The Folly of Holding Gold as a Permanent Investment
. . . and the Genius of Trading It
Worldwide ETFs Portfolio
7.2 years June 28, 2002--September 11, 2009
See Comments below
Choosing one's luck. A rules-based trading system is the answer. Once you have adopted it and turned the decision-making over to the system, your other personal decisions stay in the realm of luck. But your trading system is an automatic machine that senses and changes course like a GPS.
I chose Brazil (EWZ)
to pair off with Gold (GLD) to stay continuously invested in the stronger-ranked of the two choices. I could have chosen the entire Worldwide ETFs Portfolio or any portfolio of strong stocks or ETFs as alternatives and beaten gold by pairing it into competition with them.
I supppose you could say there is luck in making even that choice. If you take each luck choice-set down to or up to a next level, you might conclude that everything in the universe is luck. Even if so, by luckily choosing a system built to exclude luck (as any trading system is), you may capture enough non-luck behavior within the system to capitalize on it. As for the rest, all of it is lucky or unlucky, or none of it is . . . but we wander too far afield here and abandon this journey into epistemology and turn to something solid, like metal.
WHERE'S MY GOLD?
A True Story
In late 1979 or eary 1980, one of the clients of our firm requested our managing partner in charge of his investments to go with the client to Switzerland to inspect the shipment of gold bullion that he had just directed for delivery to his bank there.
His portfolio was worth about $35 million in today's dollars. Six percent of it was in gold bullion.
Off they went, the four of them via London to Zurich. Client, his girl friend, managing partner, and managing partner's wife.
They went to the bank the afernoon of the appointment with the bank officer. He admitted them to his office. It was just after lunch, too early for refreshments. The client presented his number and was accepted as valid. The client said, "I would like to see my gold."
After the slighest pause, the banker said, "I am afraid that is not possible." Another pause, this one longer. Then,
"It is my gold. I want to see it." Pause.
"Sir, I will have it delivered to your bank of choice."
Pause, this one the longest. Then the visitors rose and left. Total time elapsed, two and a half minutes.
Three reasons why it may be foolish to own gold as a permament holding in a portfolio.
1- You should be prepared to defend with firearms its possession.
2- Other altenatives provide far superior returns with lower volatility.
3- Sovereign confiscation can occur at any time.
4- Presumed possession in custody of a trustee or custodian
is problematical.
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Written
9/22 to 9/27/2009
Posted
9/27/2009 7:34 p.m. EDT
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