Dividend Inc

South African Gold Stocks: No Margin of Safety

Greetings JudeJin,

As I have said in my prior commentary on gold, I bought gold and silver bullion in 1996 in anticipation of the conditions that we're experiencing right now. I don't have to worry about actually participating in rise in the commodity. I've been in it when gold was below $400 an ounce.

Additionally, on my blog I have listed many dividend paying stocks that beat out gold and silver stocks from the period of 1970 to 1980. I specifically compared quality dividend paying stocks to gold and silver stocks during a gold bull market to show that you don't need to follow the crowd and take on excessive risk in order to benefit from high inflation periods.

I'll give you an example of what I'm talking about. On a total return basis, Sysco Foods (SYY) crushed Newmont Mining (NEM) and Couer D'Alene (CDE) from the period of 1970 to 1982. 1982 being the very beginning of the bull market in stocks. From the period of 1972 to 1980, SYY matched the performance of gold and silver stocks.

There are so many stocks that fit this pattern during a gold bull market that you don't need to be in gold and silver stocks to benefit from inflationary periods (link to article at: dividendinc.blogspot.c....) Remember, gold and silver stocks are supposed to exceed by a wide margin the performance of the actual metal. Therefore, it would almost seem stunning that there are many companies that beat gold and silver stocks during the biggest gold bull market in history.

Finally, my discussion about being compensated for the wait demonstrates clarity on the matter of risk/reward. I address a matter that needs to be raised whenever considering any investment "opportunity." Not addressing this issue of compensation ignores the risk that an investor faces. While you call my focus on dividends obsessive, I call it a calculated approach. We're probably talking about the same thing...assessment of risk.

In a shameless self-promoting fashion, I ask that you please poke around my blog and review the points that I have previously made. I'm hopeful that you'll find convincing evidence on the points that I have made and maybe something of value.

Thanks for reading my article.

-Touc


On Sep 15 02:13 AM JudeJin wrote:

> "While I understand that the value of gold and silver mining companies
> is miniscule compared to say J.P. Morgan, there is the issue of compensation
> during the time that you wait for the industry to be recognized for
> its true value. This is where I'm interested in the dividend for
> gold and silver companies. Simply being "low priced" isn't enough
> to get me to throw caution to the wind."
>
> so i guess you do believe in the value in the gold/silver mines.
> but your obssessive concern with dividends prevents you from buying
> them right now.
>
> i predict that they'll start to pay handsome dividends several years
> down the road when the gold price is much higher and their stock
> prices are much higher too. if you insists on seeing dividends before
> buying, you'll probably miss the whole show. i guess you'll insist
> that you'd rather miss it than violate your principles.
>
> investing is not about principles. it is about risk and return.<br/>
>
> currently, the upside in gold/silver mines is far outweighing the
> downside.
>
>

South African Gold Stocks: No Margin of Safety

Sorry Lindy77,

I guess I should have said that I only wanted individual mining companies. Partnerships, Trust and the like are not as compelling to me. Thanks for the insight however.

regards,

Touc

South African Gold Stocks: No Margin of Safety

Greetings All,

The matter of hedging doesn't seem to answer the question of "where have all the dividends gone."

AEM and NEM have had a long standing position of not hedging their gold position. In fact, there are many gold companies that don't hedge and haven't hedged ever. By the rational used above, AEM and NEM should at least pay some kind of dividend of note. No dividend to speak of is present among the any gold stocks, either South African or non-hedging. This leaves the hedging argument out in the cold.

While I understand that the value of gold and silver mining companies is miniscule compared to say J.P. Morgan, there is the issue of compensation during the time that you wait for the industry to be recognized for its true value. This is where I'm interested in the dividend for gold and silver companies. Simply being "low priced" isn't enough to get me to throw caution to the wind.

Suffice to say, the market cap of gold and silver industry during the late 1960's was relatively small compared to the overall market cap of all stocks traded at the time. I mean, if you take any specialized industry make the argument that the market cap of the industry is smaller than Google then you'd be right every time. The matter of market cap of the gold industry has been argued since 1990 but has resulted in little evidence of the price increases.

Thanks for reading my article.