To Buy or Not To Buy


November 22, 2011
Written by: Justin Russell

I thought this week I would describe an investment and let the readers decide whether or not to invest.

     Roughly 50,000,000 new units have been put into market per year for the past 200 years.

     The investment has never paid any interest or dividends.

     Over the last 200 years it has returned just over 1% annualized when adjusted for inflation.

By now, you may have figured out that I am describing gold.  Gold has been all the rage lately as an investment and the price has skyrocketed.  I just want to offer a note of caution when it comes to investing in gold.  Gold has no intrinsic value.  Gold’s value is assigned by a herd of speculators.  This is not unlike most commodities.  Gold is not a company that produces anything, but rather is a raw material with no interest, dividends or cash flow.

Whenever an investment has gone vertical like gold has over the past couple of years, it is prudent to stop and reassess.  We certainly own a very small percentage of gold in our portfolios within a broad basket of commodities.  When speculation and fear are driving the rapid appreciation of an asset, the turn can be ugly and swift.

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