When To switch from PMs to Stocks?

[vand]

Firstly, if your answer is "never" then this thread is not for you!

However if you view your PMs as an investment, then you should also consider when is a good time to sell them to invest in other asset classes.

I personally think the stock market is horribly overvalued and that is the main reason why I am avoiding it in favour of PMs as an investment vehicle (not as an insurance/SHTF vehicle). But there will come a time, I believe, when the reverse becomes true and it is wise to favour stocks. I base this on historic Dow/Gold ratio.

Currently the ratio sits at 16.5

My thoughts going forward are roughly something like this: 

 

Above 10 - avoid stocks; accumulate PMs only
Between 7-10; buy both
4-7: Buy Stocks only
4: sell 33% of existing PM holdings; swap for stocks
3: sell 33% of remaining PM holdings; swap for stocks
2 or below: sell 50% of remaining PM holdings; swap for stocks

Under these rules even in a blowoff bubble where we would get to Dow/Gold of 2, I would still hold 20% of the PMs I had ever accumulated. This would be the "insurance". And I suppose it could always go lower.. 1 or below in which case there would be further chance to sell at an even more extreme levels.

 

What say others?

 

 

[tbone]

I agree that stocks are overvalued currently (on the whole anyway).  But I'm not sure I'll be swapping back and forth based on any ratios.  I guess I like to keep things simple.  401k's (in US anyway) are pretty much set it and forget it.  Gold and silver should be too.  Take x% of your income, after taxes and other bills like insurance and mortgage, and save it in the form of physical PMs. 

I think when the next market crash happens (or major correction), many will be trying to jump out of stocks into PMs or whatever seems to be going up at the time.  I did the same thing in 08 and it was mostly a mistake.  So, next time, I'll probably just stick with my K.I.S.S. plan. 

[vand]

Buying stocks after a 30-40% fall in the general indexes has rarely been a bad strategy in the past. Yes it is impossible to pick bottoms and a 30% fall could turn into a 60% fall, but a cost-average approach should be employed over a number of years and you will then catch some of the very bottom when stocks are super-cheap. 

[sixgun]

Stocks and bonds are overvalued. The markets have been pumped up by central banks and corporate share buy backs. There are many mentions of the smart money exiting. What you hear through the media will be the tip of the iceberg.

http://www.visualcapitalist.com/billionaire-investors-precious-metals/

i remember in 1987 how James Goldsmith sold out of stocks and then we saw Black Monday and the crash.

https://www.spectator.co.uk/2008/02/the-wisdom-of-selling-ahead-of-the-crowd/

Property is overvalued when you look at the historical price to income ratio.

https://www.emoov.co.uk/news/2017/05/12/average-uk-house-price-wage-ratio-now-x-6-05-12-05-capital/ 

i see indications property prices are turning over. There only needs to be a slight downturn in average incomes and there is a serious tumble underway. 

The now investment is carefully selected cryptocurrencies. There are wild fluctuations in price but the direction is up and dips can be opportunities.  

I feel precious metals are on the edge of substantial rises, so i don't see this as a time to start off loading. There are people i know who are talking about an imminent price reset, i am not quiet that bullish but this is more than a pipe dream.

At some point another investment may be a better choice. The world will be a different place. You might be able to settle a mortgage for a few tubes of silver Britannias at some point. 

[Augustus1]

I have never chased "opportunities" I am not that clever , I can only advise my philosophy and experience , I have a diversified portfolio that has been the case for many years and what ultimately lead me here, I invest in the stock market but mainly in funds, some individual stocks, but I invest on a regular basis, I stand to do well if I sold all my shares /stock  now  , but I have never timed the market ! I have been in the downs 2008  and now the highs , but spreading the risk works for me , I have rentals again there  may be a housing crash, may not but I don't panic sell anything and that has stood me well too. I am /have bought PM if the stocks crash and pm rises I am on that train too , as I said I am not clever enough to time markets , especially based on past and forward predictions & statistics ( especially stats , as in there are lies , dam lies and statistics philosophy!), there may be fortunes to be made by swapping from one to another , but there are fortune's to be lost too, I am of the slow & steady brigade , who wins the race the hare or the tortoise ?  no statistics only time will tell .

be lucky

dean.m

[Pete]

If you study the historic charts going back over the past 30 years comparing stock trackers like the FTSE 250 and all the PMs you will see big fluctuations, steady growth, spikes and falls. Investing at the lows you make good gains, investing at the peaks you make big losses. Dribbling into these markets and commodities over time may or may not have made significant gains depending on which period you invest. Unfortunately there is almost little point in basing any investment on historic data as you cannot extrapolate the charts.

Pre-Brexit we were expecting a big crash in the stock markets but the opposite happened.
Many "experts" were stating the FTSE 100 was overvalued and would crash at the 5,000 level whilst as many "experts" were predicting a rise to 8,000.
Gold and silver were going to rise to the "moon".
Oil was a safe investment as the world was eventually going to run out but tanked.

The property bubble was going to burst yet prices doubled from that era in the SE and London.

Investing for the long term requires diversification and not statistical analysis.
If you believe the gold silver ratio is too high then do you buy more silver or sell gold ?
 

 

[vand]

The reason why I wanted to open this discussion is because PMs are the asset class that most negatively correlate with stocks. It makes sense when you consider the different and opposite nature of the two.

Good times to hold PMs are generally bad times to hold stocks and vice versa. 

Making a fortune is hard; making a fortune and keeping it is even harder, and being in the right asset class to grow/preserve wealth is key to that. 

[AlphaBeast]

What is PM? Thanks 

[stackspot]

7 hours ago, AlphaBeast said:

What is PM? Thanks 

Precious Metals 

[AlphaBeast]

4 hours ago, stackspot said:

Precious Metals 

Thought so, doubt it was about Theresa May!  Thanks!

[KDave]

On 08/09/2017 at 13:24, vand said:

The reason why I wanted to open this discussion is because PMs are the asset class that most negatively correlate with stocks. It makes sense when you consider the different and opposite nature of the two.

Good times to hold PMs are generally bad times to hold stocks and vice versa. 

Making a fortune is hard; making a fortune and keeping it is even harder, and being in the right asset class to grow/preserve wealth is key to that. 

Timing is the hard part, I am terrible at it for the most part but for some luck with precious metals and oil. Selling the majority of my shares earlier in the year because they looked toppy was a mistake in hind sight. I should have sold some more PM's and kept some more shares. Everything says shares are overvalued and pm's are undervalued but the market cares not. 

Things are looking good for gold. We have lowest numbers of physical purchases from the mints in many years, historic volume in the paper markets and a high silver to gold ratio. Everything says gold is cheap. But the market cares not. 

Perhaps a permanent portfolio would be best given how unpredictable the world has become. Just get an allocation of each asset and rebalance each year, no waiting for ratios that the market doesn't care about. 

[vand]

13 hours ago, KDave said:

Timing is the hard part, I am terrible at it for the most part but for some luck with precious metals and oil. Selling the majority of my shares earlier in the year because they looked toppy was a mistake in hind sight. I should have sold some more PM's and kept some more shares. Everything says shares are overvalued and pm's are undervalued but the market cares not. 

Things are looking good for gold. We have lowest numbers of physical purchases from the mints in many years, historic volume in the paper markets and a high silver to gold ratio. Everything says gold is cheap. But the market cares not. 

Perhaps a permanent portfolio would be best given how unpredictable the world has become. Just get an allocation of each asset and rebalance each year, no waiting for ratios that the market doesn't care about. 

 

Yes, timing is the trickiest part.

It doesn't take a genius to look at some ratios and say what is cheap and what is expensive based on historical ranges, but the problem we all have as investors have is that our lifespan is finite while the market's is not, and it hardly ever works to the timescales that best suit us.

That's why my strategies are based around buying/selling/swapping in chunks; never all in one go. You will never consistently be able to pick market tops and bottoms. But if you are consistent and disciplined in your approach then I do believe that it's possible to be buying/selling at what will prove relatively good points in the cycle.

Shares are over-valued and the bull market is so old now, but in all honesty who would be surprised if this continued for another 24 months? How about 36-48 months? It's has defied logic and valuations for so long now why shouldn't it do it for a while longer? In the grand scheme of things I believe that we will see the downside of the cycle before the end of my working lifetime, so does it really matter?

Sentiment is another thing. At the bottom of a bear market that has already fallen 80% nobody bats an eyelid when the market bounces 20%; I mean, who cares when you've just lost 80%?! But when there are new highs made at the top of bull markets everyone gets massively excited when the market notches another 5% all time high.. My point is that sentiment all depends on how long you have been invested in the market and your entry point. Last time I checked a 20% return was much better than a 5% return, but that is clouded by what the market has done before, regardless of whether you were invested in it or not. 

 

another way to look at asset allocation..

(Look at how well the Bonds & Stocks vs PMs negatively correlate over a 10 year return..)

 

 

[Pete]

Heisenberg Uncertainty Principle comes to mind.

[iodio]

buy stocks if the economy is booming. holding PM for investment instead of stocks during a booming economy isn't a smart idea.

[MIP]

Having traded stocks for years, I came to the conclusion that all valuations are distorted by the unreal amount of fiat cash they are based on.

That said, "unreality" can last longer than you can remain afloat, as uncle Buffet says.

My intention now is remaining out of the paper markets for a while, and let the situation normalize.

I don't want to trade in a place where rules are changed every 2 months. They say markets are like a casino, but it's even worse than that. At least in a casino you know that red is red and black is black.

[vand]

PMs most negatively correlate with stocks... so it is worth paying attention to such ratios when the markets turn, because if history is anything to go by it then it will run a long way the other way.

Here is the SP500/Silver ratio. I thought that we had bottomed in early 2016, but the Trump melt-up in stocks has pushed the ratio to new highs for this cycle, so in a very real sense we are only perhaps seeing the bottom of the bear market right now!

http://stockcharts.com/h-sc/ui?s=%24SPX%3A%24SILVER&p=D&st=1990-02-01&id=p45174675140