InvestingSmarter BusinessUncategorized

Gold, Dollar, S&P comparisons, does it matter?

There is a tendency to compare the merits of investing in Gold, Oil, the Dollar, and the Equity indexes like the S&P, Dow, and more.  There are multiple ways to approach this, and many have simply looked at the charts, long, short, and intermediate.  Many approaches have nothing to do with real investing.  From my point of view and experience, the definition of investing is: making a positive return from opportunities while managing risk in order to minimize losses.  It’s really that simple.  Approaching the markets from the perspective of “long-term investing”, “risk avoidance”, and “diversification” tend to be meaningless except to those who don’t understand what they are doing in the first place.

To make it simple, consider investing in just one stock for a moment.  Let’s assume the company is of course “XYZ Corporation”.   Why would someone invest in XYZ to begin with?  How will they know if there is potential for a positive investment return, and how will they “work” to maintain such a positive return?   It helps to pay attention to the company itself and the merits of being invested at any point in time.  Sometimes XYZ has great new products, new marketing, new management or something else we could identify as potentially raising business prospects in the future.  At other times XYZ has poor prospects.  If an investor is sharp, pays attention, and understands these trends, the investor could potentially own the stock at times of positive opportunity and at other times avoid ownership.

This is pretty basic stuff but it’s how it works, all the time, and for all time; it’s easy to forget the basics.  This simple truth is often obscured by those who want to over analyze, over emotionalize, and even over simplify with alternative investment ideas like Asset Allocation, Diversification, Alternative Investing, Private Placement, Bonds… and much, much more.  All the while, these complex views of investing still depend on the simple performance of the underlying instruments and their individual performance.  Stocks within the portfolio must go up for an equity mutual fund to increase in value, regardless of the “style” of the fund.  It’s a funny thing when people somehow fall prey to the idea that their Mutual Fund is an investment when it is a pool of underlying investments.  Sometimes they even think an IRA account is an “investment” when in reality it is only an account.

I have to ask: If the purpose of investing is to make money, to identify opportunity, and to avoid risk, then why does “long-term” have anything to do with it?  Gold has only been performing short-term.   Stocks and the dollar have only been underperforming Gold in the short-term.  In the shorter term a savvy investor has been able to outperform Gold with compound rates of return based on buying and selling.   If an investor does the work, then it is irrelevant as to whether a position is better long or short, since all instruments have their time, and usually only short to intermediate.

Instead of XYZ let’s use Apple.  No argument here, you could have made a great return in Apple, even compared to gold, since 2005.  Because AAPL has done so well compared to nearly anything, should we now forget that it is a stock and begin to see it only as a long-term investment vehicle and try to say that it should be compared to Oil, Gold, the S&P index, Currency, the Economy itself?  Or should we realize Apple is simply having a great run and it would have been nice to participate?  The Dollar performs at times and so does the S&P, but really, all investments should be compared based on their time of opportunity and whether or not you have the fortitude to participate at all.

It isn’t time that matters unless you are losing money anyway.  If you are making money time is on your side.  So why see everything as long-term?  There was a time when Apple really stunk and should have disappeared but somehow the company clung to its existance and, fortunately for those who either own shares or love the iPhone, it held a great revival!

Shall we say the U.S. is dead and cannot have a future?  Is the dollar dead?  Maybe we simply must invest more wisely.  Do you believe professional investors drop their earnings into mutual funds and forget about them or is it more likely they actively seek opportunity and trends, then move their money accordingly?