The "Stock Trading Riches" Investment System

[ls7550]

Recently (last week) Gold, Silver, and Copper seem to have drawn a lot of interest. I don't know why, and it was totally unexpected by me

Hi Toofuzzy

My gut feeling is that the market is starting to see stocks as perhaps being a bit toppy. Recent strong gains, especially in US stocks compared to others might be inducing a take-profit tendency, perhaps flowing those proceeds into other assets that have endured relatively weaker performance.

Or it might be a re-assertion that real yields might continue to remain low/negative for a while longer yet (maybe a few years), and could see inflation explode whilst nominal yields remain suppressed down at low levels

Gold is somewhat like a undated zero coupon inflation bond



and long dated TIPS did also turn more recently.

Having a diversified portfolio in whatever form is a good thing especially if the components move up and down at different times.

Many assets may just pace inflation broadly over the longer term. Stocks tend to be the exception and are more inclined to provide a longer term positive real reward. Taking a simple model of stocks decline 10% one year, gain 33.3% the next and stocks annualise to a 9.5% gain. Assuming inflation of 5% = 4.5% real reward from stocks. Gold in contrast might gain 22% one year, decline 10% the next, and annualise to a 4.9% gain, near enough 0% real after accounting for 5% inflation.

Blend those two 50-50 and with one up as the other is down and visa-versa, rebalanced yearly (or when sizeable deviations are apparent), and the 50-50 yields a 8.9% annualised benefit. Not that much less than 100% stocks. Yet the portfolio volatility (risk) is much lower for the 50-50.

Low/inverse correlations combined with high volatility can certainly both help uplift rewards above that of what might be expected given individual assets expected rewards, and reduce the overall portfolio risk (volatility).

The amount of annalisis you do never ceases to amaze me.

I like to post something once in a while when the boards get quiet to encourage sparking off some activity. Remember investing became my only source of income back when I was in my 40's - so sometimes its just a case of I've got nothing better to do to keep myself occupied other than some analysis.

Regards. Clive.