Value Investors
Great Buys & Sells
"The wealthy investor tends to be
an expert on values. When bonds are cheap and bond yields are irresistibly
high, he buys bonds. When stocks are on the bargain table and stock yields are
attractive, he buys stocks. When real estate is a great value, he buys real
estate. When great art or fine jewelry or gold is on the "give away"
table, he buys art or diamonds or gold. In other words, the wealthy investor
puts his money where the great values are." The late Dick Russel - Dow Theory Letters
Gold
since 2000 up 333.2%
DYI: Know when to hold and know when to fold is a
great axiom for Las Vegas and the Dow/Gold Ratio, whether to hold or fold
for either stocks or gold. The year 2000
stocks were bid to the moon and lopsided in relationship to gold. Gold at that time was on the give-away-table
with the ratio at a staggering 48 to 1.
From 1997 to 2003 you would have had 7 years to build a position in
physical gold and precious metals mining companies who share prices were
actually cheaper than the physical metal.
Dow/Gold Ratio as of 7/10/18 is 20 to 1 (rounded)
DYI: Then it was off to the races for gold and the
precious metals mining companies with stocks languishing on an after inflation
basis – called real returns. Stocks as
measured by the Dow Jones have done so poorly since the year 2000 [up 40.3%
real return] despite the Dow/Gold Ratio in 2009 bottoming at around 7 to 1.
What
made for the awkward moment in 2009 stocks as measured by either earnings or
dividends never did completely mean invert from insanely overvalued to insanely
undervalue. They actually only traded
briefly, just slightly below their mean or what typically called fair value. Only a tidbit, a small morsel of value
despite stocks dropping from peak to trough of around 54%!
The
2009 awkward moment with stocks as measured by the Shiller PE in March of that
year at 13.32 just slightly below the historical mean of around 16 then
snapping back as the Federal Reserve MASSIVELY pumped up the money supply. Also Congress intervened by having the
Federal Accounting Standards Board look the other way as banks were allowed to
mark the value of their assets to magical levels thus avoiding default
[Congressional Institutionalized FRAUD].
Be
as that may be here we are today with stocks as measured by the Shiller PE at
the staggering nose bleed level of 32.38 along with minuscule dividend yield of
1.83% as oppose to its mean going back to 1871 of 4.35%! Gold along with the precious metals mining
companies are trading today around their mean.
Neither over nor under valued hence DYI’s small commitment to gold. Of course interest rates remain low [despite
the Fed’s hikes] are way below their historical mean making my allocation to
that asset very small.
So…..What
do we do?? Back to the late Dick Russel
of Dow Theory Letters for the answer!
"And
if no outstanding values are available, the wealthy investor waits. The wealthy investor knows what he is looking
for, and he doesn't mind waiting months or even years for his next investment
(they call that patience)."
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