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.
