Question 3: Seriously, for youngsters like me (age <25), invest in gold and silver is purely a waste of time. I can simply get 200 – 300% return from equities / properties for the same tenure of investment.
Answer 3:I think it is difficult to make a fair comparison between different asset classes as each is uniquely different from one another. Here, I would share my views from 3 different angles. They include:
Investment Objectives –
Equities & properties are to build wealth. Shareholders are entitled to future earnings as they are part-owners of a corporation. Landlords let out properties to generate rental income. Shareholders and landlords enjoy capital appreciation if the companies and the properties held have increased in value. Hence, the investment success of equities & properties are usually measured based on “cash flow” and “capital appreciation”.
Gold and silver are not to build one’s wealth. Savvy investors buy and keep precious metals as insurance policies against economic uncertainties. It is a strategy to preserve wealth against paper currencies which fall in value.
They are hard metals and not businesses that provide steady stream of regular income to people. Hence, I believe one way to measure the effectiveness of gold and silver to preserve wealth is to compare them against prices of oil. This is because oil is commonly used as an indicator to measure inflation as it is the lifeblood of today’s modernized economy.
Same Tenure of Investment –
The feedback given does not specify what ‘the same tenure of investment’ means. Is it 1 year, 3 years, or beyond 5 years? Allow me to make an assumption. If one uses “capital appreciation” to measure investment success, then, from 2012 to 2014, equities and properties have done fairly well against gold and silver. Precious metals have failed miserably based on this measure during the period and thus, look to be quite inferior against stocks and properties.
However, it is common for every investment class to experience ups and downs. It is like a pendulum. Stocks move from undervalued to becoming overvalued and back to being undervalued. So do properties. Commodities have cycles too. Even in a long-term commodity bull run, it is normal for gold, silver and oil to experience drop in prices.
Hence, it is unusual to see an investment going up by another 200 – 300% continuously after appreciating some 200 – 300%. Usually, it is increasingly difficult to buy low after some 200 – 300% increase in prices.
For instance, in the local scenes, I’ve discovered that share prices have been moving at quicker pace than earnings growth achieved by most public listed corporations. Market capitalization is at its record-highs. P/E Ratio is moving into the 20s with some into the 30s.
Meanwhile, gold and silver prices are now at 30% and 70% lower than its peak in 2011. This is despite maintaining solid fundamentals in the global market. Thus, as prices drop, investors who seek value sense opportunity, buy low when others chase for the flavour of the month. When things become highly priced, that is the time to think about selling in order to reap investment rewards.
Metals are Homogeneous –
This is a huge difference between metals from stocks and properties. A piece of gold is a piece of gold. You are buying gold at nearly the same price regardless whether it is a coin or bar whether it is PAMP Suisse Gold Bar, the American Gold Eagle, or the Canadian Maple Leaf. The price is determined by its weightage and its metal content.
Obviously, equities and properties are different. Let us start with stocks. In Malaysia, there are some 800 – 900 public listed corporations that you can choose to invest in. They differ in business models, corporate structures, involving in different industries and thus, yielding different investment results. The same goes with properties. It differs in types of properties, location, size, demographics of the population surrounding the area.
Thus, it is not fair to sum up the performance of “equities” or “properties” in just a few words. Making comparisons between investment classes is not practical. In my opinion, I believe becoming an expert or gaining specific knowledge upon the investment class you are interested into is of importance.
I believe that the investment plan, philosophy and method one pursues in should be prioritised over choosing an investment product itself. After all, there are successful investors in every single investment class regardless of its market conditions.
This article is contributed by bestselling book author, Ian Tai. Want to learn more about gold and silver investment? Get Ian’s free training at Gold Silver Method.
