ASX gold stocks smashed… you can’t say I didn’t warn you

Remember, just a few weeks ago, when gold was all the rage?

“Plenty of upside left in gold stocks…,” said a headline in the AFR.

Some spruikers went as far as to predict gold could jump as high as US$5,000 an ounce as central banks around the world rushed to devalue their currencies.



Source: The Age, Wednesday October 5 2016

I trust regular Motley Fool readers didn’t fall for the hyperbole. Nor jump on the bandwagon, piling into gold stocks right at the very top of the market.

Overnight, gold plunged the most in almost three years, falling below US$1,300 for the first time since June.

The reason?

Surprise, surprise… an improving US economy will push Janet Yellen and the Federal Reserve to lift interest rates soon.

Stop me if you’ve heard this story before…

Gold was only ever an armageddon bet. Or a conspiracy theory bet. And not a very good one at that. Because if the dirt really did hit the fan, you can be sure gold would fall just as much, if not more, than anything else.

On days like today, the gold bugs will be quick to tell you this is a buying opportunity, or a pause in a long bull run. They’ll look at the tea leaves and their backward looking charts and boldly summon you forth, into the promised land.

Lest, lemming-like, you fall off a cliff.

Of course, I could be wrong. For one of the few times in history, gold could be your best bet. Is that time now?

According to Wikipedia, history is against you… overwhelmingly so.

— A dollar invested in bonds in 1801 would be worth nearly $1,000 by 1998, in real terms.

— A dollar invested in stocks in 1801 would be worth more than $500,000 by 1998, in real terms.

— A dollar invested in gold in 1801 would be worth just 78 cents by 1998, in real terms.

Do you feel lucky?

An ounce of gold today ‘only’ costs US$1295. If you’re up for a punt, stick it under your bed and cheer for GFC Mark II. Come 2080 your grandchildren might be able to swap it for a packet of Twisties.

Gold bugs are a breed apart. Never wrong. Always bullish. Always spruiking. Often believe the end of the world — financially and/or physically — is nigh. Reckon anything you read on Wikipedia is a joke, and that Tony Abbott should be knighted.

Maybe I’m being hypocritical. I totally admit to being an equities bull, over the long-term. I extol their virtues, on a daily basis.

But based on the above comparison to bonds and gold, you have to admit, the odds look to be in my favour.

Sure, there will be corrections. Occasionally there will be a crash. This month marks the 29th anniversary of the October 1987 stock market crash, where world markets plunged over 20% in a single trading day.

You’d have to be mightily pessimistic to think the same thing could befall world stock markets anytime soon. Or a gold bug.

Interest rates are at record lows. Rightly or wrongly, central banks and world governments stand at the ready to prop up markets and economies.

That’s not to say investing in individual equities now — or ever — is risk free.

Heck, my Vocus Communication (ASX: VOC) shares have been taken to the absolute woodshed, falling over 35% from their recent high.

That hurts. It hurts even more given it was previously one of the largest positions in my SMSF.

Yet, today my SMSF is still riding at close to its all time highs.

It’s a win for diversification. A win for growth stocks, with Webjet Limited (ASX: WEB) and Corporate Travel Management (ASX: CTD) picking up the Vocus slack. A win for long-term investing.

Sure, I’d be looking and feeling like a genius if I’d sold all my Vocus shares at their peak. And pigs might fly too.

People who obsess about avoiding buying at the top of the market and only buying at the bottom of the market are in for a long wait. And a lot of pain.

Market crashes aside, stocks trading at lows are doing so for good reason. Vocus is down in the dumps following TPG Telecom‘s (ASX: TPM) warning of a sharp slowdown in organic growth. With Vocus, the market is shooting first, asking questions later.

Vocus may be a great buy from these sharply lower levels. But I’m comfortable sitting on the sidelines, watching it play out over the next few months. I’m happy for others to catch falling knives.

Today, both Webjet and Corporate Travel Management are trading at close to all time highs.

But here’s the thing…

They were also trading at close to all time highs a year ago too. And since then, Webjet shares are up 165% and Corporate Travel Management shares are up 72%. No wonder my SMSF is still doing so well.

The moral of the story is simple. Winners keep winning. Losers are for losers.

That said, I fully admit buying shares when they are trading at all time highs is mentally difficult.

Often such companies are already richly valued. You think you’ve missed the boat. You tell yourself you’ll wait for a pull-back before buying.

Yet the pull back rarely comes. And even when it does, you still sit on the sidelines, waiting for an even lower price.

Not so our own Scott Phillips. As I look over the Motley Fool Share Advisor scorecard, and at his long record of public stock recommendations, I see numerous examples of him slapping buy recommendations on stocks trading at close to all time highs.

At least once, with his recommendation of health insurer NIB Holdings Limited (ASX: NHF), it even made headline news in the AFR.


Source: AFR

I’m pleased to report that buy recommendation worked out pretty damn well.

Even though NIB Holdings were trading at close to a record high, and even after they jumped 8% higher following Scott’s recommendation, NIB shares are now up almost 150% since Scott’s pick.

Not every one of Scott’s picks is trading at a record high. But almost universally they are well managed, high quality, growing companies.

Yes, some are richly valued. But as the old saying goes, you pay peanuts you get monkeys.

Motley Fool General Manager Bruce Jackson has a position in Vocus, Webjet and Corporate Travel Management. The Motley Fool Australia owns shares of Corporate Travel Management Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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