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Why Gold and Real Estate are NOT Investments


By smaulgld   Follow   Mon, 24 Jun 2013, 5:17am PDT   3,345 views   62 comments
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Warren Buffet is famous for his criticism of gold as an investment. He might as well argue that stamp collecting is not a team sport.

Gold is not an investment. Your primary residence is not an investment. These are not investments any more than a cup of tea is. They are assets.

What’s the difference between an asset and an investment?

The Asset Fondle Test

We’ll use Warren Buffet’s criticism of gold to forge a definition of an asset:

Read More: http://smaulgld.com/gold-silver-and-real-estate/

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Tim Aurora   Wed, 26 Jun 2013, 4:42am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 23

David Losh says

rbitrage, the same as Real Estate

http://en.wikipedia.org/wiki/Arbitrage

In economics and finance, arbitrage /ˈɑrbɨtrɑːʒ/ is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.

Tim Aurora   Wed, 26 Jun 2013, 4:44am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 24

David Losh says

ere you go, dividend: http://www.investopedia.com/terms/d/dividend.asp

You did not write what it said

Dividend: A distribution of a portion of a company's earnings,

Tim Aurora   Wed, 26 Jun 2013, 4:50am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 25

David Losh says

arbitrage, the

Arbitrage is not an output. It is merely taking advantage of the market inefficiency. For example if gold in India is 5% more expensive than US , then I can buy in US sell it in India and take 5% minus expense as my profit. But if the markets soon correct themselves, there is nothing to take advantage of. You need to take classes in Economics before you put an argument.

Heraclitusstudent   Wed, 26 Jun 2013, 5:54am PDT   Share   Quote   Permalink   Like (2)   Dislike     Comment 26

robertoaribas says

Real estate pays you as:

1. rent you aren't paying if you live in it

If you rent, you pay the rent.
If you buy, you pay closing costs, mortgage, taxes, maintenance, insurance, depreciation, time invested, lack of returns elsewhere on your downpayment.

So no.
Real estate doesn't pay you.
You pay for real estate.

CashWillCrash   Wed, 26 Jun 2013, 11:13am PDT   Share   Quote   Permalink   Like   Dislike     Comment 27

Roberto, you are very smart in real estate and correct in most of your postings. But I am surprised that you as a teacher don't know how to spell one of the most important words in this business, which is "principal". You spell it in all your postings "principle". Isn't that a completely different word?

YesYNot   Wed, 26 Jun 2013, 2:17pm PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 28

This thread is silly. Of course real estate is an investment. The whole premise of this web site is just that. The whole buy / rent calculator can be boiled down to... if you cannot buy a house and make money renting it to yourself, then rent from someone else. So, if you bought and rent to someone else, or you bought to live in, you still bought as an investment.

David Losh   Thu, 27 Jun 2013, 1:09am PDT   Share   Quote   Permalink   Like   Dislike     Comment 29

robertoaribas says

wrong again, as usual.

Bob, once again there is nothing in your comment for me to comment on that I haven't addressed a dozen times. You are completely clueless about the business of Real Estate.

You are Bubba who got lucky. Comparing yourself to Iwog is a complete stretch of your imagination; which runs wild.

David Losh   Thu, 27 Jun 2013, 1:10am PDT   Share   Quote   Permalink   Like   Dislike     Comment 30

YesYNot says

Of course real estate is an investment.

It used to be, now it's all speculation.

Gold just fell below $1100 per ounce, will it go below $1000?

treehugger   Thu, 27 Jun 2013, 2:06am PDT   Share   Quote   Permalink   Like (2)   Dislike     Comment 31

CashWillCrash says

Roberto, you are very smart in real estate and correct in most of your postings. But I am surprised that you as a teacher don't know how to spell one of the most important words in this business, which is "principal". You spell it in all your postings "principle". Isn't that a completely different word?

Since you’re surprised that Roberto substituted “principle” for “principal” I think you should do a little reading on second language acquisition as well as google “15 Famous Thinkers Who Couldn’t Spell” for fun. There are many on this site so jealous of Roberto that they pounce on any perceived weakness and end up looking silly when they expose their own ignorance.

Albert Einstein:
Being bilingual, one could hardly blame Einstein for being a bad speller in English. Yet it wasn’t just in English that Einstein struggled. He also was a pretty bad speller in his native German, and got even worse when he began using English more regularly. Of course, Einstein didn’t make those same errors when it came to writing mathematical equations, a fact that helped to make his name synonymous with genius today.

Here is a summary from the following site:
http://englishspellingproblems.blogspot.com/2012/11/the-costs-englishspelling-literacy-is.html

The English spelling system is both more complex and more irregular than those of other languages. Most European languages have around 40 sounds and spell them with an average of 50 spellings (or graphemes), such as [a], [ei] or [sh]. - English has 44 sounds and uses 205 graphemes.

What differentiates English spelling from other systems even more is that exceptionally many English graphemes, like those for the /ai/ sound in ‘straight, eight, great’, are used unpredictably. They obey no rhyme or reason and simply have to be memorized word by word, for at least 3,700 common words. Other quite tricky-to-spell languages, such as French, Portuguese and Polish, have only around 1,000 common words with irregular spellings.

The complexities of the English Alphabetic Code:
1.One sound (phoneme) can be represented by one, two, three or four letters: e.g. /a/ a, /f/ ph, /igh/ igh, /ai/ eigh
2.One sound can be represented by multiple spelling alternatives (graphemes): e.g. /oa/: o, oa, ow, oe, o-e, eau, ough
3.One grapheme can represent multiple sounds: e.g. ‘ough’: /oa/ though, /or/ thought, /oo/ through, /ou/ plough, /u/ thorough

Tim Aurora   Thu, 27 Jun 2013, 5:30am PDT   Share   Quote   Permalink   Like   Dislike     Comment 32

David Losh says

Gold just fell below $1100 per ounce, will it go below $1000?

My personal prediction for gld is between $700 and $800

FunTime   Thu, 27 Jun 2013, 7:20am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 33

robertoaribas says

The point remains a house is an investment. PERIOD.

I agree with your statement in that it is common sentiment and a significant part of nearly all decisions to buy a house. That's the problem.

If people looked at buying a house more like buying a candy bar, they'd have a more accurate idea of the house's value.

FunTime   Thu, 27 Jun 2013, 7:28am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 34

robertoaribas says

My 40K condo is rented for $875 a month, and has been for two years.

Had you bought Google stock on June 24, 2011 you would have really made-out! Understood, though, that you've borrowed significantly to purchase your investments, so that's either difficult or impossible when buying stocks. Conveniently, it's common practice for houses. Houses move so slowly, so the lenders can easily stay ahead of the borrowers.

FunTime   Thu, 27 Jun 2013, 7:33am PDT   Share   Quote   Permalink   Like   Dislike     Comment 35

CashWillCrash says

You spell it in all your postings "principle". Isn't that a completely different word?

Give him a break. He speaks multiple languages. I only speak English and occasionally ponder which principle/principal I want.

FunTime   Thu, 27 Jun 2013, 7:35am PDT   Share   Quote   Permalink   Like   Dislike     Comment 36

YesYNot says

Of course real estate is an investment. The whole premise of this web site is just that.

The whole site is a challenge to the premise that real estate is an investment. Most of our concerns come from the significant cost that real estate represents.

FunTime   Thu, 27 Jun 2013, 7:39am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 37

robertoaribas says

So, if an idiot like you loses money, but astute investors like Iwog and me make money, it is just all luck?

Robert, you do realize you've not made money yet on your condo, right? You've gotten $21000 and spent $40000+interest. I agree that it looks like you're in good shape, but I stick to the math in these instances.

FunTime   Thu, 27 Jun 2013, 8:05am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 38

robertoaribas says

making money every single month, when the rent comes in.

Yes, but the difference between revenue and earnings is significant. Be careful.

I have a friend who's spent his whole professional career in multi-level-marketing "companies." He has astronomical monthly income claims, but last year had to move his family due to foreclosure and is being forcefully pursued by lenders. I really worry for him. He's under signficant stress and pressure despite having many of the appearances of success. At this point, he seems so dependent on the very high monthly incomes, I wonder if he'll ever escape.

smaulgld   Thu, 27 Jun 2013, 7:40pm PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 39

another shot at a defnition
Investment- something that provides income- not something that might one day provide income
Asset- something you own that you take care of or store and derive value during its owner ship (provide shelter, get transportation gain enjoyment)
Car is an asset /taxi an investment
Pet pigs are an asset/pigs raised for pork are an investment

AJ1201   Thu, 27 Jun 2013, 11:31pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 40

Tim Aurora says

David Losh says



Gold just fell below $1100 per ounce, will it go below $1000?


My personal prediction for gld is between $700 and $800

Based on what may I ask?

Gold fell because people are just hoarding cash getting out of equities, bonds and metals. Indian and China have a huge demand for gold, the automated programs cannot control gold prices like they do for equities and bonds.

Tim Aurora   Fri, 28 Jun 2013, 3:59am PDT   Share   Quote   Permalink   Like   Dislike     Comment 41

AJ1201 says

Based on what may I ask?

I think ( and this just my opinion ) because of the following the price of gold will drop to $700-$800

1. Demand from India and China is for jewelry. Both these economies are slowing down. Also the jewelry business is moving in diamonds.

2. As economic certainty improves, which it is, the gold hoarders( hedgers) will sell it.

3. The max cost for digging gold is $1100-$1200. So anything beyond $1300 was a bubble.

4. Gold is merely a commodity with no income, hence makes no business sense to hold it in a portfolio.

I say around $800, there will be a balance between producers and consumers

David Losh   Sat, 29 Jun 2013, 9:57am PDT   Share   Quote   Permalink   Like   Dislike     Comment 42

Tim Aurora says

1. Demand from India and China is for jewelry. Both these economies are slowing down. Also the jewelry business is moving in diamonds.

I started following gold about a year ago. India, and China have a very different view of gold that what you presented. Many Third World countries do.

People buy, and sell gold, by luck. That luck, or it can be an opportunity.

People buy gold in a panic of selling for a variety of reasons. It can be economic disaster when people have to sell gold to pay bills, or it can be a perception of need for cash rather than the asset.

Gold is volatile, and it is very much between a buyer, and seller to make a deal. Some buyers pay higher prices if gold is perceived as going up in price. A seller may get lucky to sell at that time, only to buy back when the prices recede.

Housing is getting to be very similar.

Tim Aurora   Sat, 29 Jun 2013, 12:04pm PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 43

David Losh says

I started following gold about a year ago. India, and China have a very
different view of gold that what you presented. Many Third World countries do.


People buy, and sell gold, by luck. That luck, or it can be an opportunity.


People buy gold in a panic of selling for a variety of reasons. It can be
economic disaster when people have to sell gold to pay bills, or it can be a
perception of need for cash rather than the asset.


Gold is volatile, and it is very much between a buyer, and seller to make a
deal. Some buyers pay higher prices if gold is perceived as going up in price. A
seller may get lucky to sell at that time, only to buy back when the prices
recede.

You are not making any sense.

David Losh   Sat, 29 Jun 2013, 4:35pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 44

Tim Aurora says

You are not making any sense.

They buy gold for jewelry? They wear jewelry to transport gold, and keep it safe.

If you live in a Third World country cash is a very rare commodity. You trade in goods, and services.

Gold is just a way of hedging your bets. If your electric bill is due, and you have to pay a fee if it's late you sell your gold for what you hope is a good price to cover the bill, and save the fees.

Your economy is that cash, and cash flow, which gold helps to stabilize.

It's called luck, but it is really just a hedge.

Also, yes, I can buy gold in Peru for $750 an ounce under the right circumstances. If the seller is desperate, or the seller has owned the gold for a very long time, and bought for less than $300 per ounce, and needed to sell, or wanted to sell to me for $750, I can profit by wearing the gold on the plane as a chain.

In Thailand those chains are a currency.

What makes no sense is you can't see how housing is the same thing.

I have only bought property to sell it. It means nothing to me other than the numbers. The house we have now is for the kids, and I'm happy they enjoy it. We had a house full of our kid's friends here again tonight, they just left, and there is still pizza left!! Good for me.

However, I have already maxed the house out at $570K, but as luck would have it the house next door just sold in three days with multiple offers for $739K.

WTF? What frigging idiot would pay $739K, and the house six doors up sold in May for $439, but the flipper is getting ready to sell in the that same $700K range. WTF?

You don't see housing any more than you the marketability of gold. It comes down to luck, especially when we have the Fed in control.

David Losh   Sun, 30 Jun 2013, 12:40am PDT   Share   Quote   Permalink   Like   Dislike     Comment 45

robertoaribas says

making money every single month, when the rent comes in.

In your case that is true because you bought the condo with profit from another property. Most people don't have that luxury.

Most people pay a mortgage, plus taxes, fees, and dealer prep before they get any money out of rent.

smaulgld   Sun, 25 Aug 2013, 8:43am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 46

the asset values of gold and silver are heading higher....

Facebooksux   Sun, 25 Aug 2013, 3:16pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 47

Tim Aurora says

AJ1201 says

Based on what may I ask?

I think ( and this just my opinion ) because of the following the price of gold will drop to $700-$800

1. Demand from India and China is for jewelry. Both these economies are slowing down. Also the jewelry business is moving in diamonds.

2. As economic certainty improves, which it is, the gold hoarders( hedgers) will sell it.

3. The max cost for digging gold is $1100-$1200. So anything beyond $1300 was a bubble.

4. Gold is merely a commodity with no income, hence makes no business sense to hold it in a portfolio.

I say around $800, there will be a balance between producers and consumers

Guess again, shithead.

Tim Aurora   Fri, 13 Sep 2013, 5:24am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 48

Facebooksux says

Guess again, shithead.

http://blogs.marketwatch.com/thetell/2013/09/13/gold-under-1000-an-ounce-dont-rule-it-out-says-goldman-sachs/

Do have a point or are you just blabbering. Gold rebounded just because of Syria news.

mell   Fri, 13 Sep 2013, 5:25am PDT   Share   Quote   Permalink   Like   Dislike     Comment 49

Tim Aurora says

Facebooksux says

Guess again, shithead.

How does it feel now?

http://www.bloomberg.com/news/2013-06-24/goldman-lowers-gold-forecast-through-2014-as-selloff-accelerates.html

You are on average better off doing the exact opposite of what GS says, that's how they make money because they reverse always in front of you. I don't own gold but I think it has held up surprisingly well and I cannot see it go much lower, below 1000 is really a hard sell - no pun intended ;)

smaulgld   Fri, 13 Sep 2013, 7:16am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 50

When gold goes down on the exchanges its often because of one or two massive sales which makes no sense because if someone wanted to sell they wouldn't put it all on the market in one minute. The amounts sold (if indeed they are actual sales and not just naked short selling) are sometimes the equivalent of half a years mining supply.

Then the price rebounds.

Imagine of the Case Shiller futures index controlled housing prices not the price negotiated between two buyers.

smaulgld   Fri, 13 Sep 2013, 7:38am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 51

egads101 says

when you're wrong will you always make up nonsense excuses, instead of admitting you are wrong?

Wrong about what? I made an observation on the gold market. I don't have a gold prediction.

If you follow gold you will see the biggest price drops occur suddenly usually in thinly traded late evening sessions. What is that a nonsense excuse for?

smaulgld   Fri, 13 Sep 2013, 8:57am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 52

egads101 says

you are bullish on gold. When gold went up for a while, it is because of your correct analysis.

when it goes down, you make up excuses, that it is because one person decided to sell or something else that implies your overall analysis was correct, despite the price doing the opposite of what your advice implies.

you can't have it both ways.

I don't pretend to know the direction of the price gold. Its something that I don't think about much as in and of itself as the blog post says it doesn't do anything and cant do anything to make itself rise in value.

I just observe. I am not "bullish" on gold. In my opinion one can only be bullish on an investment that is going to earn a return. Gold doesn't do that.

Gold is nuetral- stuff happens around it- wars, time, currency fluctuations.

My only point of view on gold is it seems to be a good store of value in an insured vault over time.

One can be bullish on currencies because government and central banks can do things to improve or debase their currencies. Again gold is just a yardstick- hard to be bullish on a yardstick

iwog   Fri, 13 Sep 2013, 9:13am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 53

smaulgld says

One can be bullish on currencies because government and central banks can do things to improve or debase their currencies. Again gold is just a yardstick- hard to be bullish on a yardstick

Absolutely not!!!! Gold is a horrible yardstick because speculation drives it all over the map. Gold goes from $300 to $1900 to $1200 during which time what did the dollar do? It stayed between 72 and 90 on the dollar index the entire time. The entire decade! What did hamburgers do? McDonald's sold cheeseburgers for 99 cents the entire time. What did computers do? Serviceable Laptops then and now cost around 1000. What did gasoline do? In dollars it was subject to a steady rise from 2000 to 2008 after which it has stabilized on either side of $100. per barrel. However if you graph gasoline per ounce of gold, you end up with chaos.

The best argument for why gold is no longer any kind of intrinsic yardstick by which to measure the economy is the simple fact that Wall Street is now the biggest hoarder of gold bars second only to large nations. They buy up gold and keep it off the market. Lately they have been selling off gold and flooding the market. It's a system based on hype and speculation, not value.

smaulgld   Fri, 13 Sep 2013, 9:31am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 54

iwog says

They buy up gold and keep it off the market. Lately they have been selling off gold and flooding the market. It's a system based on hype and speculation, not value.

Much of what you say is true. What is the value of gold?- if its not a yardstick why do central banks have it?
Gold is a mystery.
also last I checked in the past two years central banks were net buyers of gold.

iwog   Fri, 13 Sep 2013, 9:40am PDT   Share   Quote   Permalink   Like (1)   Dislike     Comment 55

smaulgld says

Much of what you say is true. What is the value of gold?- if its not a yardstick why do central banks have it?

Doomsday hoards. Kind of silly in the scope of a human life, but over 100's of years quite prudent. You can't counterfeit gold.

smaulgld says

also last I checked in the past two years central banks were net buyers of gold.

Central banks like most people sell at the bottom and buy at the top.

http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999%E2%80%932002

thomaswong.1986   Fri, 13 Sep 2013, 9:48am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 56

CashWillCrash says

It is an investment:

Stocks pay annual dividend as do bonds pay interest,
and that periodic return creates an income yield without any regard to liquidation.
this is why they are investments....

For many, residential homes dont pay anything unless rented out,
the same is true with GOLD, unless your a dealer who sells/buys at discount.

smaulgld   Fri, 13 Sep 2013, 9:49am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 57

iwog says

smaulgld says

Much of what you say is true. What is the value of gold?- if its not a yardstick why do central banks have it?

Doomsday hoards. Kind of silly in the scope of a human life, but over 100's of years quite prudent. You can't counterfeit gold.

smaulgld says

also last I checked in the past two years central banks were net buyers of gold.

Central banks like most people sell at the bottom and buy at the top.

http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999%E2%80%932002

But really in doomsday what is gold going to do for you -or a bank anyway?
Yes, Harry Brown or whatever the finance minister of england was did sell at the wrong time!

Degaulle made the best point-why is the dollar the currency the world uses (after all its just green paper with number in ink on it) why not use something more universal- gold?

smaulgld   Fri, 13 Sep 2013, 9:57am PDT   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 58

thomaswong.1986 says

For many, residential homes dont pay anything unless rented out,

the same is true with GOLD, unless your a dealer who sells/buys at discount.

Yep points made in the anchor post

Tim Aurora   Sat, 14 Sep 2013, 1:25am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 59

thomaswong.1986 says

For many, residential homes dont pay anything unless rented out,

Once again , if you are living in it , deduct the equivalent rent and consider it as dividend ( after andding mortgage , taxes & subtracting interest,house tax, HOA and maintainance).

So if you live in a 100K house and you have 80K mortgage at 4% , 1K in taxes and 1K in maintaince for the year and 12K rent for the year this is your calculation. The number above are just examples. Plug in your own numbers

investment = 100K - 80K = 20K

Profit = 12K (equivalent rent) + .8k (tax saving if u r in 25% bracket) - 3.2K ( interest) - 1K (taxes) - 1K ( maint) - 0.3K ( HOA)= 7.3K

So you are getting a dividend of 7.3 on 20K investment. Of course any change in price would be profit/loss ( after subtracting selling and buying expenses) when you sell it.

Of course the above is just an example and there could be more expenses such as insurance, mortgage points etc but the point is , it is a staight calculation and there is a "calclatable dividend". It is possible that the -ve numbers become so large that there is 0 or -ve dividend and that is equivalant to making a loss in business. You may also incur so much loss in selling that the whole deal will be a net loss. But those point are seperate from the fact that there is a "dividend" provided by living in a house.

Tim Aurora   Sat, 14 Sep 2013, 1:52am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 60

smaulgld says

The Asset Fondle Test

I am surprised that "car" is not an investment. In most cases car is a necessity, so if you do not own a car you may have to rent or lease it. Now if you live in Manhattan car is not required. Point is , it a a situational necessity. So the best way to find the investment dividend is calculate your alternative cost and cost of owning the car. If it is positive you have a dividend .

Mind you , the depreciation on the car is normally very high so keep that in mind . Better still add that to your dividend to find out the true cost.

Tim Aurora   Tue, 31 Dec 2013, 5:22am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 61

Facebooksux says

Guess again, shithead.

I guessed it and it is moving in the direction that I predicted.

smaulgld   Tue, 31 Dec 2013, 7:26am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 62

Tim Aurora says

Facebooksux says

Guess again, shithead.

I guessed it and it is moving in the direction that I predicted.

Down?

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