Tysonboss1
1, Why be frustrated, Just run your own race. If you believe one thing just follow that and forget what others believe.
- I run my own race and don't need others to see what I see in order to be able to know that I'm doing the right thing. I have no one else to blame but myself if I go astray. However, for some reason, I have some compulsion to share my views, which I think is helpful for myself in being able to express them more clearly.
2, thats exactly what I said, physical gold can be held as a store of value and a hedge against inflation. But it will only work out well if you buy it outside of bubble conditions. Is gold in a bubble, who knows, But it has gone up at 19.8% pa in the last 10 years, when inflation has been very much less.
- 10 year window is the problem. You need a 200+ year window to see clearly. The bubble does not lie currently in gold, but in other forms of currency, which makes for interesting times ahead.
3, Yes again I aggree, Holding cash under the matteress is a terrible idea. Holding gold in this situation is better, because gold and most real assets with have their value increase inline with inflation.
However cash at bank earning 6% will still cover inflation and provide about 0.5% real growth after tax. offcourse if hyper inflation came this would change. but at present and in the recent past cash at bank with reinvested interest has been a good hedge against inflation.
- Cash at bank currently just covers our headline inflation at 6%. After tax (depending on tax rate) it likely makes a negative real rate. This will not always hold true as there are pressures to keep the official CPI figures down and the bank rate probably not cover inflation in the years ahead (IMO). In the US for example, you are getting closer to 0% with 5% headline (from memory) and 10% based on traditional metrics (shadowstats.com - e.g. including food and energy prices). Technically you could also lend out your gold for a similar rate of return if you were in the ability to do so.
4, yes, which is why in my post I distingished between the two.
- I realise this, but needed to make a point here as there is often some confusion on this issue. Sorry if it didn't exactly match your case.
5, yes, which is why I said that on the face of it buying a gold producer is investing, I then said you had to conduct calculation to work out cost of production vs sale price etc. etc.
6, I can see a big difference, if a producer is producing gold at $500 and selling for $1400 his profit will be under huge pressure should the sell price drop to $400. where as if a retailer simply buys at $X and sells at $X+ regardless whether inflation or deflation pushes his buy price up or down he will just sell at a higher or lower price.
- I don't agree with you here. I think it works in the same way, but with varying outcomes depending on the circumstances. E.g. margin on a widget of 10% at sales price of $100 = $10 versus same margin at 10% on $50 = $5 (e.g. discounting or deflation). Earnings are impacted and depending on the scenario margins might change too.
7, Only where they can not raise or lower their sell price to match. Miners have some what fixed cost of production and have no control over the sale price.
- I'd argue that many industries only have marginal control over the sale price. In more favourable conditions they might have more control and in unfavourable conditions they might have no control (e.g. retailer desperately needing to sell inventory). There isn't a fixed cost of production as it depends on how management tackles the problems - the cost of production could vary a lot with different management and different strategies. The price trend, no matter what the business, should be judged by the investor in my opinion.
8, In 10 years gold has gone from $250AUD to over $1400AUD 19.8%pa growth, The Australian dollar has not been devalued by 19.8% pa. So there has to be another factor causing this rise. I am not an expert though. If it is a rise caused by speculative enthusiasim or fear, it may eventually reverse and people that bought it as an inflation hedge may regret it.
- 10 years ago gold was way too low due to sales from central banks (who now have to buy it back) and a loss of understanding of its value as a currency - it was out of favour (e.g. barbarous relic comments). This period is a time for it to catch up to where it should have been and it hasn't got there yet - let alone deal with the outstanding debt issues we face. It isn't a true inflation hedge as many see it - it is a true currency which holds as a store of value. We are going through a currency collapse and if the fiat currency is the denominator the theoretical price is infinite. I believe that gold will be used once a new currency system is found and will balance out in order to act as a long term store of value. For further information read
fofoa.blogspot.com/ if you are interested in this concept.
9, Consider this, since 2000 property values have gone from $200 to $450 leading to wide spread claims of a speculative bubble. In the same time gold has gone from $250 to $1400. But I guess some believe gold is different, gold only goes up, gold never falls.
- the property values have been pushed by a exponential credit growth cycle globally, which is now finished its run. Gold is the inverse to this, so yes, gold is heading up at this point of time as it counteracts the incredible amount of debt in the global system that will never be paid. This is not a speculative bubble like the 70s. The 70s started the unstable credit cycle that is now ending.
10, Yes, I would apply the same to other miners, when valuing a mining operation with a life of 20 years I would not use an all time high Iron ore, coal or oil price in my calculation. I would use some conservative. for example valuing an oil company based on the $140 per barrel we saw in 2008 would be a big mistake, a conservative person would apply a margin of safty and use per haps $75 per barrel.
- I don't agree. I think it is more important to understand the fundamentals of the particular good, the same way you would analyse the direct of sales prices for any other item (e.g. TV, shoes, engineering service). The margin of safety should be applied by investing in companies at large discounts and with resources that are heading up and not down. The oil price crash in 2008 was based on futures contracts. In reality the spot price did not go down so low and was a temporary blip and has been held up by the significant supply/demand metrics that we face.
11, only the stock they have on the floor would be devalued, once thats gone they would buy in replace ment stock at the cheaper price and sell at a cheaper price, this happens every time the aussie dollar goes up,
- sales prices fall, the dollar value of the margins then fall. total demand can fall leading to greater discounting and further falls margins.
12, thats right, but just because a vaule investor using figures to value investments does not mean he is not also drawing on a body of experiance, education and sound economic logic, Ben graham says in the intelligent investor with out it (experiance, education and sound economic logic) you can't say a margin of safty exists.
13, there was also australian oil companies producing oil at $20 per barrel and oil was $140 per barrel, what happened to their share prices and earning when oil dropped to $50. Using a record high spot price is a mistake, But do what ever you like.
- again, temporary price falls can occur in all industries. high margins of safety and larger profitability margins mitigate the short term effects for strong companies.
14, good, it does all opinions to make up a market, if over time your opinion proves right, you will do well. Still having a real margin of safty and diversification will protect you if you are wrong.
- agreed.