It gets tiring to hear comments of how gold is nothing other than a shiny yellow metal to look at and admire…to invest in gold is synonymous to wasting your time. It appears that the majority of investors at this crucial moment in time only restrain from gold to criticize it just as Mr. Warren Buffet did in his most recent shareholder correspondence. It was actually a rather routine assumption that gold does not and will never have the ability to generate anything other than fear-driven investors. I still can not discern as to why Buffet would communicate these absurdities, but I am analytical and must look beyond the shallowness of some to find what lies beneath. And, I believe it could be related to Benjamin Graham, the man who guided Buffet and to whom Buffet will be eternally grateful for all the wise pedagogy he received.
I must be fair in saying that Benjamin Graham is a much revered investor. He is the person behind Security Analysis (1934) and The Intelligent Investor (1949). During his career, which lasted from 1915 to 1956, he developed his investment ideology turning into the person most would look for when defining investments and their values. What we understand today as modern portfolio theory we can thank Graham for. He is known to have understood best the reason for overvalued or undervalued stocks and bonds and why they would stray. Even Graham believed in varying portfolio allocations so they best suit one’s needs as well as yield pertinent profits. So what did he have to say when both stocks and bonds idled or simply dropped altogether? If we take into account what occurred four decades ago as well as what happened from 2011 up until now, it is very clear that portfolios which included only stocks and bonds have somewhat desperately tried to come out even or simply plunged. Any smart investor would have realized this and done something about it immediately.
What could have been done? The addition of gold to these portfolios would have turned their profits around. The overvaluing of stocks and bonds is best fought with the precious metal. But then, why is gold not included in Graham’s allocation design? There is a simple answer to this and it lies in the fact that while Graham was an adult and was in the prime of his career, it was not possible to own a lot of gold. Remember that in 1933 it was prohibited to own gold personally. Then in 1974, it was legalized anew. Unfortunately, Benjamin Graham passed away in 1976 and was never able to benefit from a life where gold was considered superior to stocks or bonds. And this is why in today’s investment forums, gold is belittled. Consequently, this is also why Warren Buffet gets his signaled crossed when referring to gold. In this day and age, the best strategy to use is recognizing that a profitable portfolio distribution is destined to be comprised of three large investment classifications which are stocks, bonds, and gold. Relative valuation should guide one in the distribution to each class. Those who heed this wise advice will advance across the board.
Don’t get agitated when the media puts gold down; just remember that you are living in the present and according to existing circumstances. Presently, one must invest in gold and be protected with the comprehension that it meets a vital and particular intention in a portfolio. At this moment it can be best expressed as real money that safeguards your wealth during times that are characterized by unreasonable government obligations and currency devaluation such as we are now enduring.