“There are no rules here, we’re trying to accomplish something.” — Thomas A. Edison (1847 - 1931).
How did Edison know?
Sometimes we get lucky. I’ve had a boatload of lucky times. They were fleeting, but nuggets of wisdom and information were there. It’s up to us to separate fool’s gold from the precious metal, and real facts from smoke.
A most vivid memory goes back to the early 1970s. The giant was Milton Friedman — shortly after he won the Nobel in economics. It was just after U.S. citizens could legally own gold again. At a private reception, after Friedman spoke to several hundred, someone asked him about gold. The metal had made a large run and was trading at about $200 an ounce.
Friedman said that he did not follow gold, but had made a few estimates based upon inflation, and he thought $110 an ounce was a proper level for that time.
A few months later gold fell to $104. Wow. He did not claim expertise, but nailed it. Isn’t humility from a Nobel winner neat to see in action?
When gold hit $800 an ounce in 1980 (just seven to eight years later), thanks to Friedman, I knew it was too high. I did not sell my silver coins, but did sell my gold stocks. We must each ask ourselves; “What’s our blind spot?”
How does the Friedman $110 an ounce translate to today — some 40 years later? Using an inflation rate of about 6 to 7 percent and compounding annually, my slide rule says a $1,350 and $1,650 an ounce ballpark is about right.
Now we endure chaff aplenty — white noise about an improving economy if you will. Try to tune them out and look for a few facts.
Some I’ve noticed recently are:
• Within my normal driving territory, five restaurants have closed their doors.
• Germany, the world’s No. 2 exporter (after China), is shipping more goods than last year.
• In May, container traffic at the port of Los Angeles was down double digits from 2012.
Random inputs do not define an investment strategy, but may help avoid holding a fully valued sector or one still heading nowhere.
Dave Kamm is an Investment Adviser Representative with Raymond James & Associates Inc.