Rio Olympics, Gold Medals and Bad Investments
|2016 Rio Olympics|
Seeing all of these athletes from around the world competing and getting to see 4 years of hard work be put to the test is inspiring. I've seen Olympic records, World Records and heard some great stories behind the athletes.
By now I'm sure just about everyone has heard of Michael Phelps and his insane accomplishments. In the Rio Olympics alone he's amassed 5 gold medals and was involved in a 3-way tie for the silver medal he won. Over the 4 Olympics that he's been in he's hauled in 28 medals.
Of course the pool was also the site of an amazing accomplishment by Katie Ledecky. I was in complete awe of her performance in the 800 m freestyle where she set a new World Record and finished almost 12 seconds ahead of the silver medalist. That's unheard of considering you're dealing with world class athletes.
The U.S. women's gymnastics team was equally amazing winning the team competition by over 8 points. I also can't mention gymnastics without bringing up Simone Biles and her accomplishments. She won the individual all-around event by 2.1 points. That might not sound like much but for some perspective that's bigger than the margin of victory in the same event from 1980 to 2012. COMBINED!
Usain Bolt has been amazing as always over on the track. I keep waiting to see something else amazing happen over there.
These are just some of the amazing accomplishments that I've caught over the last week and a half. For a great story in sportsmanship and helping people out check out what happened during the women's 5k. To make a long story short 2 runners had a bad fall early in the race, but the first one to get up didn't take off and stayed to make sure the other was okay. Not long after the other one collapsed to the track because her knee was hurting her and guess who was there to make sure she was okay.
What's in a gold medal?
|2016 Rio Olympics Medals|
Out of curiosity let's see just how much those gold medals are worth. The current spot price of gold is $1,351.00 per ounce while the recent spot price of silver is $19.67 per ounce.
A little bit of mathematical magic gets us what we need. The silver in that gold medal is worth $342.76 and the gold is worth $285.93. That's $628.69 just for getting first in a competition. Not bad at all.
Let's take a look at gold and why I consider it such a bad investment. If you have one ounce of gold today what do you have in 5 years? That one ounce will be one ounce a year from now, two years from now, three, four and five years too. Unless you've learned alchemy you won't have any more gold than you had at the start. Five years from now the only way you can make money off that gold is if it's increased in $ per ounce and you sell some. So you're relying solely on a change in the pricing or valuation of gold to generate a return.
How's that compare to another investment like bonds. If you buy a $1,000 bond with a 5% interest rate your returns look much different. Each year you would have received a 5% interest payment which works out to $50 per year. $50 x 5 gives us $250 PLUS you receive that $1,000 back. So you end up with $1,250. If you own the bond for the entire life of the bond your return is also singular in nature and comes only from the interest you received.
What about stocks? Each share of stock represents an ownership stake in a company with claims to the proportion of earnings from the company. Your return stock comes from the growth in earnings, any dividend payments and the change in valuation. That's 3 different sources of return which in my book is much better than just relying on just one source.
I'm not 100% bearish on the prospects of gold as an investment because it's not. The problem is that gold is just flat out a horrible buy and hold investment because you're completely relying on repricing to generate any kind of return.
Gold is best suited as a short term swing trade kind of investment. The problem with that is that you have to be right twice in order for the investment to pan out: when you buy and when you sell. That doesn't mean it can't be done, but you just have to be more vigilant with your investment process. If you don't want to commit the requisite time for an investment in gold then you don't need to invest in gold.
What about when "sh!t hits the fan"?
I can hear the arguments now "what about the failure of all of the fiat currencies around the globe. When SHTF you'll be glad you own gold."
There's two big problems with that argument. If you are really afraid of government/currency failure, gold is a horrible investment. Many people that invest in gold do so via the various gold ETFs out there. In a world where currencies and governments are collapsing how delusional do you have to be to expect that you will receive the gold that's held in your name. Personally I wouldn't bank on it.
The only way you can be sure of having that gold is to have it in your possession before anything happens. Of course that introduces a whole new level of risk namely storage and protection of the gold in perpetuity.
Another argument against investing in gold is the fact that at the precise time it's most valuable, when SHTF, your gold is impractical to your survival. If you really believe in the SHTF scenario coming down the line then you're best off buying land in a secluded area, building a bunker, storing up food and stocking up on weapons and ammo.
Take a look at this illustration I made of what happens in a SHTF scenario when you were busy stocking up on gold when you should have been buying guns and ammo.
There's a time and place for any asset class and that includes gold. However, as a buy and hold investment gold just doesn't hold up. At best you're looking at inflation hedging which doesn't gain you any ground over the long run and you're forced to give up your gold to get anything in return.
You won't find many well established companies that can produce 10%, 20%, 30% or even 50% returns in a short amount of time. So yes gold can be an excellent short to intermediate term investment as long as you're vigilant and are prepared to move systematically to lock in your gains.
As for me though, you'll never read that I've been buying up gold as part of my long term investment strategy. If you do please call 911 because something is definitely wrong with me and I need some help.
Have you been watching the Olympics? What do you think about gold as a long term investment? Have you ever speculated on short term price movements in gold or other commodities?
Please share your thoughts below.