Category: Dividends & Income

Frankly, most individual investors -- no matter how smart or dedicated -- never really figure out a winning system.

You see, the secret to true wealth isn't putting in more hours at work. Most of us won't inherit a fortune. And it's certainly not buying a lottery ticket and hoping like millions of others that yours is the one.

The path to true wealth can be very simple: make wise investment decisions, based on a sound investment strategy, with a defined purpose in mind.

You probably already have a purpose in mind -- nice vacation, new car, gift for someone special, putting a child through college, buying a second home, early retirement, any of those and more -- and that's great. It gives you a goal. Now, you just need a strategy.

Investing in gold is often called a “fear trade.” In times of crisis, it’s believed that gold will hold its value, and even rise, while the value of paper currencies and other assets fall.  

 

If you bought SPDR Gold ETF (NYSE:GLD), which seeks to track the price of physical gold, 2 years ago, you’d be up around 36%.   

 

The S&P 500 is down around 15% during that time.   

 

You probably already know that gold hit a new all-time high yesterday at $1,200 an ounce. And even though other traditional measures of fear – like the volatility index (VIX), bonds and even stocks – didn’t move much today, the move in gold can’t be ignored.  

Whether you paid your taxes early, or you’re still tearing your hair out looking for that one last receipt, there’s something aggravating about April 15^th.

To take your mind off things, I’ve dug up some information on a special kind of tax-free investment: real estate investment trusts, or REITs.

REITs are special companies that pay ZERO corporate taxes as long as they pay out over 90% of their profits to shareholders in the form of dividends. Obviously, you have to pay tax on the dividends – but as a shareholder, that’s the only tax you’ll pay. Non-REIT shareholders get dinged twice: once as an owner (corporate tax) and again as a shareholder (capital gains and dividend taxes).

Okay, I know what you’re thinking: what does a REIT have to do with commodities?

You've heard me call out big-name investors who are "talking their book" in the past. An investors is "talking his or her book" when he/she states an opinion as fact for the sole purpose of helping a particular trade.

We've seen Warren Buffett do this. Last year, it was widely known that he was massively short the U.S. dollar. And he continued to say he thought the dollar was collapsing, even as it hit important support. Then we learned later that Buffett was covering his dollar short, all the while extolling its weakness.

Obviously, Buffett, in true P.T. Barnum fashion, was attempting to use his influence to talk the dollar down while he covered. He only needed to fool people for a short time as he exited the trade.

Last month at the Davos conference in Switzerland, George Soros did his version of talking his book. He made headlines when he said "The ultimate asset bubble is gold."

I always view statements like these with skepticism. And sure, recent SEC filings reveal that at the same time Soros was saying gold was a bubble, his Soros Fund Management was buying 6.2 million shares of the SPDR Gold Trust ETF (NYSE: GLD) for $663 million.

Looking at this 6 month chart of GLD, it's a reasonable guess that Soros was buying between $105 and $110 in December (you may need to zoom in on the chart in order to see all the information). Gold is on the verge of breaking above that range now.

It would be easy to think that Soros was simply pulling a fast one on unsuspecting investors. But this is a case where it pays to know a little more about the man and his methods. Here is a Soros quote from the early '90s:

"Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited."

I love that quote, even though it's a bit cynical and perhaps depressing. But what he is saying should be a revelation to any investor, because it requires the investor to maintain a sense of skepticism.

I also want to emphasize that companies do make money, they grow, and their stock prices will reflect this. In other words, there are fundamental reasons for stocks to move. But Soros is talking about making the big money.

As late as 2007, Soros was calling the housing boom a bubble. I also think we can assume he made a lot of money during the housing bubble in the sectors that were supporting the housing bubble, like commodities. And there's no doubt he was well-positioned when the bubble burst.