Agreed, Chronos. Nothing in this thread is rocket science. And finance borrows a lot from the sciences.*
The question “Is gold an investment?”, is somewhat silly in a way, as it is really a question of definition. The main virtue of gold and other currencies is that they are allegedly uncorrelated with the US stock market, even if their returns aren’t so hot. So if the market zigs there’s a 50-50 chance that gold will zag, if you believe that story. And if it crashes – well, we’ll see. A lot can alter the price of gold as well, including politics among Russian gold miners and whether central banks decide to diversify into other elements or currencies.
But -hey let’s not deny it- there’s a degree of fetishism in being a gold bug. Nothing wrong with that, but methinks one should partake in such activities in moderation only.
Hijack!: One of the earliest applications of Brownian motion was in Bachelier’s Theory of Speculation, written in 1900. Yes, he beat Einstein by half a decade. Then again, nobody took notice of Bachelier’s thesis until after 1955.
No it wasn’t, nor is it today, when compared with every other possible mechanism in which to invest in “stocks.” The total sum of money in all the S&P index funds put together is dwarfed by the total sum of money in all other stock investments. The entire infrastructure for stock market investing is built upon the general notion (probably a false notion, for most investors) that certain stocks are better than others. If this were not the case, then all professional investment advice would be identical: Buy the S&P Index fund with the least overhead, put 100% of your money into it, and leave it there forever (not necessarily bad advice, but again, not what’s done in practice).
And that’s the point with respect to gold. Gold, as an investment, is just another holding. How much of your portfolio should be in gold is a personal decision, the way any decision about a particular stock is a personal decision.
Talking about “overall stock performance” is a very disingenuous way to compare gold with “stocks.” It basically takes a single-type holding–gold–and compares it with a strategy of buying an unfiltered basket of all possible stocks. Retrospectively, we can say that over the last X amount of time, “stocks” have done better. But for a particular investor trying to diversify a portfolio, it is almost never the case that 100% of their investment is in an S&P index fund, and it is almost never the case that 100% of their money is retained in such a fund over their investment lifetime. That’s why it’s a silly comparison–it’s essentially advice that is almost never actually followed, and advice which brokerage houses themselves neither follow nor advise. Stockbrokers are in the business of giving “expert” advice and blindly buying an index fund is the exact antithesis of “expert” advice. Moreover, there have been times when the market–or even whole nations–have crapped out, and since different people have different times at which they need to cash out, part of the appeal of gold is that on such occasions it may help protect a portfolio.
If an individual wants to invest in gold, they should really only have one focus: Where is the price of gold likely to go over my personal gold-holding timeline, and why? Where it has been against any particular other investment vehicle is of interest, but largely irrelevant, especially when the comparison vehicle is hand-picked retroactively as if that were the typical vehicle that was being picked when gold would have been picked.
Exactly so. In fact, it is my rudimentary knowledge of arithmetic that has me so nervous about the future of the US financially. I think I could be head-faked better by our politicians except for this rudimentary grasp of mine (along with what I believe to be a genuine expertise in human nature and a propensity to bury our collective heads in the sand).
The sums we seem to be gaming appear to me to be somewhere way below zero, and some of them even appear to be imaginary numbers.
If there is a liberal position in all this, it is that giving tax breaks to the rich so that they can bid up the price of gold is not going to help America rebuild its economy.
If anyone is touting a ‘consevative’ perspective on the merits of individual investments, I suggest you should ignore whatever they are saying. (Don’t do the opposite, they are as likely to be correct as incorrect since they are just guessing).
Um. That’s a little different from what you said earlier. Institutional stock market investment, including both passive and actively managed mutual funds, makes up the majority of stock ownership, AFAIK. And Vanguard’s SP500 fund is consistently in the top 2 list, in terms of assets managed. Has been for a while.
Brokers are in the business of earning commissions, so they steer folks away from index funds. While there are a number of cases of investment managers beating the market sufficiently to pay their enhanced fees, identifying such managers ahead of time is tricky. There is a tendency towards, “Reversion to the mean”: 100 investors choosing stocks randomly will produce a performance order for any span of time, but whether that predicts future performance is another matter.
I confess that I’m feeling too lazy to substantiate the preceding*, but I do feel inclined to add a clarification. Standard investment advice pushes diversification, which involves a mix of stocks, bonds, cash and some international investment. While some may advocate a portfolio of 100% stocks (or more if you’re leveraged!) that’s not generally recommended for people with typical risk tolerances.
Though see this suggestive evidence. Note the share of Walmart owned by large institutions (100%, if I’m reading it correctly). Note the top shareholders (index fund outlets). Stock Portfolio & Tracker - Yahoo Finance
D’oh! Yahoo has better info on institutional ownership of Walmart.
% of Shares Held by All Insider and 5% Owners: 46%
% of Shares Held by Institutional & Mutual Fund Owners: 34%
% of Float Held by Institutional & Mutual Fund Owners: 62%
“Float” are shares that are publicly owned and available for trading, i.e. not held by insiders. I’ll note that 80% of all Walmart shares appear to be owned by insiders, those owning more than 5% of the company, or investment institutions. I guess that leaves 20% owned directly by shareholders owning less than 5% of Walmart.
