Newsletter – July / August 2011 – Investing “In the Now”


Investing “In the Now”

It’s not really a con job: it’s just the way they look at it. When our friends, the mutual funds salesmen, try to persuade us to buy stocks and hold them for the long term, they refer to statistics that show the Dow Jones Industrial Average at 40 at the very low in 1932; and they compare that to its current level at about 12,000. If we bought “The Dow” from that 1932 low, any time during the next 68 years, we would have done just fine. (For the record, in 2000, 68 years after the 1932 low, the DJII was about 11,000.) Their point is that US stocks are in a long term up trend and we should just buy them and hold them – and just keep on buying over the years. It’s a sales pitch that has a certain appeal for those who don’t want to think too much about their investing. The frustrating part is that the Dow was around 11,000 in 1999, 2000 and 2001. After a series of wild ups and downs, it has provided only 1 or 2% annual capital gain for the 10 years since then. If you had the misfortune to own the S&P 500 instead of the Dow, (the 500 biggest stocks in the USA instead of only the 30 biggest), your capital gain would have been a loss. Statistically, it’s not a con job, but it feels like one to those who have held US stocks for the past 10 years.

The problem for the financial planner/mutual funds salesmen is their time horizon. Most investors who are planning their retirement have shorter time horizons than 68 years. Most of us consider 10 years to be “long term” enough.

What was the top performing investment during these 10 years of stock market mediocrity? Gold has been in an up trend since 1999 when it had dipped below $300 US per ounce. Now it’s over $1500 per ounce. That’s over 500%!

This chart of the price of one ounce of gold, measured in US dollars, is the classic investment up trend of our era. It illustrates CastleMoore’s investment approach: own investments that are in up trends and hold them until the up trend is over. Simple logic.

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