Conference nyoss1::market_investing

    See the article on technical investing in this past week's Barron's
    
    Buried in it is a discussion (from a technician's viewpoint) of
    strategies for gold buillon (which are different from those for
    gold mining stocks). As I recall, that particular author thought
    $300 was an important "floor" for gold. Also gave reasons why
    gold has been relatively insensitive to world events over the
    past few years. Suggest you read before you leap. Gold earns
    no dividends nor does it appreciate with growth.
    
    	John K                                                     

 >    Gold earns no dividends nor does it appreciate with growth.

 True, an interesting fact is that $1 invested in gold 120 years ago
 would now be worth 86 cents when adjusted for inflation and storage costs.

 On the other hand, that same $1 would now be worth $10,000+ (also adjusted
 for inflation) if it had been invested in a diversified portfolio of 
 US common stocks 120 years ago.  
 (seems like a lot but it works out to be 8% annually)

 [Computations done by the research arm of Market Logic]

 Gold will have its moments though...and being kind of bearish on the
 U.S. dollar for this decade, I think gold may have a good run one of
 these years.  I'd prefer to buy German stock ADRs however and play
 the dollar decline that way.

    Yuk.  Market Logic normally does good work, but I guess they're not above
    the usual sleaze when promoting their own best interests.
    
    A lot of this research is interesting, but I've just looked at a few
    long-term charts and found out that 1870 was a local minimum for stock
    prices, the end of a 55-year long period during which stocks went
    nowhere (OK, they fluctuated up and down, but in 1870 stocks were at
    about the same level as they were in 1825, adjusted for inflation).
    Kinda reduces that 8% return somewhat.
    
    Then there's the small matter of companies going bankrupt.  Stock
    market indices tend to outlive ALL the companies that comprise them.
    Thus, while the indices look good, the average investor is looking
    at a bunch of useless certificates.  Perhaps somebody (with a lot more
    data than I) can track a hypothetical portfolio of say the DJIA and
    see if one obtains returns comparable to the nominal index value.
    I kinda doubt it.
    
    And it appears that in 1870 gold prices were fairly high.  I'm not
    sure, the closest I could come was a chart showing a K-wave peak in
    inflation and commodity prices near 1870.  Gold would likely be high.
    
    Gee, what we have is somebody who buys gold near a peak, buys stocks
    near a low, assumes all the stocks survive multiple wars and at least
    one major depression, and now evaluates the portfolio when gold is way
    down from its peak and stocks are way up near their peak.  It looks to
    me as though the author has had experience running Phillipine elections.
    
    Still, stocks could probably win a fair fight against gold bullion, but 
    I'm not so sure common stocks would win a fair fight against gold stocks.
    
    One of the principal values of gold bullion, as opposed to gold stocks, 
    is as a disaster hedge, to serve as a true store of wealth in some
    disastrous economic breakdown.  In which case the academic comparisons
    above are irrelevant.  Buy and sell paper (stocks) to make paper (fiat
    currency).  Buy and hold gold for the time when the paper is no good.
    Americans have no memory of a time when currency was scorned; it was
    over 100 years ago.  It is not surprising that bullion is scorned today.
    
    Is this not the perfect Screaming Contrarian Buy Signal?
    
      John

RE:.3 by VMSDEV::HALLYB "Fish have no concept of fire."

> Then there's the small matter of companies going bankrupt.  Stock market 
> indices tend to outlive ALL the companies that comprise them.  Thus,  while 
> the indices look good, the average investor is looking at a bunch of useless 
> certificates.  Perhaps somebody (with a lot more data than I) can track a 
> hypothetical portfolio of say the DJIA and see if one obtains returns 
> comparable to the nominal index value.  I kinda doubt it.

It's pretty easy with the DJIA.  Buy stock when it's added to the index,  sell
stock when it's removed,  sell stock if it splits,  and collect the dividends
which are not included in the index.  Return should be about 3% to 4% BETTER
than the DJIA,  even if you trade odd lots.

I do agree that gold bullion looks attractive now,  but it's not the kind of
investment that appeals to everyone.  Gold,  after inflation,  should return
a rock solid 0% over a long enough time period.  Sometimes that does look real
good.  Most of the time that looks boring at best.


Phil

.3>> Perhaps somebody (with a lot more data than I) can track a 
.3>> hypothetical portfolio of say the DJIA and see if one obtains returns 
.3>> comparable to the nominal index value.  I kinda doubt it.

.4> It's pretty easy with the DJIA.  Buy stock when it's added to the index,  sell
.4> stock when it's removed,  sell stock if it splits,  and collect the dividends
.4> which are not included in the index.  Return should be about 3% to 4% BETTER
.4> than the DJIA,  even if you trade odd lots.
    
    Agreed that dividends belong in the equation, but it not as simple as
    it is made out to be.  Consider that DJIA member and industrial giant, 
    International Harvester.  Last year, when known as Navistar, it was
    trading at a meager $5 and was still a DJIA component.  When it was
    dropped from the DJIA, the index divisor was automagically adjusted 
    to account for its replacement (how quickly I forget who).  This has 
    the effect of pretending Navistar was really worth a whole lot more 
    at the time of the replacement.  Obviously those of us who owned
    Navistar did not receive the same benefit in our portfolios.
    
    Work it out on paper.  You can't replace a $5 stock with a $30 stock
    and not pay for it, but the DJIA does exactly that.  Which makes it a
    poor measure of a portfolio.
    
      John

RE:.6 by VMSDEV::HALLYB "Fish have no concept of fire."

> When it was dropped from the DJIA, the index divisor was automagically 
> adjusted to account for its replacement (how quickly I forget who).  This has 
> the effect of pretending Navistar was really worth a whole lot more at the 
> time of the replacement.  

First,  you are correct in that the replacement of a stock is a little more
complex if I want a exact match to the DJIA + dividend - cost.  In the case of 
Navistar I would need to sell some fraction of all the other stocks (about 1%),
(OR to reinvest some of the dividend yield) to raise the cash to buy the new 
stock trading for more.  Also,  on a stock split I would need to reinvest
the cash from the extra share from the split into all of the stocks in the
DJIA.  This is what the divisor adjustment does.  If I am tracking the DJIA 
as an odd lotter,  I would have to be careful while playing such games,  as 
the commission cost could easily exceed any possible mismatches.

For that matter,  the dividend yield would exceed any probable mismatches.


> Work it out on paper.  You can't replace a $5 stock with a $30 stock
> and not pay for it, but the DJIA does exactly that.  Which makes it a
> poor measure of a portfolio.

No,  the DJIA "automagically" "sells" a little of all the stocks to raise the 
extra $25.  Which makes an exact tracking portfolio hard,  at least for an 
odd lotter.


Phil

    
    	Re: replacing a $5 stock with a $30 stock in the DJIA
    
    	I thought the way they did this was simply to take the adjustment
    factor of the old stock, divide it by the relative values of the stock
    (30 / 5 = 6 in this case) and apply that to the new stock.  For example,
    if the old adjustment factor was 50%, the $5 stock was contributing 2.5
    points to the DJIA.  Take the 50% factor, divide it by 6 and the new
    adjustment factor is 8.33%.  That factor multiplied by the new stocks
    value ($30) means this new stock is contributing 2.5 points to the
    DJIA.  Thus, the switch in "member companies" can be done without
    instantanious effect of the DJIA nor effect the weighted values of all
    the other stocks in the DJIA.
    
    	But, I readily admit that I could have this mechanism totally
    wrong.
    
    							-craig

Going away for a second from the discussion about adjusting the indexes 
when stocks get replaced...

re: .3  > Still, stocks could probably win a fair fight against gold bullion...

True, and to further validate the point, here's another unfair example.
(unfair to stocks this time)

1929 saw stocks at an extreme local peak, and gold at a major low.
Eyeing the Market Logic data, from 1929-1991:

$1 in the NYSE common stock index would have grown to $144.
$1 in gold bullion would have grown to $1.95.  
(both adjusted for inflation, and gold adjusted for carrying costs)

    Hi,
    
    The Bank Credit Analyst views gold/gold stocks as good value and is 
    currently bullish with a buy signal last fall, I believe.  
    
    Investech is starting to get interested but no buy signal as yet.
    
    I am a long term gold investor and hold about 5% of assets in two
    closed end and 1 open ended mutual fund.  I have DCA'd into these in 
    an undisciplined manner (unfortunately for me as investing is a game of
    timing or discipline) over the years.   Now is probably the time to have 
    another buy in.
    
    I have watched the metals closely over the last 15 years and have
    invested periodically over that time.  I must say that even with this
    type of perspective that I'm somewhat disinterested in the metals over
    the last 6 months or so.
    
    Based on that last statement, closed end or open ended MF's must be a 
    buy.  I own:
    	BGR Precious Metals A
    	Goldcorp
    
    	Dynamic Precious Metals (open end MF has adopted a load structure
                                 recently)
    
    JD
    

    Hi Again,
    
    Of note is the W$W had a gold analyst from Merrill Lynch Intl. on last
    Friday.  He is located in Britain and originally came from South
    Africa.  He was very downcast and had nothing good to say about the
    precious metals however he was somewhat bullish on the industrial
    metals (copper/zinc I believe).
    
    Being that he is a member of the Retail Brokerage Industry, this is probably
    another good indication of a contrarian buy.  Also,  with the
    industrial metals being perhaps a leading indicator of the precious
    metals this could possibly indicate a buy as well.
    
    Is the time right to buy....Probably!
    
    JD

    What are these carrying/storage costs for gold?
    
    Ed
    

    It depends.
    
    o	Bury in your basement/backyard--a few hours of labor, but
    	security not very good (plus what happens if you die and
    	no-one knows it's there?).  
    
    o	Safe-deposit box--fifty to a hundred dollars a year, and
    	security is good, and you can get insurance (if you want
    	to tell people you have it) for a bit more, but it's available
    	to the government if they want it and banks are closed much of
    	the time, and the hundred bucks only buys storage for a 
    	few pounds.
    
    o	Various private companies--free to lots, size no limit but
    	security (particularly against failure of the company) often
    	a problem.  IGBE and others have folded, revealing that the
    	gold they claimed to hold for others had never existed...
    
    Standard recommendation is:
    
    1.	"Survival" gold/silver: small number of non-numismatic $20
    	pieces and a bag of old silver--put this in your basement
    	or backyard (I've seen ads for containers meant for burying
    	coins in, basically PVC pluming tubes with caps).
    
    2.	Investement gold/silver: go with a big, old, rich company
    	like Fidelity or Merrill Lynch and pay their fees, which will
    	be lower than private storage in a safe-deposit box.
    
    3.	Consider buying "gold in the ground" by buying mining stocks
    	rather than refined metal.
    
    		-John Bishop

    Can somebody suggest a good place, either in N.H. or mail-order
    (no sales tax) for small-lot bullion coin purchases?
      

	Gold rose sharply in Zurich today morning - over 10$/oz to about 367$.
	Analysts say that if it crosses a threshold of 371, then 400 is likely.

	Just FYI. 

						Trace

    what?

    What is the consensus on gold lately?!  The gold mutual funds have been
    doing very well lately and I am wondering how long folks think this
    rally will last?  I saw gains last week in most gold MF's rise in the 
    +.98 range - pretty significant compared to the rest of the MF market.
    
    Cheers,
              Tim

    I think we're in for a breather for a couple weeks, then another leg up.
    
      John

    The June contract jumped ~$8.00 to about $376 (give or take).

    what happened today? Although gold was up $5.00 in the morning, the
    gold mining stocks got hit hard. Does it have anything to do with the
    higher than expected trade deficit?

A rally that pushed gold to its highest price in two years suffered a mild
setback yesterday, but analysts say they expect the rush to gold will continue as
a result of inflation jitters and fundamental supply-and-demand pressures.
...

					Trace

	Gold dropped $22 an ounce on NY today. Rumors of sale by Mideast and
	Swiss organizations as well as by George Soros.