Personal Finance

Question about something I read in "Millionaire Teacher"

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Aug 17, 2011
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TORONTO
I'm surprised nobody has pointed this out, which to me seems like the easiest illustration of what that author means.

According to this site [http://onlygold.com/m/Prices/Prices200Years.asp]
an ounce of gold cost $19.39 in 1807. I'm assuming that this price is not adjusted to 2017 dollars.
So if your great great grandpa decided to buy an ounce of gold, it would have cost him $19.39 at that time in 1807 dollars. Say puts that ounce of gold into a vault and you inherit it today. You have an ounce of gold worth $1235 in present day dollars.
So every dollar used to buy gold back in 1807 would have returned 1235/19.39 = $63.69.
( author probably wrote the article when gold today was worth a bit more)
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Feb 1, 2012
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ukrainiandude wrote: Gold is not an investment
Because it is risk free.
1 oz of gold in 1970 still 1 oz of gold in 2017 ; the price of fiat money is measured in gold, and it fluctuates.
Interesting perspective on gold being an investment.

I see investment risk as having two aspects: 1) volatility meaning the price fluctuates and may be at a low point with you need to sell it, and 2) permanent loss of value, not necessarily to zero, but below what you paid for it and never recovers. 1 is definitely a risk with gold, just ask people that bought it in 2011. 2 may be a risk if it never gets back above its 2011 price. Gold may suffer from both of those, so owning it is risky.

It could be argued forever whether buying gold is speculation or an investment. But over the long term gold has not provided good returns in the last hundred years, other than a couple of short time periods. Equities, on the other hand have provided very good returns over the past hundred years, other than a few periods including the great depression, the 1970s and the 2000s.

One potential benefit of gold is it often holds its value when other investments like stocks and even bonds drop. But having enough gold to offset volatility in those other asset classes would require such a large allocation to gold it would be a drag on performance over the long term, so I don't do it. For more info on a strategy that tries to use that, search for "permanent portfolio".
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Saskatoon
http://www.jamesrickardsproject.com/wp- ... D_CH-2.pdf
Gold is not an investment, because it has no risk and no return. Warren Buffett‟s well-known criticism of gold is that it has no return and therefore no chance of compounding his wealth. He‟s right. Gold has no yield; it‟s not supposed to, because it has no risk. If you buy an ounce of gold and keep it for ten years, you end up with an ounce of gold—no more, no less. Of course, the “dollar price” of an ounce of gold may have changed radically
in ten years. That‟s not a gold problem; it‟s a dollar problem.
To get a return on an investment, you have to take risk. With gold, where is the risk? There is no maturity
risk, because it‟s just gold. It won‟t “mature” into gold five years from now; it is gold today, and always will be. Gold has no issuer risk, because nobody issues it. If you own it, you own it. It‟s not anyone else‟s liability. There‟s no commodity risk. With commodities there are other risks to consider. When you buy corn, you have to worry: does it have bugs in it? Is it good corn or bad corn? It‟s the same thing with oil; there are 75 grades of oil around the world. But pure gold is an element, atomic number 79. It‟s always just gold.
No need to type thank you; upvote=thanks.
Buffett, investors are focusing “not on what an asset will produce but rather on what the next fellow will pay for it.”

“Because gold is honest money it is disliked by dishonest men.” – R. Paul
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Nov 12, 2008
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Aurora
ukraniandude do you consider land an investment? 1 acre of land will still be 1 acre 5 years from now.
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Saskatoon
Gweedz wrote: ukraniandude do you consider land an investment? 1 acre of land will still be 1 acre 5 years from now.
If you bough 1000 acres and rent to the farmer or bought a few acres plot and put an apartment building on it. As long as it generates positive cash flow I would consider it as an investment.
No need to type thank you; upvote=thanks.
Buffett, investors are focusing “not on what an asset will produce but rather on what the next fellow will pay for it.”

“Because gold is honest money it is disliked by dishonest men.” – R. Paul
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Oct 29, 2014
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Land is useful. Things that can produce revenue can be built on it allowing it's value to go up. (Apartments, food, manufacturing)

What are you going to use your gold for that will produce continued revenue streams?
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Gweedz wrote: ukraniandude do you consider land an investment? 1 acre of land will still be 1 acre 5 years from now.
30seconds wrote: Land is useful. Things that can produce revenue can be built on it allowing it's value to go up. (Apartments, food, manufacturing)

What are you going to use your gold for that will produce continued revenue streams?
It's true. Land is useful.

You can rent it out to people and collect income. Even a vacant lot could be rented out for RV parking :)
You can plant crops on it and literally reap the rewards.
You can build on it and then rent out the business or apartments.

I suppose you could make gold jewellery and rent that out? LOL.
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ukrainiandude wrote: If you bough 1000 acres and rent to the farmer or bought a few acres plot and put an apartment building on it. As long as it generates positive cash flow I would consider it as an investment.
That makes sense.
But what if I bought 1000 acres just to let it sit until I retire, hoping to sell it at a profit? Is that an investment. Or maybe it's just a gamble?
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Nov 24, 2013
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Gweedz wrote: That makes sense.
But what if I bought 1000 acres just to let it sit until I retire, hoping to sell it at a profit? Is that an investment. Or maybe it's just a gamble?
It's a semantic argument, I suppose, but from my perspective,

-If you rent the land to a tenant farmer while you're waiting, it's an investment (an investment property where you're generating income from the land)
-If you just let it sit and do nothing, you're speculating that you can flip it for more, not "investing"

Or, put another way,

-You buy a '95 Gibson Les Paul. You play it, form a cover band, and make money playing it on Friday and Saturday nights. That guitar is an investment. You sell it 10 years later for more than what you paid for it.

-You buy a '95 Gibson Les Paul. You hang it on your man cave wall, because it's that cool sunburst paint job. It's not an investment at all, it's just a wall decoration. You sell it 10 years later for more than what you paid for it.

The capital gain you get is technically investment income, sure. Same with a collector car or fine art. The semantics comes back to a few other factors. In business, an asset purchase becomes an 'investment in capital' when it's incurred to earn money / an income stream. Flipping is a form of speculation, a tangible form of buy low, sell high, but it's also often undertaken with agency. You're actively choosing what to buy (a Picasso, or a Les Paul, or a classic Porsche) based on its potential to be sold for more money down the road.

Gold fits in there murkily. It's a commodity. How much it's worth 10 or 100 years from now depends more on how gold in general has done than who minted the coin or formed the bar.
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ukrainiandude wrote: http://www.jamesrickardsproject.com/wp- ... D_CH-2.pdf
Gold is not an investment, because it has no risk and no return. Warren Buffett‟s well-known criticism of gold is that it has no return and therefore no chance of compounding his wealth. He‟s right. Gold has no yield; it‟s not supposed to, because it has no risk. If you buy an ounce of gold and keep it for ten years, you end up with an ounce of gold—no more, no less. Of course, the “dollar price” of an ounce of gold may have changed radically
in ten years. That‟s not a gold problem; it‟s a dollar problem.
To get a return on an investment, you have to take risk. With gold, where is the risk? There is no maturity
risk, because it‟s just gold. It won‟t “mature” into gold five years from now; it is gold today, and always will be. Gold has no issuer risk, because nobody issues it. If you own it, you own it. It‟s not anyone else‟s liability. There‟s no commodity risk. With commodities there are other risks to consider. When you buy corn, you have to worry: does it have bugs in it? Is it good corn or bad corn? It‟s the same thing with oil; there are 75 grades of oil around the world. But pure gold is an element, atomic number 79. It‟s always just gold.
Yet at the end of the same chapter Rickards says "In the chapters ahead we‟ll look at how smart investors are investing in physical gold". So smart investors are investing in something that he claims is not an investment.

Rickards loves to make bold statements, to sell books and get interviews. I used to enjoy listening to him on The Lang & O'Leary Exchange. I read two of his books, Currency Wars and The Death of Money. Both are interesting reading, but neither convinced me to invest in gold, or change my investing strategy or investment policy statement.

There are other inconsistencies in his statements. Gold's not an investment because it has no yield and no maturity; Berkshire Hathaway has no yield and no maturity, yet I think most people would consider it an investment. Gold has lots of price risk, just ask the people that bought it in 2011 and now have a 33% loss in value, or the people that bought it in 1980 and had to wait until 2006 for the price to go back to the 1980 level.
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Aurora
Over the weekend I was reading "Common Sense on Mutual Funds" by John C. Bogle, and by coincidence I came across this statement by John Maynard Keynes that sums it up perfectly for me:

Investment: the activity of forecasting the prospective yield on an asset over its whole life... assuming that the existing state of affairs will continue indefinitely.

Speculation: the activity of forecasting the psychology of the market... attaching hopes to a favorable change in the conventional basis of valuation.

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