Investment Returns

[admin]

I’ve been a big proponent of gold and gold mining companies, and have been happy with my investment choices.

2006 performance:

S&P 500: +14% (capital appreciation, only; no ’06 dividend/capital gain distribution data, yet; ’05 was 2%)
Dow: +16% (capital appreciation, only)
NASDAQ: +10% (capital appreciation, only)

Gold: +24%
Vanguard Precious Metals and Mining (VGPMX): 22% capital appreciation + 13% dividend and capital gain distribution = 35% total return
U.S. Global Investors World Precious Minerals (UNWPX): 34% capital appreciation + 18% dividend and capital gain distribution = 51% total return

My plan is to ride gold and gold mining stocks up to $2,000 per ounce (and beyond, if Congress cannot bring itself to institute budgetary discipline), then shift over to TIPS or back into the stock market, thereafter.

Jump on and join the ride of gold up to $2,000-5,000-10,000 per ounce!

[powayseller]

Good job there, jg, you beat me with your returns. My plan is to short the stock market for the first half of 2007, and then switch into gold. I’m hoping that in the first 2 quarters, the decline of the market into the recession will exceed the rise of gold associated with a fall in the dollar.

(Did you read the Microsoft and Google have the greatest insider selling of any companies, and insider selling/buying of US companies is 65:1, a record of some kind. Hopefully this market is topped out now.)

[Anonymous]

The market may take some time to go down meaningfully, ps. The P/E for the S&P 500 is just under 18; the mean P/E over time is ballpark 14. That’s a drop of ~30%. Earnings should be dropping, too, further reducing stock prices.

But, in the last recession (’00-’01), it took one year for the S&P 500 to go from ~1500 (Sep. ’00) to ~1000 (Sep. ’01), and another year before it moved down to ~775 (Oct. ’02). Two years for a total 50% drop. Over the last two years, UNWPX went up 31% in ’05 and 51% in ’06 (compounded growth of 98%) and VGPMX went up 44% in ’05 and 35% in ’06 (compounded growth of 94%).

Shorting the market seems like a protracted (two year) path to a 30-50% return, compared to recent performance from good gold mining mutual funds and the likely path for the dollar and gold over the next two years.

[powayseller]

I’m in dynamic inverse funds, which return twice the inverse. If the market goes down 25%, I’m up 50%. Of course I can lose, too. So I would have made a 60% return in 2000-2001 had I been in the Rydex fund (1500 to 1000 is 30% down, dynamic fund returns twice that). I’d be happy with that.

Sometimes last year’s high flyers can be next year’s duds, so there are no guarantees that the funds you mention will have a similar good year in 07. The Chinese can prop up the dollar even more, as our purchases from China decrease, making the dollar rise and gold fall. Temporarily. Likewise, the stock market could keep rising for many more months. Although the high rate of insider selling and falling Dow Transport stocks are indicating a sell-off should come soon, it could be months away.

[Wiley]

Hey PS,

Can you give me the symbol for the inverse fund. I’d like to look at it. Thx.

[Anonymous]

I looked at the Rydex Inverse Dynamic S&P 500, which seeks returns that are inversely 200% of the daily S&P 500 index. The S&P 500 was up 14% in ’06; the Rydex Inverse was down 18%; 1.3X, not 2X.

They may try to get you 200% inverse, but their ’06 performance was not very encouraging.

[h82rent]

Wiley, ProShares UltraShort is one ETF that PS might have been referring to. It’s investment goal is to return twice the inverse. It trades as QID.

[NeetaT]

Have any of you ever wondered why it seems to be OK to lose money on stocks, but it’s not OK to lose money on a house. People will do anything in their power not to lose money on a house, but when it comes to stocks, they just mark it up as nonchalant loss.

I do see gold going to $2,000.00 a troy ounce !!!!!

[powayseller]

jg, you’re right, they don’t deliver quite 200%. More like 150%.

Rydex Inverse Dynamic S&P500 Fund returns almost twice the inverse of the S&P500. The 1 year return for the S&P500 is 14%, and for RYTPX is -22%.

Likewise, RYCWX, Rydex Inverse Dynamic Dow, had similar returns.

Rydex has other inverse funds: long bond, mid-cap, Russell 2000, NASDAQ (named OTC).

I purchased these funds in November, so my losses are still small. My biggest surprise has been the stock market rally, heading into a recession. This again proves to me that markets are not rational, not forward looking, not efficient. Markets seem to be bubble blowing machines.

After the stock market started falling this spring/summer, I thought the markets were anticipating the recession from the housing bust. I was utterly surprised by the fall rally, the high-flying private equity deals, and the imbalance between the bond and stock markets. The bond market is priced for a recession, while the stock market is priced for more profits ahead. While insiders are cashing out, the Dow has gone longer without a 2% correction than any time since the 1960’s.

[powayseller]

jg, I was just bragging about your spectacular returns on Roubini’s blog, and upon checking the returns myself, came up with different numbers so I had to erase my post.

For 1-year, the UNWPX returned 20%, and the VGPMX returned about 21.7%.

UNWPX, adjusted for dividends and splits
12/29/06 $27.26
12/29/05 $20.27
Return = 34%. How did you calculate 51%?

This is the VGPMX Price, adjusted for dividends and splits
12/29/06 $ 28.05
12/29/05 $ 23.05
Return = 21.69%. How did you calculate 35%?

Both funds climbed 60% in the first 5 months of 2006, but then gave up half to 2/3 of their returns and stalled for the rest of the year. They are highly correlated, so how did you decide on these particular funds?

[4plexowner]

Silver’s up 42% in 2006.

Silver is going to at least $80/oz and gold is going to at least $1650/oz.

Got silver and gold???

[Anonymous]

VGPMX paid $3.03 in dividends and capital gains in 2006; as I put in my post at the top, 22% capital appreciation ($23 -> $28 = 22%) + 13% dividend/capital gain distribution ($3/$23 = 13%) = 35%.

UNWPX paid $3.57 in dividends and capital gains in 2006; 34% capital appreciation ($20 -> $27 = 34%) + 18% dividend/capital gain distribution ($3.57/$20 = 18%) = 51%.

I picked these based on (1) their correlation to gold, (2) magnification of returns to gold, and (3) exemplary track record in the ’01-’03 run up in gold.

I was 100% in VGPMX, but as it is closed to new investors, and I wanted to open a separate account, I had to find another gold-related fund, and stumbled across UNWPX. I now have the lion’s share of my money in UNWPX.

[powayseller]

So the Yahoo Finance entries are incorrect then… they must not have updated their prices to include that last distribution.

Mining companies amplify the returns of gold, at least according to Zeal. Again, nice job on those gold mining stocks.

[Anonymous]

Yep, Yahoo is a bit behind on updating with final ’06 numbers; their numbers are up-to-date as of Nov. 30, ’06, and both VGPMX and UNWPX made distributions in Dec. ’06.

Here’s the chart that convinced me that gold mining stocks are good and that the UNWPX fund was better than the VGPMX fund:

http://piggington.com/gold_and_gold_mining_stocks

[powayseller]

To what do you attribute the higher returns of UNWPX vs the Vanguard fund? Have you read any of Zeal’s reports (mining companies outperform gold by many times)? That’s why Bill Fleckenstein raves about Newmont Mining and not about gold as far as I know. The mining companies amplify gold’s return. Zeal has a bunch of junior mining companies on their recommended list, but after I got burned with Chevron and Ivernia, I quit my subscription.

[Author]

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