pulled the plug on all facets of
> community aid to 
> invest in gold on behalf of these people I see as a
> good thing.
>

Hi Snoopy,

If I can just add my two cents worth to this...

Gold bullion has exhibited zero % real growth in
prices over the last 200 years.  It should not
surprise anyone that gold pretty much just keeps up
with inflation over the very long term, which puts it
way behind shares and property.

Gold mining companies haven't exactly been a
lolapalooza either.  Mining companies are enormously
capital intensive and when viewed from a viewpoint of
"owner earnings" (EPS with depreciation, amort,
depletion etc added back, minus capex), the actual
return to owners has been very ordinary.

The definition of investment vs speculation taken from
The Intelligent Investor by Ben Graham:

"The most realistic distinction between the investor
and the speculator is found in their attitude toward
stock-market movements. The speculator's primary
interest lies in anticipating and profiting from
market fluctuations. The investor's primary interest
lies in acquiring and holding suitable securities at
suitable prices. Market movements are important to him
in a practical sense, because they alternately create
low price levels at which he would be wise to buy and
high price levels at which he certainly should refrain
from buying and probably would be wise to sell."

So, the long term buy and hold is pretty ordinary. 
We'd have to determine a fair price.  Can anyone tell
me how to value gold?  Is gold trading at a discount
to its future cash flows or well below net asset
backing?  Obviously these can't be answered because
commodities can't be valued with tools that investors
usually use.

... which is why they are the exclusive domain of
speculators, and obviously not speculators that care
what the long term performance of the asset class is.

Travis
www.travismorien.com


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