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I did something different with my Sunday Washington Post Business Section this week. Starting with the 2,500 word long form discussion I wrote for Bloomberg, I simplified this and edited it down to half that length.

The print version had the headline Bitten by the gold bug? You’ll do well to heed the past, while the online version was titled A gold enthusiast? Listen to the head — and history). For those of you unfamiliar with media, the headline is typically written by an editor, and not the writer. (this is an adaptation that bloggers are forced to uncomfortably make when playing in MSM playbox). I still prefer the headline I wrote on Wednesday, 10 Lessons Learned from Gold’s Epic Rise & Fall.

The goal of the WaPo version was to take the basic investing concepts from the longer form version and make them more accessible to a general audience. I think we accomplished that.

Toward that end, here are the 10 lessons as written in the WaPo column:

Lessons from Gold’s Rise & Fall

1 . Beware the narrative
2. Carefully examine new investment products
3. Ignore history at your own peril
4. Leverage is always dangerous
5. Understand the circumstances of the moment
6. Don’t be unwilling to walk from a bad investment
7. Ask what is already reflected in the price
8. Don’t guess
9. Ignore end-of-the-world tales, conspiracy theories and other nonsense
10. Listen to the skeptics

The idea was not to make a call on the near term direction of Gold. (As I noted recently, I haven’t the foggiest notion whether gold goes up or down from here). The idea was to see what investing lessons could be learned from the errors others have made.

I hope you find it useful . . .

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Source:
A gold enthusiast? Listen to the head — and history.
Barry Ritholtz
Washington Post, January 11, 2014
http://wapo.st/19lYyjm

Category: Apprenticed Investor, Gold & Precious Metals

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Bitten by the Gold Bug? Some Lessons”

  1. Anonymous Jones says:

    The Felix Salmon thing is HILARIOUS! He actually suggests that someone like you be *slapped in the face*.

    He manages to top himself again and again, with every column, something I wouldn’t think possible.

    You’d have to come to the conclusion that he has just massive trouble with English words and the English language altogether. It’s like he doesn’t understand anything, but somehow gets to post his ignorant word salad at Reuters a couple times a week. I mean, I would start a takedown of his ten points, but you’d have to dismiss, literally, almost every single sentence he wrote. It’s like arguing with someone who insists that 2 plus 2 equals 5. He understands *nothing* at all of what you wrote or what a “trade” is or who writes the headlines (he’s in *journalism* and doesn’t understand who writes the headlines!!!!).

    Just this week, I noted this over at DeLong’s blog about Salmon’s ludicrous other writing this week: “Salmon’s contribution is, per usual, not impressive. You darn well better be right if you assert that the other side hasn’t answered “any” of your questions, or you should just be mocked out of the debate.
    The thing is, this is no outlier. He neither thinks well nor writes well. He’s green and prone to unwittingly showing how out-of-class he is over and over again, in almost all the subjects he chooses (which is a kind of an impressive accomplishment, if you want to go the other way on it). I’d suggest not linking to him if you want to keep cred, but whatever.”

    Amazing case of failing upward. Truly stunning.

    • I think his failing upwards has reached its ceiling

      • JBtfsplk says:

        I don’t know, it does seem that lessons about the perils of gold investing would have been a lot more helpful when the gold price was above $1,900, and and pretty safe to publish after a 30% decline. On a similar front, we have had multiple lessons about the effects of easy money on asset prices. Seems now would be a good time, when stock and bond markets are still high, to revisit easy money lessons in some WAPO and Bloomberg columns, since that story never ends well either.

      • One can only publish lessons AFTER one has learned them.

        Regardless, this is NOT a post about the direction of gold, or whether you should or should not be long it.

        You apparently did not understand one single word from this post choosing instead to argue for your existing position.

        Unless you wise up, you are likely to be financially doomed

      • intlacct says:

        I’ve clicked on two of the links and the ‘Felix Salmon thing’ is as clear as mud. What is Anonymous Jones referring to?

      • Its a really weird piece — I cant figure it out — weak, poorly argued, muddled.

  2. The value of gold denominated in US dollars expands and contracts in an elegantly quantitatively predictable nonrandom manner.

    Also in a qualitative nonrandom manner the world central banks must, for the one quadrillion dollar equivalent asset debt system’s survival, print money ex nihilo to keep the debt game and 1′s and 0′s accounting bank game going.

  3. mick says:

    Barry addresses goldbugs like (I’m guessing, never having listened to him) Glenn Beck, but he’s certainly not addressing Jim Grant, Fred Hickey, Bill Fleckenstein, Marc Faber, etc.–who can hardly be called amateurs. I’d truly like to hear a real debate.
    As for Salmon, please please don’t cite Brad DeLong one of those economists who has consistently been wrong about nearly everything.

    • RW says:

      Jim Grant, Fred Hickey, Bill Fleckenstein, Marc Faber, etc. were all wrong on inflation and gold price direction.

      If you could name an error of comparable magnitude that the “consistently wrong” Brad Delong has committed it wouldn’t help your argument above but it might make the case that your comment was worth the time it took to read it.

    • MarkKlose says:

      Mick, So your comment about DeLong isn’t viewed as just an ad hominem attack, it seems incumbent upon you to support the statement. It would be useful if you could provide links to a few specific predictions/forecasts from DeLong over the last year or two where there is empirical evidence that he was materially wrong. Thanks in advance.

  4. intlacct says:

    Succinct advice on gold (or any asset) paraphrased from the Buckley article: [have] the discipline to recognize that even when your [gold is] up, it’s time to sell [it] and add to the rest of your portfolio.

    Super succinct: rebalance.

  5. philipat says:

    It will be interesting to revisit this issue in late 2014.

    I have no particular axe to grind, not being a “Gold Bug” but I do own physical allocated Gold stored in a safe haven, which I acquired at an average cost of a little over $400, so I am not hurting.

    IMHO, investing is on a longer time scale and Gold provides an insurance policy against Black Swans and tail Risks, such as MAY be coming apparent in 2014. Hence, as I noted above, I look forward to revisiting this issue later this year.

  6. ch says:

    Barry-

    Thought it’d be interesting to use your (very useful) framework to evaluate the dollar/US Treasury as sole reserve currency/asset:

    Lessons from Gold’s Rise & Fall

    1 . Beware the narrative – [US dollar could never lose reserve status b/c it's the US - despite none of the only major reason for the US maintaining that position is the US having the #1 military (but no longer the only one with nukes.]

    2. Carefully examine new investment products – [interest rate derivatives create artificial demand for Treasuries & have gone from a de minimus level 15-20 years ago to $300-700T+ today.]

    3. Ignore history at your own peril – [global reserve currencies have changed every ~40 yrs; US petrodollar is 43 yrs old in current form; Federal gov't backing of banking systems in debtor nations has generally not ended well.]

    4. Leverage is always dangerous – [see #3 & #4 above, along with Federal debt & the Fed's balance sheet since 2008]

    5. Understand the circumstances of the moment – [US has lost top trading nation & top oil importer crown to China.]

    6. Don’t be unwilling to walk from a bad investment – [Xenocentrism among American investors prevents this by & large - see mostly anti-gold commentary by commenters on this site.]

    7. Ask what is already reflected in the price – [US Treasury bonds at 156-year highs driven solely by Fed QE - perfection & the infinite status quo is in the price...what if something changes?]

    8. Don’t guess – [life is a game of probabilities - the data above = the conditions are right for an investment-threatening avalanche - which snowflake will cause it? Who knows...but ignoring the potential for one while sitting in a chalet at the bottom of the hill seems like a suboptimal strategy for preparation...]

    9. Ignore end-of-the-world tales, conspiracy theories and other nonsense – [like the fact that the NSA has significantly hurt America's standing in the world by recording conversations & manipulating interest rates, leading to real motivation on the part of most other trading nations to reduce exposure to US-centric financial products (see foreign official support for US Treasuries in 2013 - it fell 80%.]

    10. Listen to the skeptics – [hard to do in the US over the shouts of ” ‘Merica, f$ck yeah!”

  7. Imspartacus says:

    I think some people act like the ” In search of Bigfoot” people we see on cable. All of these individuals believe they are hunting something that in reality has no real possibility of existing. They believe every sound they hear in woods is a “Squatch.” They constantly look fore very trivial piece of information to back up their thesis. They reinforce each other’s confirmation bias incessantly and rely on many occasions on the testimony of inebriated hillbillies to confirm their views. They refuse to change their views despite their 100% failure rate. I think this show would be an excellent satire on the follies of all the behavior biases that you so generously explain to your readers. Maybe this can be made into an instructional film on investing/ Who would play the Lead role of Squatch Hunter?