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Are you a commodities
investor with friends that think you are “crazy” for investing in
precious metals? Do these same
friends advise you to indefinitely “buy and hold” a large amount
of “well diversified” mutual funds for the “long
term”? We are
continually amazed at how few investors seem to open their eyes to changes
all around them, including what is really happening in the financial markets.
The following chart
illustrates what would have happened to the Dow Jones Industrial average if
it had increased in value at the same percentage rate as gold has since the
year 2000.
In the above chart the blue
line represents the actual monthly price of the Dow Jones Industrial
Average. The red line in the
above chart represents the percentage gains of gold factored into the price
of the Dow Jones since 2000. In other words, if the Down
Jones had performed as well as gold actually has in percentage gains since
2000, the Dow Jones Industrial Average would now be worth approximately
37,000 points. This chart helps
illustrate just how significantly better gold has outperformed the Dow Jones
Industrial Average since roughly 2000.
If an investor had “bought and held” the Dow Jones Index
since the year 2000 their investment would barely have broken even after
eight years. This is a very large
period of time for such poor investment performance. When inflation is factored into the
equation of the Dow Jones, the actual return is extremely poor.
But your friends are likely
to point out that stocks outperform commodities in the long term. We recognize that from 1980 to 2000
the Dow Jones Industrial Average far outperformed gold in terms of investment
performance but this is exactly our point. In our opinion investments are
cyclical and not linear. In the 1970’s
commodities had a major bull run that significantly outperformed stocks just
as stocks outperformed commodities in the following decades. We do not concern ourselves with which
investment class is the ultimate investment of all time but rather which
investment class is undervalued relative to other investments at any given
time.
Unfortunately it appears
most investors have a very short term bias and put too much emphasis on their
recent experiences instead of history.
We believe most investors are bias towards one strategy of investing
because that strategy is what
worked for them in previous years.
Sadly, most of these investors will not learn that their former method
for investing may no longer be effective until it is too late.
We wonder what the
mainstream media such as television networks, news papers, radio stations and
social mood would be like if the Dow Jones Industrial Average were to
consistently hit new highs, with a value as high as 37,000 points. Based
on the Medias apparent bias on US stocks, likely encouraged by sponsors and
advertising revenue, we believe the coverage would be extreme. Interestingly, gold and commodities in
general have grown many hundreds of percent points since 2000 yet few members
of the media have noticed this significant development in the markets. More coverage on these types of
investments would help countless investors find out about such opportunities
within a short time. Instead we
believe most investors will find out about the mega commodities bull market
when it is once again overvalued and at risk of a serious correction. As usual, the cycle will eventually
turn and the naive public will likely come late to the party and be destined
for failure.
In the big picture we are
concerned with what is undervalued now and likely to increase in value in the
future, rather than what has already increased in value and therefore should
always increase in value. We
believe the former is a much more realistic strategy for making money in the
financial markets. If you wish to
learn more about our investment philosophies and strategies please visit www.investmentscore.com to read more
and sign up for our free newsletter.
Also, if you know anyone who may benefit from this information please
feel free to forward it to their attention.
By : Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach is the President and Editor or www.investmentscore.com,
an online publication designed to show investors how to make profitable entry
and exit trading decisions in high growth potential investments. Investmentscore uses a unique scoring system as a visual
guide to assist investors in making lower risk / higher reward trades.
Legal Disclaimer: No content provided as part of the
Investment Score Inc. information constitutes a recommendation that any
particular security, portfolio of securities, transaction or investment
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should not be relied upon.
Copyright © 2006-2007 Michael Kilbach
Information contained herein is obtained from sources believed to be
reliable, but its accuracy cannot be guaranteed. It is not intended to
constitute individual investment advice and is not designed to meet your personal
financial situation. The opinions expressed herein are those of the author and are subject to change without notice.
The information herein may become outdated and there is no obligation to
update any such information. The author,
24hGold, entities in which they have an interest, family and associates may
from time to time have positions in the securities or commodities discussed.
No part of this publication can be reproduced without the written consent of
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