Asset Class Returns

[Gumby]

I came across this chart yesterday and found it interesting. If one believes in reversion to the mean, it would seem best to avoid gold and long treasuries right now.

 

[MasterBlaster]

So you suggest we sell our gold and buy stocks ?

 

[Gumby]

We have been at about a 65/35 equity/bond mix (both US and foreign) for quite some time now. (predominantly through mutual funds). At one time in my life, we were 100% equities, but the 2000 crash convinced me to lower volatility by moving some into bonds. We continue buying more every week. We have a small percentage exposure to REIT's and a number of our individual equities are commodity related (oil, gas, steel, copper, shipping).

We have never owned gold, but based on what I have read and observed, I wouldn't buy now. Among other things, I see storefront gold purchasing operations popping up all over town, so people can get cash for their bling. That's the sign of a top for me.

In addition to my own money, I also manage my church's endowment fund. In March 2009, I decided that corporate bond spreads over treasuries were priced for apocalypse (which I thought unlikely to occur), so I put a slug of money into LQD. It is my belief that we are on the road to recovery and that yields will rise over the next year, although I am uncertain when or how fast. Accordingly, I recently changed the dividend reinvestment to cash instead of repurchase and put in two stop orders. I also put some new money into DVY, because I think people are currently irrationally piling into bonds and ignoring higher yielding dividend stocks.

 

[clifp]

Is it good or bad news that I pretty much completely agree with you..

 

[Nords]

"What we need right now is a good way to short this bubble. Any ideas?"

-- Jon Paulson, 2005

 

[haha]

So you suggest we sell our gold and buy stocks ?

Did he say that?

 

[chinaco]

I came across this chart yesterday and found it interesting. If one believes in reversion to the mean, it would seem best to avoid gold and long treasuries right now.

Of course not! This time it is different.


IMO - The only question is timing!

I have heard the siren song of gold several times over my life, but have not been lulled into the buy (mainly because I can't judge the moves). Gold seems to either doing nothing for 15 to 20 years or spike for a short term.

If I owned it... I would sell to get back my initial investment immediately. Then I would average out of the rest of it. I might leave a little on the table just in case it gets really crazy (mega bubble). Hopefully my green eyed greed would not distract me from taking my last bet and winnings off the table before it collapses.


I had some long-term treasuries (not much) that I held for several years but sold it. I wanted to shorten my average duration on bond holdings. Inflation, deflation, stagflation, who knows.

I am right in the middle with a Goldilocks Bond Portfolio. Duration not too long, not too short. Hopefully I will make a little and not get beat up too bad when the fear and loathing turns to greed. Of course which side is fear and which is greed depends on whether you are longy or a shorty.

 

[obgyn65]

Hello Gumby

Have you seen this :

Soros Warns of Gold Bubble - TheStreet

I have never bought gold and do not intend to do so in the future.

I came across this chart yesterday and found it interesting. If one believes in reversion to the mean, it would seem best to avoid gold and long treasuries right now.

 

[RonBoyd]

Survivor Index: Real Men Don’t Buy Gold

A Pantywaist Investment: While gold is typically considered a source of investor refuge in periods of political and economic turmoil, it represents a pantywaist investment for “real men”. If financial turmoil slips into global chaos the “basics” become: food, potable water, breathable air, energy, guns and ammunition.

This article was inspired by an article in the WSJ by Jonathan Cheng, called “Investors Head Bunkers, Driving Up ‘Shelter Shares’” (August 28, 2010) which explained the goods to be found in any respectable fallout shelter. I have narrowed his list of 18 stocks and added to the list to develop a list that focuses more on pure survival goods.

 

[rmark]

'We have never owned gold, but based on what I have read and observed, I wouldn't buy now. Among other things, I see storefront gold purchasing operations popping up all over town, so people can get cash for their bling. That's the sign of a top for me.'

20 years ago when the ostrich farm fad was running it's course (had some friends who messed around with some) I remember seeing a huge billboard along the interstate extolling the virtues of having ostriches. I told my wife that if it required that billboard to keep buyers coming into the market then prices were due to fall. They did.

 

[Ed_The_Gypsy]

I have never bought gold and do not intend to do so in the future.

How much is the dividend? What does it pay?

 

[RunningBum]

Should you sell gold to pay off your mortgage?

 

[obgyn65]

Dividends do not apply to me... not interested and don't want to know.... I only have CDs, money market and bonds... sorry Ed.

How much is the dividend? What does it pay?

 

[ziggy29]

I don't think their stock returns include reinvested dividends in this graph. In the last 10 years, with dividends the stock market is close to flat, not down 30%.

The funny thing about Treasuries and gold is that they have been the best performers but are highly uncorrelated in many ways. Gold benefits from uncertainty about the security of the dollar, for example.

 

[Ed_The_Gypsy]

Note that the 'stocks' above are the S&P 500. Slice-and-dice selection of specific asset categories has done much better--for me, at least.

Many years ago, when I learned about asset classes, I found that many asset classes (e.g., cash), while they have different phases and therefore would smooth out the bumps and potholes in a balanced portfolio, do not have very good returns by themselves. For the longest time now, the S&P 500 has not been a positive performer. (See an earlier post on Galeno Revisited.)

Volatility does not scare me as long as the assets have good long-term returns. In my accumulation phase, I resolved not to invest in stuff that has poor performance over the long run (i.e., does not make money). Thus a bias toward small cap, value and emerging markets. Now I am paying more attention to income and dividends.

It seems to be working pretty well. I am looking forward to the distribution phase--someday.

 

[Nords]

Thus a bias toward small cap, value and emerging markets. Now I am paying more attention to income and dividends.
It seems to be working pretty well. I am looking forward to the distribution phase--someday.

That phase works pretty well too!

 

[RonBoyd]

A Better Way to Invest in Gold

My thinking on gold is also shaped by the argument, made by both Warren Buffett and Jeremy Grantham, that gold is inherently difficult to value. The price of gold is far more behaviorally driven than are prices of other asset classes.

Jeff Gundlach recently suggested that here is potential for additional upside in gold to the extent that investors become convinced that gold is an asset class that every portfolio should have at least some allocation to, although he is also concerned that gold has become too ‘faddish.’

 

[Ed_The_Gypsy]

Gold is just another commodity. IIRC, the major use of gold is in school graduation rings.

As commodities go, I favor oil. I have a part of my assets in a few energy companies. The uses of oil are more fundamental than jewelry.

However, if one were a trader who used psychology instead of fundamentals to make money, gold makes sense.

 

[HFWR]

No pure gold in my portfolio. Own some commodities producers in my index funds, and whatever exposure to gold I get with 5% PCRIX.

 

[MasterBlaster]

Quote:
Originally Posted by MasterBlaster
So you suggest we sell our gold and buy stocks ?

Did he say that?

No he didn't say that , the chart did.

 

[haha]

Quote:
Originally Posted by MasterBlaster
So you suggest we sell our gold and buy stocks ?





No he didn't say that , the chart did.

Charts don't talk. If you abstracted that from the chart, you can always act on your take.

Ha

 

[dex]

I came across this chart yesterday and found it interesting. If one believes in reversion to the mean, it would seem best to avoid gold and long treasuries right now.

I like your investments in your second post.

As to the chart, I think a standard needs to to be done for each asset - e.g. p/e ratio for the s&p - to evaluate if it is over or under its mean.

As to gold; this guy is saying it is in a bull market until 2020
http://ttheory.typepad.com/files/goldmegat-20100917pdf.pdf

 

[Gumby]

This may provide some longer term context in which to evaluate these numbers. Unfortunately, it does not show gold.
WWWFinance - Historical Returns: Campbell R. Harvey