How much Gold do you own and why?

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Da5id
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Re: How much Gold do you own and why?

Post by Da5id »

HanSolo wrote: Sat Jul 31, 2021 8:30 pm
Da5id wrote: Sat Jul 31, 2021 7:50 pm I suspect he was using "cash" in the sense Portfolio Visualizer or most investors use it. Not US Dollars stuffed into the mattress, but instead very short term treasuries (or money markets or such).
It sounds like you're saying that "most investors" would look at the chart posted upthread and say "cash" refers to the T-Bills line, not the USD line. I get that this is your opinion.

In any case, I posed a question upthread ("How does gold do in that comparison?")... interesting that nobody can directly address it.
I didn't say that specifically with regard to the chart, I don't know how people would choose to interpret it. But if you say someone's asset allocation has "5% cash" your interpretation (money under the mattress) isn't what is usually meant. I believe that cash, in the investing allocation sense, means what I said (and what Portfolio Visualizer says for that matter).

I didn't read and am not interested in your question per se, if your comment is aimed at me.
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Re: How much Gold do you own and why?

Post by GoneOnTilt »

HanSolo wrote: Sat Jul 31, 2021 8:30 pm In any case, I posed a question upthread ("How does gold do in that comparison?")... interesting that nobody can directly address it.
Let me take one more shot, if I may, because it'll help me clarify for myself as well.

It seems that over the long haul, gold does better than cash in hedging against inflation, at the price of much greater volatility. But using gold for short- to medium time horizons as an inflation hedge would be a bad idea, precisely because of its volatility.

So the answer to your question is, "it depends."
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Re: How much Gold do you own and why?

Post by Bagels »

Always passive wrote: Thu Jul 29, 2021 10:33 am I happen to own a bit less than 5% and wonder if I should not increase it to 10%.
For those that believe in this asset, what is the reason that you believe in it?
How much: 6%
Why: - It began with the permanent portfolio, although i cannot bring myself to own 25%, nor to have 100% in the p.p.
- If I were the victim of identy theft, I could sell some of the gold in my possession while trying to retrieve my digital assets.
- I want to leave some to my heirs.
- With all the bogleheads proudly talking about wedding rings or zero gold over the years, it just feels delightfully naughty.

That said, I don’t know that I believe in it in the way you mean, or i would own much more of it. I prefer stocks and bonds.
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HanSolo
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Re: How much Gold do you own and why?

Post by HanSolo »

Da5id wrote: Sat Jul 31, 2021 8:39 pm I didn't say that specifically with regard to the chart, I don't know how people would choose to interpret it. But if you say someone's asset allocation has "5% cash" your interpretation (money under the mattress) isn't what is usually meant.
Yes, of course. That's why I posed my original question as comparing long-term gold holdings to cash or near-cash (money markets, short-term bonds, etc.). Saying "well, near-cash beat inflation" is off-topic. Nobody in this thread is asking what beats inflation and what doesn't. The topic is why hold gold.

Also, cash (or near-cash) didn't beat inflation on an after-tax basis. Gold did.
I didn't read and am not interested in your question per se, if your comment is aimed at me.
It was an on-topic question. The other stuff was off-topic.

So, to get back to the apples-to-apples comparison I proposed, it appears that for long-term holding (e.g., over an investment lifetime), diversifying some part of one's cash and/or short-term bond allocation to gold has shown a positive long-term effect, in terms of both total return (compared to cash and near-cash) and volatility reduction (the Permanent Portfolio folks, at least, like to tout reduced volatility when gold is included along with stocks and long-term bonds).

And that is one reason why some people (including myself) include gold in their AA.

I think my comment is on-topic and I'm not seeing any fallacy in it.
Last edited by HanSolo on Sat Jul 31, 2021 10:24 pm, edited 9 times in total.
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Dregob
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Re: How much Gold do you own and why?

Post by Dregob »

BHawks87 wrote: Sat Jul 31, 2021 6:10 pm
Dregob wrote: Sat Jul 31, 2021 5:10 pm
Always passive wrote: Thu Jul 29, 2021 10:33 am I know that gold is a highly controversial investment. There are many opinions, from Buffett's very negative to those that hold 25% following the Permanent Portfolio strategy.
I happen to own a bit less than 5% and wonder if I should not increase it to 10%.
For those that believe in this asset, what is the reason that you believe in it?
I would appreciate your comments!
Do gold crowns count?
Two in my head and one that had to be replaced in the drawer.
I would say that's a poor way to diversify. If there is a societal collapse you will have to pull your own teeth to barter for food that you will be unable to eat. :oops:
:shock:
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Re: How much Gold do you own and why?

Post by Dregob »

RadAudit wrote: Sat Jul 31, 2021 6:13 pm
Dregob wrote: Sat Jul 31, 2021 5:10 pm Do gold crowns count?
Two in my head and one that had to be replaced in the drawer.
When you start looking at gold crowns as a part of the portfolio, things are getting really serious
Or things are getting pretty silly!!
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Re: How much Gold do you own and why?

Post by 000 »

Da5id wrote: Thu Jul 29, 2021 10:36 pm
000 wrote: Thu Jul 29, 2021 10:23 pm Currently around 13% gold, 10% precious metal miners.

For valuation diversification because both stock indices and fiat instruments look likely overvalued to me.
I'm on board with stocks (US large cap in particular) being historically pricey and bond yields are indeed poor. But what is your criteria for gold being reasonably priced? Not really interested in investing in this asset class, just curious.
Broad stock indices and fiat instruments are priced under the prevailing market assumption that the developed world will never experience serious inflation or social upheaval of any kind ever again in our lifetimes. I disagree with that assumption. Note to all the people who think that serious inflation / social upheaval will necessarily and immediately result in the complete breakdown of everything and the confiscation of all assets: the real world is a lot more nuanced than that.
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Re: How much Gold do you own and why?

Post by Da5id »

000 wrote: Sat Jul 31, 2021 9:17 pm
Da5id wrote: Thu Jul 29, 2021 10:36 pm
000 wrote: Thu Jul 29, 2021 10:23 pm Currently around 13% gold, 10% precious metal miners.

For valuation diversification because both stock indices and fiat instruments look likely overvalued to me.
I'm on board with stocks (US large cap in particular) being historically pricey and bond yields are indeed poor. But what is your criteria for gold being reasonably priced? Not really interested in investing in this asset class, just curious.
Broad stock indices and fiat instruments are priced under the prevailing market assumption that the developed world will never experience serious inflation or social upheaval of any kind ever again in our lifetimes. I disagree with that assumption. Note to all the people who think that serious inflation / social upheaval will necessarily and immediately result in the complete breakdown of everything and the confiscation of all assets: the real world is a lot more nuanced than that.
So you are saying that gold is priced well for that circumstances currently? TIPs also aren't priced for particularly high inflation I gather (https://fred.stlouisfed.org/series/T10YIE)
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Re: How much Gold do you own and why?

Post by 000 »

Da5id wrote: Sat Jul 31, 2021 9:19 pm So you are saying that gold is priced well for that circumstances currently? TIPs also aren't priced for particularly high inflation I gather.
I am saying gold is one of a handful of financial assets I would consider meaningfully "out of favor" in the prevailing modernity. Other examples (for different reasons and with different pros/cons) include cash due to the wall street "cash is trash" meme, nuclear power, oil, etc. due to the "green" movement, and locally-oriented firms that could benefit from deglobalization. Natural resources generating land is an edge case as it's hot right now.
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Re: How much Gold do you own and why?

Post by Da5id »

000 wrote: Sat Jul 31, 2021 9:29 pm
Da5id wrote: Sat Jul 31, 2021 9:19 pm So you are saying that gold is priced well for that circumstances currently? TIPs also aren't priced for particularly high inflation I gather.
I am saying gold is one of a handful of financial assets I would consider meaningfully "out of favor" in the prevailing modernity. Other examples (for different reasons and with different pros/cons) include cash due to the wall street "cash is trash" meme, nuclear power, oil, etc. due to the "green" movement, and locally-oriented firms that could benefit from deglobalization. Natural resources generating land is an edge case as it's hot right now.
Got it. I'm fine with US/int'l stocks, bonds, TIPS, and a bit of commercial real estate, just was curious what peoples reasons are for what they get.

Though with gold having a CAGR of almost 10% for last 5 years is it really "out of favor" that much? Seems like a decent run up recently.
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Re: How much Gold do you own and why?

Post by 000 »

Da5id wrote: Sat Jul 31, 2021 9:30 pm Got it. I'm fine with US/int'l stocks, bonds, TIPS, and a bit of commercial real estate, just was curious what peoples reasons are for what they get.

Though with gold having a CAGR of almost 10% for last 5 years is it really "out of favor" that much?
Good recent returns don't necessarily indicate an asset is in favor or is about to experience bad returns. Something like c*ypto went for years and years with people on the sidelines saying it couldn't go higher. It hadn't yet come into favor broadly in society / investing community.

As for gold the goldbug's view would be that it is tracking the real inflation and the fact that investors are still largely passively throwing their savings into a stock / bond portfolio indicates where favor is. The counterview would be that gold has been unreasonably bid up over the last 10+ years due to increasing social volatility / fear that will somehow be resolved soon. Both seem possible to me.
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Re: How much Gold do you own and why?

Post by luckyducky99 »

I believe in gold as a diversifier. I think the history for it acting as such is strong enough to make a case for owning it. And I believe the psychological/behavioral basis -- that enough people put enough value on it as a store-of-value/flight-to-safety asset -- is widely enough held that it is much more likely than not to continue to act that way.

All that said, I don't own any, because I don't trust myself to keep buying more if it were to underperform. I.e. I have personal behavioral issues that outweigh the rational arguments I can make to myself for owning it.
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Re: How much Gold do you own and why?

Post by desconhecido »

Dregob wrote: Sat Jul 31, 2021 8:59 pm
BHawks87 wrote: Sat Jul 31, 2021 6:10 pm
Dregob wrote: Sat Jul 31, 2021 5:10 pm
Always passive wrote: Thu Jul 29, 2021 10:33 am I know that gold is a highly controversial investment. There are many opinions, from Buffett's very negative to those that hold 25% following the Permanent Portfolio strategy.
I happen to own a bit less than 5% and wonder if I should not increase it to 10%.
For those that believe in this asset, what is the reason that you believe in it?
I would appreciate your comments!
Do gold crowns count?
Two in my head and one that had to be replaced in the drawer.
I would say that's a poor way to diversify. If there is a societal collapse you will have to pull your own teeth to barter for food that you will be unable to eat. :oops:
:shock:
Indeed. But, gold in one's mouth may be more useful during a "societal collapse" than gold held in an etf or by a professional gold storage firm. Reading this thread, it's my wag that most people don't have significant physical gold in their personal possession.
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HanSolo
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Re: How much Gold do you own and why?

Post by HanSolo »

desconhecido wrote: Sat Jul 31, 2021 11:05 pm Indeed. But, gold in one's mouth may be more useful during a "societal collapse" than gold held in an etf or by a professional gold storage firm. Reading this thread, it's my wag that most people don't have significant physical gold in their personal possession.
If that's true, maybe it means there are more people looking at overall portfolio considerations than Mad Max scenarios.
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Re: How much Gold do you own and why?

Post by Marmot »

20 coins ...just because. And....just because I call them "my precious" ,doesn't mean there is anything wrong with me.
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Re: How much Gold do you own and why?

Post by halfnine »

Marmot wrote: Sat Jul 31, 2021 11:41 pm 20 coins ...just because. And....just because I call them "my precious" ,doesn't mean there is anything wrong with me.
Well, it could mean you have a natural survival instinct and should make it until near the end of the book. So there's that.
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Re: How much Gold do you own and why?

Post by peskypesky »

GoneOnTilt wrote: Sat Jul 31, 2021 4:05 pm Then what about Mr. Bogle's emphatic statement that "Gold is not an investment at all!":

https://www.youtube.com/watch?v=KlhT07G8zGs

By the above stated standard, this thread should be locked!!
According to forum rules:
"Examples of acceptable topics include news about new fund offerings, pointers to academic papers about investing issues, questions about the proper role of a particular asset class in a portfolio, or questions about Vanguard policies".
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Re: How much Gold do you own and why?

Post by seajay »

"I prefer Gold to Dollars, as it enabled me to become a multi-trillionaire" ... Mr Zimbabwe

"Gold isn't a investment" ... Jack Bogle. No, its a currency. A tier 1 asset within central banks, that many hold as part of their reserves. Unlike fiat currencies that over time tend to see more notes being printed (a form of micro-taxation that devalues all other notes in circulation) gold is finite. With fiat currencies you have to invest if you are to have any hope of that currency not losing purchase power (inflationary devaluation). As part of that Jack Bogle once said that many investors only received 40% of the investment total returns after costs, taxes, hidden expenses, fees ...etc., where investors take 100% of the risk for less than 40% of the reward ... citing a example of 8% total rewards, 50 year investment period/lifetime where the investor received just 6% after costs/taxes (47 gain factor reduced to 18 gain factor).

Go into a shop in London and offer to pay for $50 value of goods in US Dollar currency and the checkout will most likely say sorry. Offer a golden eagle that has a legal tender value of $50 as payment and they'd be far more inclined to make the exchange knowing that the gold commodity value of that ounce of gold was worth far more than $50 i.e. gold is a globally recognised/accepted currency.

Should investors hold currencies/cash? Well stuff 66% gold, 33% US Dollars under a mattress in 1792 and rebalance back to 67/33 weightings yearly, and of recent that would still have the same purchase power for a UK resident, entirely offset over 200 years of UK inflation. Just holding hard currencies alone however isn't investing, investing involves swapping some or maybe all of cash/currencies for shares/bond certificates/whatever. Exchange all of the US$ for US bonds, half of the gold for stock shares, and collectively that bond/stock/cash (gold) asset allocation tended to out-run inflation in a relatively consistent manner.

Image

"Gold doesn't fit" Well with policies/practices of ... start early, live below one's means, regularly save, broad diversification, simplicity, and sticking to one's investment plan regardless of market conditions ... and whether including or excluding cash/currencies/gold as part of that fits or not and IMO it fits.
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Re: How much Gold do you own and why?

Post by Da5id »

seajay wrote: Sun Aug 01, 2021 4:42 am Should investors hold currencies/cash? Well stuff 66% gold, 33% US Dollars under a mattress in 1792 and rebalance back to 67/33 weightings yearly, and of recent that would still have the same purchase power for a UK resident, entirely offset over 200 years of UK inflation. Just holding hard currencies alone however isn't investing, investing involves swapping some or maybe all of cash/currencies for shares/bond certificates/whatever. Exchange all of the US$ for US bonds, half of the gold for stock shares, and collectively that bond/stock/cash (gold) asset allocation tended to out-run inflation in a relatively consistent manner.

Image
I don't have strong opinions on gold. I don't own it or plan to, but am reading thread to see what I can learn about others thinking mostly out of curiosity.

I do have strong opinions on graphs with single starting points being used to illustrate something. Gold had a great runup from 1972 to 1980, a period in which stocks did poorly. If you start in 1980 (after the gold run up), 100% stocks or for that matter 66% stocks/34% bonds looks much better in terms of outcome (though gold still does dampen overall volatility). Not saying THAT single starting point graph is any more valid, just that single starting point graphs are pretty tendentious. Kind of analogous to the old saying "lies, damned lies, and statistics".
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Re: How much Gold do you own and why?

Post by nigel_ht »

seajay wrote: Sun Aug 01, 2021 4:42 am

Unlike fiat currencies that over time tend to see more notes being printed (a form of micro-taxation that devalues all other notes in circulation) gold is finite.
https://theprint.in/opinion/giant-aster ... er/260482/

Asteroid mining is still a couple, three decades away…
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Re: How much Gold do you own and why?

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Re: How much Gold do you own and why?

Post by seajay »

Da5id wrote: Sun Aug 01, 2021 7:56 am
seajay wrote: Sun Aug 01, 2021 4:42 am Should investors hold currencies/cash? Well stuff 66% gold, 33% US Dollars under a mattress in 1792 and rebalance back to 67/33 weightings yearly, and of recent that would still have the same purchase power for a UK resident, entirely offset over 200 years of UK inflation. Just holding hard currencies alone however isn't investing, investing involves swapping some or maybe all of cash/currencies for shares/bond certificates/whatever. Exchange all of the US$ for US bonds, half of the gold for stock shares, and collectively that bond/stock/cash (gold) asset allocation tended to out-run inflation in a relatively consistent manner.

Image
I don't have strong opinions on gold. I don't own it or plan to, but am reading thread to see what I can learn about others thinking mostly out of curiosity.

I do have strong opinions on graphs with single starting points being used to illustrate something. Gold had a great runup from 1972 to 1980, a period in which stocks did poorly. If you start in 1980 (after the gold run up), 100% stocks or for that matter 66% stocks/34% bonds looks much better in terms of outcome (though gold still does dampen overall volatility). Not saying THAT single starting point graph is any more valid, just that single starting point graphs are pretty tendentious. Kind of analogous to the old saying "lies, damned lies, and statistics".
I just maxed to the available data. 1980 had Dow/Gold at near 1.0, a ounce of gold bought a Dow stock index share. Late 1990's and a Dow share bought 40 ounces of gold. Yes you can be selective in choice of start and end dates to picture whatever bias you might want to portray. Just to clarify I had no desire/intent to paint such biased pictures.
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Re: How much Gold do you own and why?

Post by seajay »

nigel_ht wrote: Sun Aug 01, 2021 8:31 am
seajay wrote: Sun Aug 01, 2021 4:42 am

Unlike fiat currencies that over time tend to see more notes being printed (a form of micro-taxation that devalues all other notes in circulation) gold is finite.
https://theprint.in/opinion/giant-aster ... er/260482/

Asteroid mining is still a couple, three decades away…
Manufacture diamonds, mine a golden asteroid ... whatever and when as common as water prices obviously will collapse. 1933 to 1975 investment gold was outlawed in the US, silver could have been substituted to equal effect. Others hold artworks ...etc. scarcity yields high prices. IIRC Goldfinger (007 film) sought to make his gold more scarce by dirty bombing Fort Knox (irradiate the gold) as the means to ramp up the value of his gold.

I guess the more strict term should be Precious Metals/assets. Whether such assets are investments or not is debatable. Much of 'Old Money', generational wealth, passed on wealth from generation to generation via 'a third, a third, a third' .... land, art, gold. IIRC Prof Dimson and others from Cambridge University performed a study where Maynard Keynes' art collection longer term rewards were assessed as having compared to all-stock total returns. https://papers.ssrn.com/sol3/papers.cfm ... id=2657741

A natural tendency for scarce stuff is to broadly see others willing to pay a inflation adjusted higher price over time. Some very rich buy pictures for very high prices that to me look like it was painted in a kindergarten. I suspect that often its not because they like the actual art, but rather as a diversifier/investment such that if ever they befall bad times some other rich individual might take it off their hands for the same or more in inflation adjusted terms.
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Re: How much Gold do you own and why?

Post by TxFrog »

5% of my portfolio is in gold (about 2 - 3% of NW).

Reasons I hold gold are (not in any order of preference):

1. Diversification and non-correlation - over the past 50 years (I know the pitfalls of back testing) having an allocation to gold (and rebalancing) has provided good returns.

2. Gold’s value, while volatile, has IMO stood the test of time and will probably have a real return of around 0%.

3. No reliance on central banks or fiscal policies to do their job (this is more of a cash vs. gold argument). The value of one’s local currency is dependent on those who are in control. This more of an issue for investors in Argentina, Lebanon, Venezuela, etc.. But this could happen anywhere.

Also, I think it’s completely reasonable to hold zero gold. But realistically no BHs are going to run out money and be flat out broke because they held a small allocation to gold.
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Re: How much Gold do you own and why?

Post by Forester »

In a world of negative yielding debt, statements about "greater fools" could age like milk (non-zero possibility).
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Re: How much Gold do you own and why?

Post by Capster1 »

I think .2% of my portfolio is in IAU. At some point, I plan to sell the rest of it. It's such a small percentage of my portfolio, and I can't see myself buying more unless the price completely crashes.
On the other hand, 3% of my entire investment portfolio is in Silver. This is largely due to buying in 2005-2006 when it was $7.30 an ounce. Due to how correlated silver often is with the market, I can't say I think it's the best diversifier/investment. However, I did run the numbers awhile back and the returns were pretty decent since I bought. Like many things, when you buy plays a huge difference.
Over the years, I've sold a few pcs here and there above $33/ounce, but it's something I plan to hold forever. Why? I like the looks of the rounds and having it as a keepsake more than anything. It functions more like a collectible to me, something I just find cool 8-)
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Re: How much Gold do you own and why?

Post by grkmec »

None. I used to own gold but Bitcoin has displaced that in my portfolio for the last several years.
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Re: How much Gold do you own and why?

Post by cashboy »

Always passive wrote: Thu Jul 29, 2021 10:45 am
Toons wrote: Thu Jul 29, 2021 10:39 am None
Non producing Asset


:happy
If you do not invest in gold, please do not answer. I am looking for reasons to invest and not why not invest.
just an idea: perhaps the title of the thread might be:

If you own Gold, How much Gold do you own and why?
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Re: How much Gold do you own and why?

Post by LadyGeek »

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Re: How much Gold do you own and why?

Post by mffl »

seajay wrote: Sun Aug 01, 2021 4:42 am Go into a shop in London and offer to pay for $50 value of goods in US Dollar currency and the checkout will most likely say sorry. Offer a golden eagle that has a legal tender value of $50 as payment and they'd be far more inclined to make the exchange knowing that the gold commodity value of that ounce of gold was worth far more than $50 i.e. gold is a globally recognised/accepted currency.
No, that's a reflection of the fact that you tried to pay for $50 of goods with a coin worth $2000. I'm sure their initial hesitancy to take USD would no longer be an issue if you offered 20 crisp $100 bills for half a $100 bill's worth of product.

So when it's not the apocalypse, gold isn't actually easily usable as a currency (unless you spend it at 5% value). If it is the apocalypse, it's not divisible, and given the general scarcity issues in these apocalyptic scenarios, you probably will get about $50 worth of goods at today's prices in the apocalyptic scenario. So keep that in mind, you're spending $2000 now to get $50 worth of goods in the apocalypse...
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Re: How much Gold do you own and why?

Post by HanSolo »

mffl wrote: Sun Aug 01, 2021 9:40 pm
seajay wrote: Sun Aug 01, 2021 4:42 am Go into a shop in London and offer to pay for $50 value of goods in US Dollar currency and the checkout will most likely say sorry. Offer a golden eagle that has a legal tender value of $50 as payment and they'd be far more inclined to make the exchange knowing that the gold commodity value of that ounce of gold was worth far more than $50 i.e. gold is a globally recognised/accepted currency.
No, that's a reflection of the fact that you tried to pay for $50 of goods with a coin worth $2000. I'm sure their initial hesitancy to take USD would no longer be an issue if you offered 20 crisp $100 bills for half a $100 bill's worth of product.
The difference is that, assuming they're obligated to keep accurate records and issue accurate receipts, they could legitimately write down that they accepted USD50 as payment in the case of the gold coin (since that's what it's legal face value is), and they'd have to write down USD2000 in the case of the paper money.

Now if you try to offer your $2000 notebook computer as payment, I'm not sure they'd be as ready to accept it as they would the gold coin.

I think the point was that exchanging between gold and local currency is approximately as inconvenient as any other kind of currency exchange, and so cashiers generally won't do it, the exception being when they're sufficiently compensated for such inconvenience.

Perhaps we're all in agreement.
So when it's not the apocalypse, gold isn't actually easily usable as a currency (unless you spend it at 5% value). If it is the apocalypse, it's not divisible, and given the general scarcity issues in these apocalyptic scenarios, you probably will get about $50 worth of goods at today's prices in the apocalyptic scenario. So keep that in mind, you're spending $2000 now to get $50 worth of goods in the apocalypse...
I think the point was that some people are looking at gold holdings in terms of overall long-term portfolio dynamics, not what happens in Mad Max scenarios. Gold, as a "hard currency" (on a long-term basis), has certain effects that other holdings don't have.
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Re: How much Gold do you own and why?

Post by phantom0308 »

It’s been said over and over again, but I guess it needs to be repeated. Gold isn’t an inflation hedge. It doesn’t perform better when inflation is high and worse when inflation is low. Commodities in general have poor expected returns and even worse risk adjusted returns.
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Re: How much Gold do you own and why?

Post by HanSolo »

phantom0308 wrote: Mon Aug 02, 2021 1:40 am It’s been said over and over again, but I guess it needs to be repeated. Gold isn’t an inflation hedge. It doesn’t perform better when inflation is high and worse when inflation is low. Commodities in general have poor expected returns and even worse risk adjusted returns.
To whom were you responding?

I was responding to the line of discussion where gold was being considered not as an investment but as a store of value, and as such, it may have some advantages over some other choices in that space (i.e., other commonly-used stores of value, such as cash equivalents and short-term bonds), especially when held on a long-term basis. The point isn't what beats inflation and what doesn't, but what are the advantages and disadvantages of the various available choices.

That needs to be repeated as well.
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Re: How much Gold do you own and why?

Post by seajay »

phantom0308 wrote: Mon Aug 02, 2021 1:40 am It’s been said over and over again, but I guess it needs to be repeated. Gold isn’t an inflation hedge.
Nor are stocks

Whilst inflation might be considered as one form of tax

http://warrenbuffettoninvestment.com/ho ... -investor/
The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5% inflation. Either way, she is “taxed” in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120% income tax, but doesn’t seem to notice that 6% inflation is the economic equivalent.
Another form of tax is direct taxation itself. Mid 1930's to early 1980's and for some taxes never declined below 70%.

https://bradfordtaxinstitute.com/Free_R ... Rates.aspx

Image

Since the bust of the 1970's/1980's, there's been a compensatory boom and as part of that saw the introduction of inflation bonds along with low/no taxation options (and reducing costs, historically market makers regularly set spreads as wide as 10% or more). For a individual that retired in the mid/late 1960's and saw all of their savings/investments wiped out by combined declines and withdrawals, the 1980's onward 'compensation' was of no use to them.

There's also a element of survivorship bias reflected into historic 'average' stock gains. Dow and Jones devised three indexes of which only the better performing remains dominant. Investors at the start could not have predicted which of the three that would be. Index methodologies have changed, directed towards the "better" mechanical method, that is then taken and back-run as a "guide to historic 'average' stock investment rewards".

The market in having wiped out some in the 1960's/1970's compensated in the 1980's and 1990's ... into 'over-compensation' levels of the late 1990's, from where it took a breather, flatlined over the 2000's (0% real stock returns). First via a dot com bubble burst and then the 2008/9 financial crisis. The 2010's were another compensatory decade for the 2000's lost decade, such that combined 2000 and 2010's saw stocks provide 4% real annulized reward, before taxes. So far the 2020's is indicating that compensatory trend might be continuing, over 20% annualized real gains since the start of the 2020's, but still early days yet. There are the risks that inflation as a tax, combined with regular taxes could again revert to being much higher than seen since the 1980's.

Hard US$'s and most if not all other currencies tend to be worse than gold, you have to invest those currencies in order to potentially offset taxes such as inflation and regular taxation. Stocks are marketted by the worlds richest sector - the financial sector that is well adpt at such marketting and value extraction. How well or not having to invest via stocks and bonds succeeds in offsetting inflation, taxation and costs is very subjective. A lump of metal that broadly offsets inflation where once purchased may have no further ongoing costs or taxation applied (pays no interest/dividends) could I suspect have charts produced that suggested superiority over stocks and/or bonds net of costs/tax (including inflation) returns.

It's not unreasonably given the distinct differences to diversify across both. Two extremes of stocks and gold that if barbelled combine to a central bullet. Potentially broadly better than either alone.

As a example of some of the trickery the financial sector plays, as a UK investor if I buy a low cost US stock index tracker then that fund will typically benchmark to the S&P500 index. The benchmark index provider however includes small print to the effect that's a net index of 30% US dividend withholding taxes. As UK/US tax treaty reduces that to 15% however then many funds relatively outperform the benchmark, but then they deduct their fees/costs and may even lend shares such that overall a 'good' index fund will look like its tracked the benchmark S&P500 relatively closely. But that's still with 30% of dividends having been taken. Less of a issue nowadays where high dividend taxation induced many firms to retain more such that broad dividend yields declined from 4% to 2% type levels, but even at 2% that's a 0.6% overhead. And that's for the most cost/tax efficient. There are mutuals/investment-trusts still around that levy north of 1% costs/fees, in some cases 2% or more. Jack (Bogle) cited a example of 8% reward (nominal after costs) conceptual versus 6% actual figures, along with a assumption of a 50 year total investment lifetime. Differences of 47 gain factor versus a 18 gain factor to suggest that average investors took on 100% of the risk whilst Wall Street endured none (midde man), and where investors were paid less than 40% of the reward (18 / 47). Historically that was a conservative estimate as taxes and costs were potentially much higher.

Stocks are presented as a no-lose type choice, by the sector that would rather you invested in its products/services. What if however the picture they painted wasn't entirely accurate and instead stock rewards simply reflected the risks, that combined broadly compared to other assets such as gold? If both broadly 0% real, then two assets with the same positive or zero reward expectancy that are volatile and 50/50 of both combined with rebalancing yields a better actual reward than either alone, especially when the two have no/inverse correlations.
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Re: How much Gold do you own and why?

Post by BV3273 »

I owned a small amount in the past. Had more silver but decided to get rid of most of it. It’s not earning much sitting in a shoebox. Just my opinion though.
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Re: How much Gold do you own and why?

Post by whereskyle »

Always passive wrote: Thu Jul 29, 2021 10:33 am I know that gold is a highly controversial investment. There are many opinions, from Buffett's very negative to those that hold 25% following the Permanent Portfolio strategy.
I happen to own a bit less than 5% and wonder if I should not increase it to 10%.
For those that believe in this asset, what is the reason that you believe in it?
I would appreciate your comments!
Gold holdings are probably 2% of the portfolio, most of which is in the form of jewelry inherited from family members. Speculating here, but I'd be willing to hold as much as 10% of my portfolio in gold in decumulation.

The reason: as a long-term proposition, gold has kept up with inflation for at least 2,000 years, regardless of any one country's economic security or political hegemony. I would like to beat inflation, so, while I'm focused on accumulating assets I probably won't hold much more gold than I already do. But I can see the permanent portfolio as a reasonable decumulation portfolio, although I don't think I'd put 25% of my portfolio in gold. I'd likely split that 25% with other inflation-protected assets.
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Re: How much Gold do you own and why?

Post by seajay »

BV3273 wrote: Mon Aug 02, 2021 6:54 am I owned a small amount in the past. Had more silver but decided to get rid of most of it. It’s not earning much sitting in a shoebox. Just my opinion though.
US$ in a shoe box doesn't earn much either. Come to that even 5 year treasury bonds at present earn -1.8% real. So no cash, no bonds, no gold, all-in stocks?
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Re: How much Gold do you own and why?

Post by mffl »

seajay wrote: Mon Aug 02, 2021 6:33 am There's also a element of survivorship bias reflected into historic 'average' stock gains. Dow and Jones devised three indexes of which only the better performing remains dominant. Investors at the start could not have predicted which of the three that would be. Index methodologies have changed, directed towards the "better" mechanical method, that is then taken and back-run as a "guide to historic 'average' stock investment rewards".
Those historic averages have stocks beating gold by multiple orders of magnitude over longer periods of time. This is true whether you use the Dow 30, the S&P 500, or a total market index. The choice of stock market index isn't relevant at all in this type of comparison.
seajay wrote: Mon Aug 02, 2021 6:33 am Stocks are presented as a no-lose type choice, by the sector that would rather you invested in its products/services. What if however the picture they painted wasn't entirely accurate...
Anyone on this board would tell you "be prepared to lose half your money at any time". Incidentally, the same would be true of gold. And I don't think we want to start comparing marketing tactics, as gold is not going to come up smelling like roses.
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Re: How much Gold do you own and why?

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I removed a post discussing cryptocurreny. As a reminder, cryptocurrency as an investment is off-topic. See: Greater Fool Investing Strategies
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Re: How much Gold do you own and why?

Post by seajay »

mffl wrote: Mon Aug 02, 2021 9:10 am Anyone on this board would tell you "be prepared to lose half your money at any time". Incidentally, the same would be true of gold.
And T-Bills. Well nearly, -46% real from the end of 1933 to end of 1952.

Stocks broadly have high reward, high volatility. Cash/T-Bills low reward, low volatility. Gold low reward, high volatility. Is volatility 'risk'? Many might opine so. Others might consider loss as being risk.

1975 to 2019 inclusive and both T-Bills and gold yielded near-as the same reward, but where gold was much more volatile along the way. You could have 50/50 stock/T-Bills to equal effect as 50/50 stock/gold. Stock/T-Bill had the lower volatility, better 'risk-adjusted-reward'. BUT! what about say 1981 when cash earned 15% interest - how much tax would have been paid on that compared to gold that generates no interest/dividends? Also factor in that when stressful conditions occur, inflation, interest rates AND taxation all tend to rise. Even basic/most common rate taxpayers in the UK were paying near 40% taxation back in the 1970's years when inflation/interest rates were high, 15% interest reduced by 6% tax to 9% net. Dividends were also higher and when you also factor in the taxation on dividends then the entire 4% SWR and more might have simply vanished. Someone who held 50/50 BRK/gold such that no regular income/dividends were being generated had the advantage that they could generate their own dividend by selling some shares to the amount and time of their own choosing. Lower risk for those that consider loss to be risk, but higher risk for those that consider volatility to be risk.

Some opt to shift bond risk over to the equity side. Less bonds, more stock. 75/25 stock/T-Bill perhaps instead of 67/33 stock/bonds. Swap out the T-Bills for gold and over the same 1975 to 2019 inclusive years again 75/25 stock/gold versus 67/33 stock/bonds saw near no difference in overall rewards, a bit more volatility for the 75/25 stock/gold, but potentially greater tax efficiencies if holding low/no dividend stock and gold.

T-Bills have low, near zero counter party risk - maybe. Physical in-hand gold has no counter party risk. I say maybe for T-Bills as whilst states can always print money to avoid defaulting on it debts, the other common method is to increase taxes. Inflation is yet another form of taxation and again commonly states specifically target 2% rates of inflation, but that at times might runaway into high inflation. Again gold can serve better under such conditions. At the extremes, Zimbabwe type inflation rates, then TB's become TP's whilst gold is as good as holding foreign currencies that relatively appreciate massively.
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Re: How much Gold do you own and why?

Post by docL »

000 wrote: Sat Jul 31, 2021 9:17 pm

Broad stock indices and fiat instruments are priced under the prevailing market assumption that the developed world will never experience serious inflation or social upheaval of any kind ever again in our lifetimes. I disagree with that assumption.

I do not recall seeing that assumption priced anywhere into any investment I have made. In fact, that risk seems quite appropriately factored into investment prices I have seen.
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Re: How much Gold do you own and why?

Post by HanSolo »

docL wrote: Mon Aug 02, 2021 6:23 pm
000 wrote: Sat Jul 31, 2021 9:17 pm

Broad stock indices and fiat instruments are priced under the prevailing market assumption that the developed world will never experience serious inflation or social upheaval of any kind ever again in our lifetimes. I disagree with that assumption.

I do not recall seeing that assumption priced anywhere into any investment I have made. In fact, that risk seems quite appropriately factored into investment prices I have seen.
What did you look at to make your assessment?

Broad stock indices (especially US) show pricing at high extremes, according to commonly-used valuation metrics (Iike market cap to GDP ratio).

Fiat instruments are also priced at high extremes, or as recent articles put it, interest rates are at 5,000-year lows (which is the mathematically equivalent statement).

So I think 000's assessment is fairly well-supported by current market realities that we can look at directly.
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Re: How much Gold do you own and why?

Post by seajay »

HanSolo wrote: Mon Aug 02, 2021 8:41 pm
docL wrote: Mon Aug 02, 2021 6:23 pm
000 wrote: Sat Jul 31, 2021 9:17 pm Broad stock indices and fiat instruments are priced under the prevailing market assumption that the developed world will never experience serious inflation or social upheaval of any kind ever again in our lifetimes. I disagree with that assumption.
I do not recall seeing that assumption priced anywhere into any investment I have made. In fact, that risk seems quite appropriately factored into investment prices I have seen.
What did you look at to make your assessment?

Broad stock indices (especially US) show pricing at high extremes, according to commonly-used valuation metrics (Iike market cap to GDP ratio).

Fiat instruments are also priced at high extremes, or as recent articles put it, interest rates are at 5,000-year lows (which is the mathematically equivalent statement).

So I think 000's assessment is fairly well-supported by current market realities that we can look at directly.
Dow around 36,000, gold around 1800/ounce. Dow/Gold ratio = 20.

Historically Dow/gold ratio lows of 1.0 in the early 1980's had gold expensive/stocks cheap. Highs of late 1999 of Dow/Gold = 40 had stocks expensive/gold cheap. At those levels fear and greed were more extreme such that predictions might have been more reliable. From that perspective however and current valuations are around central. Could swing either way, Dow/Gold midway between historic highs/lows, 50/50 chance could swing either way, place your bets. So says the collective prediction from across all of the millions of investors and computer systems/expertise etc. that direct the current price/valuations. If you can outsmart that collective to gain even a slight reliable edge !!!
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Re: How much Gold do you own and why?

Post by docL »

HanSolo wrote: Mon Aug 02, 2021 8:41 pm
What did you look at to make your assessment?

Broad stock indices (especially US) show pricing at high extremes, according to commonly-used valuation metrics (Iike market cap to GDP ratio).

Fiat instruments are also priced at high extremes, or as recent articles put it, interest rates are at 5,000-year lows (which is the mathematically equivalent statement).

So I think 000's assessment is fairly well-supported by current market realities that we can look at directly.

I do not debate that by many metrics, stock indices appear expensive compared to historical norms. However, when you factor in things like interest rates they are not quite so expensive as they appear at first glance. So while there can certainly be inflation shocks and social disruptions in the future, it is not like that isn't well known.

I try not to get in the business of forecasting the future.
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Re: How much Gold do you own and why?

Post by psteinx »

docL wrote: Tue Aug 03, 2021 2:51 pm I try not to get in the business of forecasting the future.
We all forecast the future, in all of our decisions, big and small, financial and non-financial. Forecasting that some aspect of the future will be about the same as the present or the recent past is, in fact, a forecast.
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Re: How much Gold do you own and why?

Post by JackoC »

HanSolo wrote: Mon Aug 02, 2021 8:41 pm
docL wrote: Mon Aug 02, 2021 6:23 pm
000 wrote: Sat Jul 31, 2021 9:17 pm

Broad stock indices and fiat instruments are priced under the prevailing market assumption that the developed world will never experience serious inflation or social upheaval of any kind ever again in our lifetimes. I disagree with that assumption.

I do not recall seeing that assumption priced anywhere into any investment I have made. In fact, that risk seems quite appropriately factored into investment prices I have seen.
What did you look at to make your assessment?

Broad stock indices (especially US) show pricing at high extremes, according to commonly-used valuation metrics (Iike market cap to GDP ratio).

Fiat instruments are also priced at high extremes, or as recent articles put it, interest rates are at 5,000-year lows (which is the mathematically equivalent statement).

So I think 000's assessment is fairly well-supported by current market realities that we can look at directly.
I think the assessment is pretty obvious when it comes to 'riskless' rates. The nominal and real curves show negative expected real return with moderate long term inflation (recent current inflation ~5%, but implied 10 yr inflation only in the mid 2's, and subsiding a bit just recently). It does not reflect much if any expectation of high inflation for any significant time period for a very long time. Looking further, into inflation option prices, would give a more detailed but basically similar picture.

But it's less clear stock valuation *relative* to the 'riskless' curve is all that optimistic. If we were to assume the S&P had expected real return of 1/CAPE ~2.6% now and consider the 5 yr to be the closest real world proxy for the theoretical 'riskless asset', at -1.8% real expected return, that premium for investing in stock, 4.4% pa, is not especially wide or narrow historically. IOW the stock market doesn't appear that obviously complacent about downside events other than those which might suddenly elevate rates to more historically normal levels. But all the other bad things that can trash the stock market don't seem to be left out of stock valuations all that much more than usually. The really unprecedented valuation is of 'riskless' fiat money instruments, especially considering US govt bond rates are high by developed world standards. Also this isn't countered by showing past graphs of negative real *realized* nominal govt bond returns looking backward on unexpected inflation. It's highly doubtful *expected* real returns of govt bonds (the TIPS curve and again other developed countries' inflation adjusted bond curves more negative still) were ever as negative as now. There will be a gigantic reaction across asset classes if that consensus changes markedly (unfortunately I've no way to tell if it will or when :happy ).
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Re: How much Gold do you own and why?

Post by Dregob »

seajay wrote: Sun Aug 01, 2021 4:42 am "I prefer Gold to Dollars, as it enabled me to become a multi-trillionaire" ... Mr Zimbabwe

"Gold isn't a investment" ... Jack Bogle. No, its a currency. A tier 1 asset within central banks, that many hold as part of their reserves. Unlike fiat currencies that over time tend to see more notes being printed (a form of micro-taxation that devalues all other notes in circulation) gold is finite. With fiat currencies you have to invest if you are to have any hope of that currency not losing purchase power (inflationary devaluation). As part of that Jack Bogle once said that many investors only received 40% of the investment total returns after costs, taxes, hidden expenses, fees ...etc., where investors take 100% of the risk for less than 40% of the reward ... citing a example of 8% total rewards, 50 year investment period/lifetime where the investor received just 6% after costs/taxes (47 gain factor reduced to 18 gain factor).

Go into a shop in London and offer to pay for $50 value of goods in US Dollar currency and the checkout will most likely say sorry. Offer a golden eagle that has a legal tender value of $50 as payment and they'd be far more inclined to make the exchange knowing that the gold commodity value of that ounce of gold was worth far more than $50 i.e. gold is a globally recognised/accepted currency.

Should investors hold currencies/cash? Well stuff 66% gold, 33% US Dollars under a mattress in 1792 and rebalance back to 67/33 weightings yearly, and of recent that would still have the same purchase power for a UK resident, entirely offset over 200 years of UK inflation. Just holding hard currencies alone however isn't investing, investing involves swapping some or maybe all of cash/currencies for shares/bond certificates/whatever. Exchange all of the US$ for US bonds, half of the gold for stock shares, and collectively that bond/stock/cash (gold) asset allocation tended to out-run inflation in a relatively consistent manner.

Image

"Gold doesn't fit" Well with policies/practices of ... start early, live below one's means, regularly save, broad diversification, simplicity, and sticking to one's investment plan regardless of market conditions ... and whether including or excluding cash/currencies/gold as part of that fits or not and IMO it fits.
I'd love to see the graph with the axis/starting point set to 1975!
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Re: How much Gold do you own and why?

Post by docL »

psteinx wrote: Tue Aug 03, 2021 2:59 pm
docL wrote: Tue Aug 03, 2021 2:51 pm I try not to get in the business of forecasting the future.
We all forecast the future, in all of our decisions, big and small, financial and non-financial. Forecasting that some aspect of the future will be about the same as the present or the recent past is, in fact, a forecast.

I try to make financial decisions that will be acceptable no matter what the future holds, certainly not attempting to predict any particular outcome.
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Re: How much Gold do you own and why?

Post by Beensabu »

I have a pair of small hoop earrings my grandmother gave me. And a pendant. Somewhere. I stopped wearing jewelry years ago, so I dunno where I squirreled those away exactly. They're definitely somewhere. I'm sure I'll be able to locate them pretty quickly if I need to flee. Maybe they'll get me to Mexico. They probably won't get me to Canada.

It's a speculative asset. There is no way of predicting changes in perceived value, because the price is tied solely to perceived value and not to any fundamentals whatsoever.

Presumably, its perceived value goes through cycles. Which is silly. A couple years ago, they were saying it was a 30-year cycle. At that point, I used to have a plan where I was going to go bananas on gold around 2044. I think I eyeballed a chart and decided that would be the next "right before whoosh up" point. LOL. Nope.

Currently, my eyeballs tell me that the perceived value is more likely to drop 30-40% from here in the short-term than it is to go on to break all time highs any time soon... Obviously, my eyesight sucks. However, I am near-sighted.
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Re: How much Gold do you own and why?

Post by psteinx »

docL wrote: Tue Aug 03, 2021 7:31 pm
psteinx wrote: Tue Aug 03, 2021 2:59 pm
docL wrote: Tue Aug 03, 2021 2:51 pm I try not to get in the business of forecasting the future.
We all forecast the future, in all of our decisions, big and small, financial and non-financial. Forecasting that some aspect of the future will be about the same as the present or the recent past is, in fact, a forecast.

I try to make financial decisions that will be acceptable no matter what the future holds, certainly not attempting to predict any particular outcome.
But you're still almost certainly constraining your view of "possible" futures to a fairly limited set. Everyone does, it's human nature. (FWIW, that's kind of what Taleb's The Black Swan was getting at - people don't envision specific outlier events, because there's too many of them and it's too hard. What Taleb ignored though, is that financial markets generally *do* price in the possibility of extreme events, even if the specific extreme event that occurs is not specifically foreseen by that many folks).
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