Have you heard the following statements from your financial planner,
mutual fund advisor, or stock broker?
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In the
long term the market rises 8% per year.
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Investors
cannot time the market. The best
strategy for investing is to buy and hold for the long term.
How many decades does the “buy and hold” investor have to
wait to get their 8% per year return from the Dow Jones Industrial Average?
This is what a chart of the Dow Jones looks like for nearly the past
nine years.
![](http://www.24hgold.com/24hpmdata/articles/2008/10/img/20081017ELS102.jpg) ![](../style/all/img/bouton/Zoom_in_6.png)
How many years (or decades) of holding an investment is considered
“long term”? The above
chart illustrates that the “buy and hold investor” that entered
the market in the year 2000 would have made a negative 23% total return on
their money by October 9, 2008. Keep
in mind that this return does not factor inflation into the equation. Since the year 2000 how much more does
it cost to buy food, get an education, heat your home, get medical treatment,
buy gas for your car etc.? The
“buy and hold” investor has done significantly worse when
factoring in the effects of inflation into their investment returns.
When comparing the Dow Jones directly to another asset such as gold,
we bypass the distortion of the fluctuating US dollar measuring stick. The following chart illustrates the
performance of the Dow Jones when priced in gold.
![](http://www.24hgold.com/24hpmdata/articles/2008/10/img/20081017ELS100.jpg) ![](../style/all/img/bouton/Zoom_in_6.png)
In this chart we can see how much the Dow Jones has fallen in value
relative to gold, and conversely how much gold has risen relative to the Dow
Jones. In the year 2000 it took
roughly 40 ounces of gold to buy one share of the Dow Jones industrial
average. Today it takes roughly
10 ounces of gold to buy one share of the Dow Jones. In other words, relative to gold, the
Dow Jones has lost roughly 75.5% of its value.
We are not suggesting that the average investor try to time the market
on a day to day basis. Instead we
are trying to illustrate why we attempt to time the “big picture”
of large shifts of capital from overvalued asset classes to undervalued asset
classes. We believe that timing
these large, multi decade cycles may be the most important investing strategy
an investor could follow. These
long term “mega trends” are where significant profit is made as
the rising tide of the bull market raises all boats.
A good example of these shifts of capital is seen from the
1960’s to 1980 when investors fled paper assets such as stocks and
bonds in favor of hard assets such as gold and silver, but because markets
are cyclical and not linear that same money flew out of hard assets and into
paper assets from 1980 to 2000.
In our opinion the large cyclical transfer from paper assets to hard
assets started once again in 2000 until present. We believe investors are losing faith
in paper assets and are once again in the process of transferring their money
into the security of hard assets.
Markets are cyclical and one day the sun will shine brightly on
financial stocks, technology stocks and the like again. But in our opinion this recent drop in
the paper markets is not a simple pull back and “buying opportunity”. Instead we believe this
“correction” is a full blown “crash” that will take many
years to recover from. Make no
mistake that when the news of falling massive, financial corporation’s no
longer shocks the average investor because it has become so common place, a significant
consequence is likely hiding around the corner. It is during times like this that we
look for assets the world “needs” instead of assets the world
“wants”.
At www.investmentscore.com we do not know exactly when a market will crash,
bottom, or even explode higher.
But we use long term, big picture charts to help guide us in making
long term investment decisions. Currently
we are long term precious metals bulls and we expect spectacular returns in
the coming years. But the key to
profiting in any market is not only knowing when to buy but also when to
sell. To learn more about our
approach to investing and to sign up for our free newsletter please visit us
at www.investmentscore.com.
Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach is the President and Editor or
www.investmentscore.com, an
online publication designed to show investors how to make profitable entry
and exit trading decisions in high growth potential investments.
Investmentscore uses a unique scoring system as a visual guide to assist
investors in making lower risk / higher reward trades.
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Copyright © 2006-2007 Michael Kilbach
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