Why gold is a bad investment

Eight months ago, 2 December 2010, about when this thread began, Gold = $ 1,397.59.

Eight months later, 2 August 2011, present day, Gold = $1,659.29

Up 18.7 % in eight months.

ka-CHING!!!!

I thought Gold would have pulled back today. I'm a little confused. Urban what do you think is going on?

its starting to break out and perhaps the silliness may begin. If it does, it can pop who knows to where once the traders get a hold of it to ride the wave. But that will signal the end of the trade. Pick your outs wisely if it gets silly because many will get seriously burned after the pop when the asset plummets. Maybe we go to 2200-2500, then fall to 1,000. That was the idea in 2007, its still the idea now except it went from mid 600s then to mid 1600s now in mostly an organized trend.

Well, I must have been slow Noah. Clearly Gold and bonds rallying is part of the risk-off trade. Just look at the action in Spain & Italy CDS contracts.

yep..risk OFF big time.

The world is ending. That is clear today. Capitalism dead forever. Hug your GOLD tight everyone.

FYI, if you own ANYTHING other than GOLD (stocks, bonds, RE, baseball cards, art, cash, etc.), just GET OUT NOW and put all of your $$$$ into GOLD (the ultimate asset, the perfect hedge, the thing that NEVER DEPRECIATES NO MATTER WHAT HAPPENS - and it's shiny too!).

Central bankers aren't dumb, are they???

Central Banks Join Rush to Gold
by WSJ staff
Wednesday, August 3, 2011
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by Liam Pleven, Se Young Lee and In-Soo Nam

Central banks are ramping up their gold buying as they seek to diversify their reserves away from the dollar and other beleaguered currencies.

South Korea became the latest government to disclose a big bullion purchase, saying Tuesday that it recently bought 25 metric tons - more than doubling its holdings to 39 metric tons. Mexico, Russia and Thailand have also been major buyers in 2011.

This year, governments have almost tripled their net gold purchases, increasing their holdings by 203.5 metric tons this year, up from a 76-metric ton rise last year, according to the World Gold Council, an industry group backed by miners.

The demand marks a major shift in central banks' thinking about gold. Increasingly, they see bullion as protection against risks posed by declining paper currencies and global economic upheaval, and their vast resources and conservative bent make them a powerful force in the gold market.

[More from WSJ.com: Gold Can't Lose]

While gold is an asset that does not generate income, that shortcoming is less glaring among historically low interest rates.

Before 2010, governments had on balance been shedding their bullion for two decades, during which gold was seen by some as a relic. According to data from GFMS Ltd., a metals consultancy, 1988 was the last year that official holdings increased.

"We definitely have seen a sea change" in central bank attitudes toward gold, said David Greely, chief commodities strategist at Goldman Sachs Group. Central bank buying provides "longer-term support for gold prices," he said.

The purchases have helped drive gold to record levels. Gold settled Tuesday at $1,641.90 per troy ounce, a new all-time high in nominal terms, though still far below the inflation-adjusted record of $2,395.03, hit in January 1980. Prices rose $22.90, or 1.4%, on Tuesday in New York trading, and are now up 16% this year. The recent rise is extending a rally that began in 2001, multiplying gold prices six-fold in that period.

By becoming net buyers, central banks are just starting to catch up with the private sector, which started to warm toward investing in gold years ago.

[More from WSJ.com: Made in China: Fake Stores]

Private investor bullion holdings inched ahead of official holdings at the end of 2009, and comprised about 18.7% of total gold holdings at the end of 2010, compared to 17.4% for the official sector, which includes central banks and the International Monetary Fund, according to GFMS and the gold council.

But both individual investors and world governments are motivated by similar concerns, including a fear that economic woes in the developed world are eroding the value of the U.S. dollar and the euro, undercutting what had been seen as stores of wealth. That is reviving interest in gold as a safe haven.

Many emerging nations also have a relatively small percentage of their reserves in gold, compared to the developed world. The U.S. has 74.7% of its reserves in gold, compared to 1.6% for China and 8.7% for India, according to the gold council.

Rapidly-growing Asian nations have also seen their foreign currency holdings swell as their economies outpace the rest of the world, providing another motive for diversification.

[More from WSJ.com: Who Gets Drunk and Why]

In South Korea, which has the seventh-largest currency reserves in the world, the new move into gold reflects concerns about global economic instability, which have been exacerbated by the credit crisis in Europe and fears of a default in the U.S.

The Bank of Korea on Tuesday said it bought the gold from the global market in June and July. Its gold holdings now represent 0.7% of the country's foreign-exchange reserves, which stood at a record $311 billion at the end of July. "The gold purchase, as a safety net, will help us cope with volatile global financial markets and enhance investor confidence in Korea in times of crisis," said Hong Taeg-ki, chief of the BOK's reserve management group.

The central bank says it wasn't motivated by the U.S. debt ceiling negotiations and denied that it is specifically seeking to diversify away from the dollar. Nevertheless, the bank joins a growing list of central banks around the world that have been increasing their gold holdings in the wake of the global financial crisis.

—Jason Dean in Beijing, Martin Vaughan in Singapore and Richard Boudreaux in Moscow.

Write to Liam Pleven at liam.pleven@wsj.com and Se Young Lee at vincent.lee@dowjones.com

well didnt the ecb dump tons of gold at like 300/oz 10-12 yrs ago?

If you bought gold a few years ago, you would have done well. That sounds like a good investment for that period, unless investment means something different than I know.

"well didnt the ecb dump tons of gold at like 300/oz 10-12 yrs ago?"

I have no clue, you tell me. As far as I'm concerned, GOLD AND ONLY GOLD is the ONLY asset that will ever go up for the rest of history. EVER OTHER ASSET EXCEPT GOLD must decline in real and nominal terms for the rest of our lifetimes - that's b/c of fiat currencies, etc - if you doubt me, look at the price of GOLD, it never declines, it just goes up and up.

CONCLUSION - GOLD WILL ALWAYS GO UP, WHETHER THERE'S GOOD NEWS OR BAD NEWS - WHY? - BECAUSE IT'S ***GOLD***

Huh?

"Huh?"

Did I say something not clear? Just go buy GOLD already. The perfect asset, the ultimate store of value, the greatest hedge that's ever existed, the secret to eternal youth - and a damn shiny metal. IT'S THE ULTIMATE THING THAT EVER EXISTED - THAT'S WHY IT JUST GOES UP AND UP AND UP - FOREVER.

urbandigs
about 1 hour ago
ignore this person
report abuse yep..risk OFF big time.

urbandigs, did you use the term "risk off" 3 years ago?

fiat currencies are in the process of being trashed for the benefit of the debtors (states, corporations).precious metals are the antidote as they are real (hard)money whereas fiat currencies are symbolic (not meant to hold value, but to be used as accounting units).
In a negative interest rate universe precious metals are necessary to maintain purchasing power.Disparaging gold and its massive secular bull market only denotes ignorance in currency matters.

How much fiat currency can you fit in your smallish 1 bedroom apartment in midtown east that you rent because it is close to your paralegal job?

Oh, and are you calling stevejxh ignorant?

"precious metals are necessary to maintain purchasing power"

So how does it work? Is there this tangible thing called "purchasing power" that you can see and touch and that exists inside of GOLD (so you can carry it around with you)? Or does it only work b/c everyone agrees it works? If the latter, then it won't work if people don't agree that it works. Get it?

Also, if GOLD maintains purchasing power and is the "ultimate store of value", then how do you explain the fact that GOLD declined from $750/ounce in 1980 to $250/ounce in 2000, a period during which purchasing power in nominal dollar terms declined consistently through inflation.

What does the 'B' in your name stand for?

So the hell what?

Everything - equities, commodities, real estate, art, anything you can name - goes up and down. The title of the thread is 'Why gold is a bad investment.' But it's simply not the case, anymore than any other thing you might choose to invest in is a 'bad investment.' The ONLY question that matters is "Were you smart enough to buy and sell, within reason, the right thing at the right time?"

Since I bought gold in 2008 at just a wee bit under $800/oz, it's returned over 100% in about three years. The ONLY thing that matters to me is the bottom line. Talk is cheap.

"Since I bought gold in 2008 at just a wee bit under $800/oz, it's returned over 100% in about three years. The ONLY thing that matters to me is the bottom line. Talk is cheap"

Everyone who bought GOLD at $750 in 1980 were smug just like you. What happened to them?

"anymore than any other thing you might choose to invest in is a 'bad investment'"

An investment cannot - by definition - be a "bad investment" if you pay less than the intrinsic value of the asset you are investing in. GOLD, however, does not have any intrinsic value (much like a painting has no intrinsic value). The only investments that have intrinsic value are those that produce income, because you can capitalize said income stream. Gold does not produce income, you are 100% dependent on the price somebody else will pay for it (this is known as the "greater fool" theory of investing).

I look at gold as a hedge, but not against daily price noise or small movements. It rallies on major RISK OFF days and hedges against FIAT CURRENCIES. It avoids trusting CPI methodologies or counter-party risk. And on a very long term basis it's a better store of value which is why central banks hold it.

"It rallies on major RISK OFF days and hedges against FIAT CURRENCIES"

Actually, GOLD doesn't "do" anything - it's a metal - it just sits there. They only reason it's been going up is b/c there is a consensus that it's supposed to always go up - once the consensus disappears, so will demand for GOLD (and then the price will fall).

3 Reasons the Gold Bubble Will Burst
Gold is neither an "investment" nor a contrarian play
Jun 21, 2011, 2:35 pm EDT | By Charles Sizemore, Editor of the Sizemore Investment Letter

After a decade in which stocks went nowhere and the U.S. dollar lost value to every world currency except the Zimbabwean dollar, many Americans are ready to give up on the entire system. Quite a few already have.

After watching gold more than quadruple in value in the same period, investors might be tempted to wash their hands of financial assets altogether, convert their savings to gold bars, and bury it in their backyards. But frankly, I cannot fathom a worse idea.

Gold today is as risky as tech stock in 1999 and Miami condos in 2005, and the arguments supporting its rise are every bit as flimsy. Let’s take a look at some of these arguments and how they stand up to a brief reality check.

Myth #1: Gold is an investment
Let’s start with the very basics. I would define an investment as an asset that creates value and income over time. Stocks, bonds, real estate, even livestock and some machinery for businesses would all qualify. This is in contrast to “speculation,” which is a purchase based purely on the hope of selling at a higher price at some point in the future.

Ben Graham, the mentor of Warren Buffett and father of the investment profession as we know it today, had referred to speculation as the “greater fool” theory. The idea goes, “I know I am a fool to pay such a high price for a stock but I know that a greater fool will come along and pay me an even higher price.”

Graham was speaking of common stocks, but the same argument could be made about condos, Dutch tulip bulbs, or even baseball cards and Beanie Babies. And it certainly applies to gold.

Gold pays no dividends or interest and produces nothing. It’s an inert metal that you have to pay to store and insure. And yes, your ability to profit from it depends on your being able to sell it to someone else at a higher price than what you paid, plus selling commissions and expenses. Is this a bet you’re comfortable making when it has already risen by a factor of four in a matter of years and the trade is looking increasingly crowded?

There is nothing wrong with speculating, of course, if you understand the risk. The problem comes when you confuse it with investment. And these days, many folks can’t tell the difference.
Myth #2: Gold is a store of value
Plenty of gold bugs concede the metal is not a traditional “investment,” per se, but argue passionately that its purpose is not speculative. Instead, it is a store of true value in a world of paper fiat currencies and number games.

Unfortunately, the facts simply do not support this view.

That’s because gold is a great store of value—except when it’s not. Had you become fed up with the inflation of the Jimmy Carter years and moved your savings to gold in 1980, you would have watched your “store of value” fall by 70% in the two decades that followed. And this would have happened during a period of persistent (though falling) inflation.

Meanwhile, the raging bull market in gold since 2000 can hardly be considered “stable.” Sure, no one complains if their purchasing power rises. But if your stated purpose in buying gold is its role as a store of value, even volatility to the upside should be unsettling. You can’t just create “value” out of thin air.

For an asset often touted as a “crisis hedge,” gold also performed remarkably poorly during the 2008 meltdown. Gold went into freefall in September and October 2008 after the Lehman Brothers failure knocked the financial world off its axis. Not a very effective insurance policy, in my opinion.

Lastly, if protection from the ravages of inflation is so crucial to investors, then why isn’t a piece of productive rental real estate an equally appealing option? Plenty of desperate owners would happily exchange their property for some of that “worthless” green paper. But somehow the idea of buying real estate at depressed prices to hedge against inflation and a plummeting dollar is seen as a fool’s errand, while buying gold at record levels is seen the only safe bet.

It’s easy to point to gold as a store of value when prices are rising. But they won’t rise forever.

I think it will burst but the best thing now is to collect all that gold jewelry you consider junk, sell it, and put it into something else. I cannot believe how much money I've gotten from stuff I considered junk. Just use a reputable buyer.

BSexposer: "...Everyone who bought GOLD at $750 in 1980 were smug just like you. What happened to them?..."

I dunno....

Everyone who bought BRK.A at $148,000+ at the end of 2007 were smug just like you. What happened to them?

If it makes you feel better, here is what I can offer - gold, evidently, according to you, is neither a good NOR bad investment, because it's not an investment at all. It's simply speculation. If it makes you feel better, I will agree to that.

But as I said above - So the hell what?

Everything - equities, commodities, real estate, art, anything you can name - goes up and down, investment OR speculation. The ONLY question that matters is "Were you smart enough to buy and sell, within reason, the right thing at the right time?" Whether it was an investment, or speculation, or whatever. See, at the end of the day, I don't parse nomenclature, which seems so very important to you. I just look at my monetary balances.

Since I bought gold in 2008 at just a wee bit under $800/oz, it's returned over 100% in about three years. The ONLY thing that matters to me is the bottom line.

Talk is cheap.

"If it makes you feel better, here is what I can offer - gold, evidently, according to you, is neither a good NOR bad investment, because it's not an investment at all. It's simply speculation. If it makes you feel better, I will agree to that."

I already feel fine, buddy. Thanks though. And you are right - it's speculation, not an investment. Most gold nutjobs simply refuse to admit that you are gambling with your $$$ buying GOLD - which you are.

What's NOT speculation is buying in an asset at below its intrinsic value - and, as I said, you can't do this with gold. Buying below intrinsic value = investing. Buying gold = not investing.

You can tell how emotional people are about their precious GOLD when you dare to tell them that they are gambling with their money buying it at these levels. They get really angry. Speaks volumes IMO.

I have the feeling BSE owns no gold and can't get over the fact that many people made millions on the trade

"I have the feeling BSE owns no gold and can't get over the fact that many people made millions on the trade"

1. Yes, I don't own GOLD (I've already stated why - b/c it's not investing, it's speculation/gambling).

2. Why would I care if other people made $$$ owning it? Do I care if other people made $$$ buying and selling Picassos or antique cars or baseball cards? I couldn't care less. I just find the "investment" rationales for (and I idolatry with respect to) owning GOLD completely laughable and point out how dumb they are.

3. BUY MORE GOLD EVERYONE, IT NEVER GOES DOWN!!!! INFLATION, DEFLATION, NOFLATION - DON'T MATTER, GOLD IS A HEDGE AGAINST EVERYTHING IN THE UNIVERSE - JUST BUY IT ALREADY! (Thank you in advance)

BSexposer: Gold not an investment. Yup. I'm gambling with my $$$. Yup. Not investing with my $$$. Yup. I'm speculating. Yup.

And again: Everything - equities, commodities, real estate, art, anything you can name - goes up and down, investment OR speculation.

The ONLY question that matters is "Were you smart enough to buy and sell, within reason, the right thing at the right time?" Whether it was an investment, or speculation, or whatever. See, at the end of the day, I don't parse nomenclature, which seems so very important to you. I just look at my monetary balances.

Since I bought gold in 2008 at just a wee bit under $800/oz, it's returned over 100% in about three years. The ONLY thing that matters to me is the bottom line.

Talk is cheap.

did i mention that you all should go out and buy ***gold*** already? what are you waiting for - put 100% of your money in it - please!!!!!!!!!

"Gold not an investment. Yup. I'm gambling with my $$$. Yup. Not investing with my $$$. Yup. I'm speculating. Yup."

Good for you - I hope GOLD goes to $1,500,000 per ounce - then you can retire a rich man and laugh at everyone else that was too dumb to speculate like you.

and FYI, many self-styled "genius" speculators got rich before they got poor. But not many real investors have. As Buffett says, speculation per se is neither immoral nor illegal (see below).

"So there's two types of assets to buy. One is where the asset itself delivers a return to you, such as, you know, rental properties, stocks, a farm. And then there's assets that you buy where you hope somebody else pays you more later on, but the asset itself doesn't produce anything. And those are two different games. I regard the second game as speculation. Now there's nothing immoral or illegal or fattening about speculation, but it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something you expect to produce income for you over time. I bought a farm 30 years ago, not far from here. I've never had a quote on it since. What I do is I look at what it produces every year, and it produces a very satisfactory amount relative to what I paid for it.

"If they closed the stock market for 10 years and we owned Coca-Cola and Wells Fargo and some other businesses, it wouldn't bother me because I'm looking at what the business produces. If I buy a McDonald's stand, I don't get a quote on it every day. I look at how my business is every day. So those are the kind of assets I like to own, something that actually is going to deliver, and hopefully deliver to meet my expectations over time. A piece of art, you know, may go from $1,000 to $50 million, but it's dependent on what the next guy wants to pay me. The art itself— the painting itself is not going to dispense cash. So I have to find somebody that's going to like it more. And with most— with an asset like gold, for example, you know, basically gold is a way of going along on fear, and it's been a pretty good way of going along on fear from time to time. But you really have to hope people become more afraid in the year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money. But the gold itself doesn't produce anything.

…

"I mean, we use a lot of cotton. I've watched it go from 80 cents to $1.90. You know, we use a lot of copper and I've watched it go from $2 to $4-plus, so I mean there's all kinds of things in this world that are going to go up and down in price. You know, maybe hamburgers will tomorrow. And— but I— I'm— I don't know how to judge that. I do know how to judge to some extent the earning power of some businesses. And the real test of whether you would like it as an investment is whether you would be happy if it never got quoted again, and just in terms of what the asset did for you. But that doesn't— I will say this about gold, if you took all of the gold in the world it would roughly make a cube 67 feet on a side. So if you took all the gold in the world, we could have a cube that went down there 67 feet ... 67 feet high and that would be the whole thing. Now for that same cube of gold it would be worth at today's market prices about $7 trillion. That's probably about a third of the value of all the stocks in the United States. So you could have a choice of owning a third of all the stocks in the United States or you could have a choice of owning that little block of gold, which can't do anything but kind of shine there and make you feel like Midas or Croesus or something of the sort."

"Now, for $7 trillion, there are roughly a billion of farm— acres of farmland in the United States. They're valued at about $2 1/2 trillion. It's about half the continental United States, this farmland. You could have all the farmland in the United States, you could have about seven ExxonMobiles, and you could have $1 trillion of walking around money. And if you offered me the choice of looking at some 67-foot cube of gold and looking at it all day, you know, I mean touching it and fondling it occasionally, you know, and then saying, you know, `Do something for me,' and it says, `I don't do anything. I just stand here and look pretty.' And the alternative to that was to have all the farmland of the country, everything, cotton, corn, soybeans, seven ExxonMobiles. Just think of that. Add $1 trillion of walking around money. I, you know, maybe call me crazy but I'll take the farmland and the ExxonMobiles."

"I, you know, maybe call me crazy but I'll take the farmland and the ExxonMobiles"

Call ME crazy, but I'll side with Warren Buffett on this one (you know, the guy that made in excess of $45,000,000,000 [that's 11 figures, for those counting] through investing in his lifetime) over you gold nuts.

To prefer stocks is to be a Pollyana. A gold guy is a nervous fixed income investor.

it 's fine , it's fine.
we're not talking being right here. just making money

"To prefer stocks is to be a Pollyana. A gold guy is a nervous fixed income investor"

Not sure what you mean by the first sentence. Re the 2nd, lots of retail investors are buying gold. I'm just pointing out how mindless all the GOLD mania currently is (sorta like the mania over tulip bulbs several hundred years ago or the mania over tech stocks in the late 90s).

"we're not talking being right here. just making money"

You will be making money in GOLD until you start losing money in GOLD. When the bubble pops, I have no idea - everyone thinks they can get out at the top, but that's obviously impossible. Which is why a lot of people will lose money in GOLD at some point (i.e., the suckers). I choose not to play the game at all.

I'm not really one looking to get rich off gold. My philosophy is that it's a good long term store of value and as 5-10% of a portfolio reduces volatility. Normally Gold doesn't merit much discussion, however in light of the Fed's policy of promoting inflation of 2% instead of price stability, dollar depreciation, deficits and QE2,3 & 14 it's become a very important 5-10%. The reason it may continue to outperform equities has much to do with the over-valuation of stocks.

"in light of the Fed's policy of promoting inflation of 2% instead of price stability, dollar depreciation, deficits and QE2,3 & 14"

You think you are the only person aware of these things? It's already been priced in and then some. GOLD right now is simply a momentum play - and will be until the momentum reverses. Nobody knows when the momentum ends - but it will at some point - and then...look out.

Face it - it is IMPOSSIBLE for an asset to be both a deflation hedge AND an inflation hedge - yet that's what GOLD's proponents claim it is.

Simply because you can't define the terms. We have asset deflation and monetary inflation all at once. Gold is the best in that devastating environment. The market is telling you just that. If you cared to educate yourself.

"...Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head...."

- Warren Buffett at Harvard in 1998.

mid-1998 BRK.A price - $65,000
current 2011 BRK.A price - $111,000
4.2% pretax compounded ROR over 13 years since Buffett's Harvard lecture.

mid-1998 gold price - $300/ounce
current 2011 gold price - $1,663/ounce
14.08% pretax compounded ROR over 13 years since Buffett's Harvard lecture.

Talk is cheap.

Gold is money. Bernake is the central banker for the crumbling welfare state. He can and will never admit that gold is money and will replace the dollar within 10 years. It is now a de facto currency and the regime's henchmen are lost.

Remember the story about Bernard Baruch knowing the stock bubble was about over when the newsboy was giving him stock tips? The equivalent might be when the newspapers have full-page can't-lose gold-coin ads targeted at the masses.

NWT: You may be right. Actually, scratch that. I would amend that to read that you probably ARE right. But having said that, if one had invested (oops! wrong word! you can not 'invest' in gold, evidently!) - if one had speculated in gold when I had three short years ago, than you would certainly be pleased with your progress. My feeling is that it will not be like I will wake up one day, and gold will be worth $1,000/oz - overnight. I think if/when gold nears $1,500/oz., I'll sell. But for now, I can afford to let it ride, as I think there is a chance that it can go higher, and I'm willing to give up 10% of my profit on that bet....

There's a currency war going on right now with every country fighting for a lower exchnage rate. In this environment it's foolish not to consider gold.

Well, If you bought stocks in on Dec 31st you did not beat inflation. Total return year to date in the s&p is negative

"I'm not really one looking to get rich off gold. My philosophy is that it's a good long term store of value and as 5-10% of a portfolio reduces volatility."

There's probably something to that. Since gold has been increasing in value a lot faster than other assets lately, presumably that means you're selling some gold to keep it from becoming a bigger part of your portfolio?

"Well, If you bought stocks in on Dec 31st you did not beat inflation. Total return year to date in the s&p is negative"

If you're using stocks as a short-term investment, you're an idiot. If you're not, you don't care what the return over seven months is.

"If you're using stocks as a short-term investment, you're an idiot. If you're not, you don't care what the return over seven months is."

On days like this, you wonder about the collective sanity of humanity. Just reconfirms that people act emotionally out of fear and greed. Thankfully I don't use margin to buy stocks, nor do I plan to sell anything I own for quite some time, so I can just sit back and marvel at the folly of others - which is quite breathtaking.

The herd is stampeding out of anything remotely related to "risk" right now. Gold and U.S. Treasuries are the only thing deemed "safe" - even though they are actually not safe at all if you look out a few years. But people only focus on what's going to happen tomorrow, not 3 or 5 years from now. It's human nature.

"If you're using stocks as a short-term investment, you're an idiot. If you're not, you don't care what the return over seven months is."

jordyn, totally agreed.

BSexposer, if you had some cash lying around right now, at what point do you put it back in the market?

""If you're using stocks as a short-term investment, you're an idiot. If you're not, you don't care what the return over seven months is."

Well, if you mean by that "buy and hold forever" (ie. dont do any selling no matter what is happening in the market) , I think it's a very risky attitude, unless you have a quite small allocation to stocks.

"BSexposer, if you had some cash lying around right now, at what point do you put it back in the market?"

If you don't need the cash anytime in the next year, I would just look for things that seem like a bargain. If you find one, buy it - if not, don't. The bottom line is - the lower stock prices are, the less risky they are.

People claim they can predict where prices are going tomorrow or next week (and therefore say "Wait! Don't buy yet - it's not safe! Wait until X happens, then you can go back in.") - but the truth is that nobody knows where stock prices are going in the short term. They could go up, down or sideways in the next 3-6 months - long term will be up though.

"Well, if you mean by that "buy and hold forever" (ie. dont do any selling no matter what is happening in the market) , I think it's a very risky attitude, unless you have a quite small allocation to stocks"

I have a huge allocation to stocks and I'm selling nothing. Would you sell a private business you owned just because people became depressed about the future? Would you sell a private business you owned just because somebody offered you a much lower price for your business than they did 2 weeks ago (b/c they got depressed)? If not, then why would you sell stocks you own just because random people are depressed and are selling what stocks they own? It's illogical.

In late 2008 and early 2009 I got hammered like this on a daily basis, yet I sold nothing - and I was smart not to sell then (it would have been a huge mistake).

"They could go up, down or sideways in the next 3-6 months - long term will be up though."

well, suppose you were asking that question from the point of view of a decade ago......

or suppose you were japanese.....a couple decades ago

Very easy to make $ in the market - do the exact opposite of what nyc10023 is doing. We were mainly cash from 2004-2010, then put all our money into fixed income + various Blackrock funds + laddered munis based on wealth managers. A little money in gold, bought at 900/ounce.

"or suppose you were japanese.....a couple decades ago"

Are we the Japanese? No, we're not. Is our stock market trading at 50X earnings, like Japan's was in the late 1980s. I don't think so.

"suppose you were asking that question from the point of view of a decade ago......"

Are we in the midst of an "irrational exuberance" re stocks right now???? Um, I would say not.

that's where you're wrong.

leave manhattan and discover that there are 25 million people in this country looking for full time employment.

people with employment can't pay their bills.

corporate profits are way up not because sales are up but because they have successfully cut out people. how long can companies continue to make record profits when less and less people can afford to buy anything?

"how long can companies continue to make record profits when less and less people can afford to buy anything?"

Dude, unemployment will decline gradually over the next 10 years. Eventually - b/c of population growth - the housing sector will have to come back. Debt will gradually be paid off. Things will get better - relax.

FYI, in the 20th century America came back from the Great Depression, 2 World Wars, a mass flu epidemic, an inflation crisis in the 70s, etc etc etc. Why would we not come back from a recession????

BSex, same reason as always: "it's different this time."

"BSex, same reason as always: "it's different this time.""

Yes, it's always "different this time" - except when it's not. It's OK, people who are doubting Thomases and naysayers and who don't believe in America & the future of the world economy will miss out - I won't be one of them, however.

Just remember all ye Doubters - HOLD YOUR GOLD TIGHT!!! Heh.

BSex, would you mind sharing the stocks you're in? I'm not asking to poke at you, just want to see what a like-minded person is in so as to invest a little spare change.

Just want to point out that the argument that gold produces no income is wrong.
Cash produces no income in itself, but you can lend it to someone and get an interest rate(over night repo, money market,etc)
Same is true for Gold which can be lent and borrowed.

'nada, good to see you on here. I assume you're holding pat as well, despite the panicking some are doing? In part thanks to you guys, I haven't really batted an eye at these precipitous drops, but am starting to wonder when it might be time to add to the pot.

"BSex, would you mind sharing the stocks you're in?"

I don't really like to give specifics, as I think everyone should do their own DD before they buy a stock (and not rely on somebody else's opinion - unless it's Buffett's opinion, that is).

But I own 3 stocks - one is in the auto sector, one in the bank sector and one in the oil/gas sector. And, yes, they've all been hammered into oblivion today - that's life.

"Same is true for Gold which can be lent and borrowed"

Who "borrows" GOLD??? Any why would they? And where would you even go to borrow GOLD if you wanted to? Based on your argument, any object "produces income" because any object can be lent to somebody else - but that's nonsense.

Does my shoe "produce income" because I can lend it to you?

do you realize what percent of the population aged 22-26 is unemployed?

"do you realize what percent of the population aged 22-26 is unemployed?"

And?

isn't your theory that as the population grows, they need houses and that restarts the economy?

have you had much to do with people who came of age during the depression?

BS -- I thought you were joking when you said a few days ago that your entire investment portfolio (which allegedly exceeds $1.2M) is in only three stocks. The fact that it's actually true is quite frankly mind-boggling. You do realize the stupidity of that position right?

And BS -- Sell a few shares and buy yourself a nice tin cup - -you're gonna need it someday.

It isn't a theory, guy - it's a physical necessity - people aren't going to live in cardboard boxes. People who came of age during the depression? What about them? You need to get a grip - we are not experiencing another Great Depression.

Financial panics are nothing new [see link below]. They worsen and worsen like a fever, until the fever breaks. Then people ask what all the fuss was about. The smart folks are those buying while other crack under the pressure and sell for pennies on the dollar.

http://query.nytimes.com/mem/archive-free/pdf?res=F30816F73A5F15738DDDAC0994DD405B8484F0D3

have i been promoted from dude to guy? or is that a demotion?

how would you characterize 25 million people looking for full time work and not finding it?

BJW: 'nada, good to see you on here. I assume you're holding pat as well, despite the panicking some are doing? In part thanks to you guys, I haven't really batted an eye at these precipitous drops, but am starting to wonder when it might be time to add to the pot.

Yep, I'm holding pat. This is a long-term investment portfolio, and I'm in an "accumulate" stage of life, so I just buy and am too busy with other stuff to do trading on it. The only thing I've disposed of is a donation of a small bit of my portfolio that was up 4-5x, and that was because it was optimal tax-wise.

On the "thanks" part, let's see how you feel after the next 10% of drop ;).

BSex, I will do my own DD. Just want to get some ideas from a like-minded person.

"BSex, I will do my own DD. Just want to get some ideas from a like-minded person."

I generally just low for companies that have low forward P/Es and that can be expected to grow earnings consistently over the long term. I invert the P/E to get an expected earnings yield (anything above 12% is what I look for). The oil/gas company I own had a forward P/E of around 8 when I bought it in 2008 - and it's been growing earnings about 10-15% per year. Even after today's bloodbath, I'm up 50% on it (no doubt tomorrow that will shrink to 25%). But that's how I look at companies generally when looking for investments...high earnings yields that will become higher and higher as time goes by.

"On the "thanks" part, let's see how you feel after the next 10% of drop ;)."

Easy to say this now, obviously, but would make a buy decision pretty easy if we touch back down to 09-lows or thereabouts.

"I generally just low for companies that have low forward P/Es and that can be expected to grow earnings consistently over the long term."

Apple is under 15 P/E.

"Apple is under 15 P/E"

I just ordered an iPad and an iPod this week. That should help things.

BS--I have to say i'm with w34--to be so concentrated as to hold only 3 stocks is dumb and will cost you serious money if you are not quite lucky--ill add that, in my many years surviving as a trader, i have observed many as zealous and self-impressed as you blown up--you tho have a shitty strategy and a dangerous attitude--good luck--ill stand clear to avoid shpnel and flying body parts

"BS--I have to say i'm with w34--to be so concentrated as to hold only 3 stocks is dumb and will cost you serious money if you are not quite lucky--ill add that, in my many years surviving as a trader, i have observed many as zealous and self-impressed as you blown up--you tho have a shitty strategy and a dangerous attitude--good luck--ill stand clear to avoid shpnel and flying body parts"

Thanks for your kind words and genuine concern, which I take to heart. TYTY. (Yes, I'm very conceited, you're right - sorry about that)

BTW, I own the exact same % of the 3 companies as I did yesterday. Whether others decide to sell their shares at price X or 1/2 of price X is not my concern and has no effect on me - the underlying value of the company is the same, regardless of what price people dump their shares at when they're in a panic [for every panicked seller there's a shrewd buyer IMO].

...and I have a very concentrated portfolio b/c I've done more DD on the 3 companies than 99.99% of those buying & selling the shares of these companies on a daily basis. My attitude is that more of a good thing can be wonderful. Cheers.

I got hammered hard on my gold today. It was down nine tenths of one per cent. :-(

bsexposer -- did you purchase the shares at market price or at their underlying valuation?

"did you purchase the shares at market price or at their underlying valuation?"

I got a special deal from Vinny, the guy around the corner - 50% off of market price.

BTW, low prices are good, even for stocks - don't know why people agonize so much - oil went down today, big tax cut for the American consumer. If the price of groceries went down 5% today across the country, everybody would cheer (except grocery stores).

The lower, the better, I say - I'll just buy more stock on the cheap.

didn't you say that one of your companies was an oil company? do they make more money when the price of oil goes down?

By the way, this is another thing Obama has in common with Carter.
The last time Gold was this high was during the Carter Years.

BSexposer sez: "Just remember all ye Doubters - HOLD YOUR GOLD TIGHT!!! Heh."

LONDON Aug 4 (Reuters) - Gold rallied to a record high of $1,677.90 on Thursday on nagging concerns a global economic soft patch will worsen and following comments by European Central Bank President Jean-Claude Trichet. It also forged new records in euros, yen and sterling. Spot gold traded at $1,676.06 an ounce at 1248 GMT, up from $1,660.70 late in New York on Wednesday.

During the same five day period, BRK.A shares down (again) over 5%. :-((

Still holdin' my gold tight, BSexposer (unless it drops closer to $1550/ounce, then I dump). And you.....?

HOLD IT TIGHT MATSON!!! Don't worry about Gartman.

Gartman Cuts Gold Positions By Half
Published: Friday, 5 Aug 2011 | 11:13 AM ET Text Size By: Reuters

Gartman, who has long been bullish on gold priced in non-U.S. currencies, also cited unprecedented bullish gold investor sentiment, growing public speculation, and the metal's decline across all currencies on Thursday.

Thursday's record could mark bullion's highest level "for quite some long while," as prices ended at its lows and below the previous session's intraday lows, he said.

"In the past, this has always marked any number of various market highs and certainly we do not think that gold is any different. We are cutting our positions then by half this morning," Gartman said in his daily investment letter on Friday.

Spot gold [XAU= 1655.79 7.89 (+0.48%) ] recoiled from a record $1,681.67 an ounce in heavy volume on Thursday, as mounting recession fears fed a global stock market maelstrom that forced investors to liquidate bullion profits to cover losses elsewhere.

"Given the circumstances prevailing in a world that shall put a premium high upon liquidity, we think it is wise to liquidate our gold holdings ahead of everyone else," Gartman said.

Bullion rose 0.5 percent to around $1,660 an ounce on Friday, as investors jittery about a gloomy economic outlook sought a safe haven despite a better-than-expected U.S. payrolls report.

Gartman has been buying gold in non-U.S. currencies since mid 2009, when gold was still trading below $1,000 an ounce. He said that a growing public perception that gold is a safe investment also prompted him to lighten his gold investment.

"Gold is a fine trade, but gold is hardly 'safe.' Safety to use means a price that is stable, and gold is anything other than stable these days," he said.

I'm watching!! According to you, "...Spot gold...(+0.48%)...on thursday..." That's the day that you lost how much in your 'investments?'

HEY BSexposer: Gartman just flipped and went crazy long gold after dumping in the first half of the week!!!! What does THAT tell you?

Just wondering how much in the way of "time series data" is needed before Bsexposer signs off on Gold

It will never happen. Bsexposer will wait and wait and wait and wait and wait and wait and wait and then finally, when the dog FINALLY has his day and gold does drop (and of course, it will, because everything, whether investment or speculation goes up and down) he'll be there to say - "SEE!!!!!! I TOLD YOU SO!!!!!" It's the 'even a blind squirrel can find a nut in a pit' approach to "investing."

BSE has no financial understanding. Quite hilarious comments to read actually.