Living and Losing

[gcgang]

The drop in gold and the market the other day wiped out about a year and a half of income. Fortunately, every time the market declines like this the anguish takes off about a year and a half from my life expectancy. All is good.

 

[heeyy_joe]

When it gets to be a 20% drop, let's talk.

 

[gcgang]

When it gets to be a 20% drop, let's talk.

I think gold is now down almost 30%. Can't talk because I feel like I'm choking on something.

 

[yakers]

I sold some gold at $900, $1,000, & $1,300, I believe gold is again over $1,400. I would not buy any until it goes under $1,200 and preferably under $1,000. Saw an interesting study on Seeking Alpha which indicated that the all in cost of mining gold is about $1,400 industry wide. This seems high to me but I do not study the mining industry, I assume the efficient producers cost a lot less. Countries hold large reserves which they sell off when prices get high (and probably buy if the price gets really low). And large amounts are owned privately so there is no way to establish its value IMHO. But if it gets back to $900 or $1,000 or so I will consider adding some coins to my assets.

 

[FIREd]

I own some gold and silver (5% of my portfolio) and the last few days have not been pretty. But you must have been heavily invested in gold to lose so much, because the stock market is still hovering near all time highs and bonds have done OK in the meantime. Hence the need to diversify. But market busts are a fact of life when you are an investor. Better get used to it. Last year, we lost about $300K in a single month due to a huge drop in DW's company stock. It builds character.

As an aside, I bought more gold on Monday because my precious metal allocation dipped below 4% and it was time to rebalance.

 

[Tyro]

Saw an interesting study on Seeking Alpha which indicated that the all in cost of mining gold is about $1,400 industry wide.

That's the highest figure I've heard quoted so far, but I haven't been following it all that seriously. The figures I've heard/read about ranged from ~$800 - ~$1300, depending on the producer and quality of ore, of course. I don't think I'd want to be a miner/producer if costs were that much higher than the industry average, especially when (as a paper mentioned in the other gold thread) the market price should be around the bottom of that range.

I own some gold and silver (5% of my portfolio)
....
I bought more gold on Monday because my precious metal allocation dipped below 4% and it was time to rebalance.

What if the price keeps going down, you keep accumulating, and the price stays down for a prolonged period? That's what happened to me, and why I finally got out of it entirely. While it sat there for almost 20 years doing nothing (or vascillating within a narrow range), I couldn't help but keep wondering what that money could have been doing elsewhere.

It wasn't a lot, but as the punchline goes, "Ten bucks is ten bucks!"

Tyro

 

[FIREd]

What if the price keeps going down, you keep accumulating, and the price stays down for a prolonged period?

I am aware of the history of gold prices and I know that the 1980-2000 scenario you describe could happen again. It does not deter me.

By the way, the same can be true for stocks (look at the Nikkei), and other assets as well, I'm sure.

 

[Mulligan]

When it gets to be a 20% drop, let's talk.

That is funny you mention 20%. Now I don't have nearly as much assets as many people here do, but I do have the problem of loss aversion. I keep track monthly of my assets to motivate me to save each month. But, I deliberately have written off 20% of my stock assets and don't have it on my spreadsheet. That way if it does drop 10%-20% I can work the money back into my totals, so I don't feel like I have lost any. Dumb I know, but it keeps me from worrying about posting a monthly loss.

 

[REWahoo]

I deliberately have written off 20% of my stock assets and don't have it on my spreadsheet. That way if it does drop 10%-20% I can work the money back into my totals, so I don't feel like I have lost any. Dumb I know, but it keeps me from worrying about posting a monthly loss.

Whatever works.

I do a similar 20% age write off whenever I look in the mirror.

 

[MichaelB]

I think gold is now down almost 30%. Can't talk because I feel like I'm choking on something.

You probably have too much risk in your portfolio and need to reduce it.

What if the price keeps going down, you keep accumulating, and the price stays down for a prolonged period? That's what happened to me, and why I finally got out of it entirely. While it sat there for almost 20 years doing nothing (or vascillating within a narrow range), I couldn't help but keep wondering what that money could have been doing elsewhere.

Peter Bernstein said you’re not truly diversified unless you have an allocation in your portfolio that you are uncomfortable owning.

As an aside, I bought more gold on Monday because my precious metal allocation dipped below 4% and it was time to rebalance.

This week I put 2.5% of the portfolio into Vanguard Precious Metals and Mining. If the price declines from here take it to 5%.

As pointed out in the other gold thread, it is not just insurance against market fear and inflation, it also helps protect against policy blunders by central banks.

 

[Mulligan]

Whatever works.

I do a similar 20% age write off whenever I look in the mirror.

Good idea! My "readers" are now banned from the bathroom mirror area so now when I look without the glasses I will have that Barbara Walters soft glow look in the mirror. That should knock 20% off.

 

[haha]

I own some gold and silver (5% of my portfolio) and the last few days have not been pretty. But you must have been heavily invested in gold to lose so much, because the stock market is still hovering near all time highs and bonds have done OK in the meantime. Hence the need to diversify. But market busts are a fact of life when you are an investor. Better get used to it. Last year, we lost about $300K in a single month due to a huge drop in DW's company stock. It builds character.

As an aside, I bought more gold on Monday because my precious metal allocation dipped below 4% and it was time to rebalance.

My gold allocation, if it can be considered as such is less than 2.5%, all in miners. But I don't really consider it an allocation, more a speculation. How could I soberly allocate to gold when to my mind there is no real way to determine its worth?

Anyway, it appears to have ben a spectacularly poorly reasoned speculation. I think my choice of stocks was not stupid, but obviously my idea about when or if to make this commitment was. in retrospect, I think was putting into action my opinion of worldwide monetary and fiscal policies. Probably always a poor reason to commit money.

I won't sell out. I look upon these small positions as long options which may eventually pay off.

Ha

 

[W2R]

The drop in gold and the market the other day wiped out about a year and a half of income. Fortunately, every time the market declines like this the anguish takes off about a year and a half from my life expectancy. All is good.

I think gold is now down almost 30%. Can't talk because I feel like I'm choking on something.

You probably have too much risk in your portfolio and need to reduce it.

+1

Gcgang, I have one of those unexciting, low risk portfolios that does not give me any bragging rights, but also does not keep me up nights during market drops (or much smaller market wanderings such as we have had this week). Honestly, I had barely given it a second thought.

You might try that.

 

[haha]

Saw an interesting study on Seeking Alpha which indicated that the all in cost of mining gold is about $1,400 industry wide. This seems high to me but I do not study the mining industry, I assume the efficient producers cost a lot less. Countries hold large reserves which they sell off when prices get high (and probably buy if the price gets really low). And large amounts are owned privately so there is no way to establish its value IMHO. But if it gets back to $900 or $1,000 or so I will consider adding some coins to my assets.

All in cost is hard to establish, but industry wide cash costs are slightly above $700/oz in 2011, undoubtedly higher now. A mine that could produce at $500 to $550 per ounce would be considered a very good mine.

Regarding central banks gold trading behavior, in recent years they are more likely to have acted procyclically. Banks selling off their gold was all the rage in the early 00s, and lately in the aggregate they have been buying.

Ha

 

[FIREd]

My gold allocation, if it can be considered as such is less than 2.5%, all in miners. But I don't really consider it an allocation, more a speculation. How could I soberly allocate to gold when to my mind there is no real way to determine its worth?

I do consider gold to be a purely speculative investment. But I hold it not as an investment (profit making is not my reason for holding gold). If I wanted to make an investment, I would invest in gold miners (paying dividends). But after review, I decided that it wasn't an investment I was willing to make.

 

[Live And Learn]

I own some gold and silver (5% of my portfolio) and the last few days have not been pretty. .

Silver and Gold is probably about 5% of my net worth also. Despite market drops mine is still VERY pretty. In fact, as I look at my fingers my rings are shining just the same at they did 3 days ago when they were worth much more !

Seriously - the reason we hold metals is diversification. Oddly gold and the market have been moving in the same direction which is frustrating. However, I believe this too shall pass.

 

[Live And Learn]

That is funny you mention 20%. Now I don't have nearly as much assets as many people here do, but I do have the problem of loss aversion. I keep track monthly of my assets to motivate me to save each month. But, I deliberately have written off 20% of my stock assets and don't have it on my spreadsheet. That way if it does drop 10%-20% I can work the money back into my totals, so I don't feel like I have lost any. Dumb I know, but it keeps me from worrying about posting a monthly loss.

If that methodology is dumb then color me dumb also ... but I only use a 10% drop. Its funny when I check my porfolio and go "whew" when its still higher than my "90% value". I agree that this methodology significantly reduces stress.

 

[heeyy_joe]

I think gold is now down almost 30%. Can't talk because I feel like I'm choking on something.

Don't give a hoot about gold, it's worth about $800 oz. If the stock market drops 20%, there will be lot's to discuss.

 

[sengsational]

Seems like a drop from 1600 to 1400 would be 12.5%. I don't pay that much attention to it, but just looked it up.

I put today's price in my spreadsheet (that probably has errors, hehe) but my IRR for gold went from 7.5% (3/31/2013) to 6.7% (today). Not good news, but nothing to lose any sleep over. Of course it's a pretty small portion of my portfolio, so even less of a concern.

 

[brewer12345]

All in cost is hard to establish, but industry wide cash costs are slightly above $700/oz in 2011, undoubtedly higher now. A mine that could produce at $500 to $550 per ounce would be considered a very good mine.

Ha

Students of economic history will note that there are a lot of cases in the past where the price of a good or service dropped to about (or even below) marginal cash costs for the industry and stayed there for an extended period of time (months to years). It is not hard to imagine gold falling to the cash cost of most of the industry mines.

 

[Tyro]

I am aware of the history of gold prices and I know that the 1980-2000 scenario you describe could happen again. It does not deter me.

By the way, the same can be true for stocks (look at the Nikkei), and other assets as well, I'm sure.

In which case I'd still be wondering, and looking for, better places elsewhere. Riding out the fluctuations works when you expect prices to rise again within a reasonable time, but if we had a 20 year bear market in stocks, I think even Bogle would be ok with looking at options. YMMV.

 

[Tyro]

Peter Bernstein said you’re not truly diversified unless you have an allocation in your portfolio that you are uncomfortable owning.

Pithy, but I'm pretty sure he didn't mean to invest in something [-]foolhardy[/-] with a probable bleak outlook for the forseeable future, and I'm not sure it makes good financial sense to have stagnating assets eaten away by inflation for two decades.

I would think some kind of stop-loss in the case of falling prices, or time limit in the case of stagnation would be prudent. YMMV.

 

[Tyro]

My gold allocation, if it can be considered as such is less than 2.5%, all in miners. But I don't really consider it an allocation, more a speculation. How could I soberly allocate to gold when to my mind there is no real way to determine its worth?

+1 and better said than I'm doing.

 

[FIREd]

Pithy, but I'm pretty sure he didn't mean to invest in something [-]foolhardy[/-] with a probable bleak outlook for the forseeable future, and I'm not sure it makes good financial sense to have stagnating assets eaten away by inflation for two decades.

Lots of definitive statements about the future here. Let's wait and see what happens, shall we?

 

[MichaelB]

An infrequent blog post from Ray Dalio Ray Dalio Blog: RAY DALIO: There's No Sensible Reason Not To Own Gold

"I think gold should be a portion of every one's portfolio to some degree because it diversifies the portfolio. It is the alternative money." - Ray Dalio
./.
There's no sensible reason not to have some. If you're going to own a currency, it's not sensible not to own gold. Now it depends on the amount of gold. But if you don't own, I don't know 10%, if you don't have that and that depends on the world, then there's no sensible reason other than you don't know history and you don't know the economics of it.