CORPORATE APARTMENT, BALTIMORE – This chart captures our Dow-to-Gold investment rationale perfectly in one picture.
First, notice the red bars.
When the red bars point down, gold has beaten stocks (as measured by the S&P 500) over the following 10 years. When the red bars point up, stocks have beaten gold over the next 10 years.
Knowing that, notice that stocks do better than gold most of the time.
Gold wins 26% of the time. Stocks win 74% of the time. So as a long-term wealth compounder, you want your money in stocks MOST of the time.
Second, notice that it’s possible to predict those rare times when gold is going to beat stocks.
That’s what the thick blue line is for. When it goes under 0%, it’s saying gold is going to beat stocks for the next 10 years. (The blue line is the stock market’s valuation, inverted, so a low reading means “expensive,” like we have today.)
Third, notice that the blue line went under 0% in 2010 and has stayed there.
Some downward-pointing red bars should start appearing on this chart where the blue line is. (The red bars represent 10-year returns, so that’s why the bars only go as far as 2010.)
No. 1 Investment Strategy
I believe the best investment strategy in the world is to buy the stock of the best American businesses and reinvest their rising dividends over decades.
You get rich twice this way. One from the rising dividends and two, from the compounding effect of reinvesting dividends. There is no better way to grow wealth.
But right now, because of this chart, I’m NOT using this strategy. Instead, I’m sitting on the sidelines in gold, where I will remain until stocks are ready to beat gold again. I will resume my long-term “dividend aristocrat” compounding strategy then.
If I’m right about this – and if I time my zigzag correctly – my family will never have to worry about money again.
These are some of my favorite American businesses for long-term wealth building…
| Top American Businesses for Long-Term Wealth Building | |
| Name | Returns* |
| McDonald’s | 16.5% |
| ExxonMobil | -20% |
| Procter & Gamble | 38% |
| Johnson & Johnson | 3.4% |
| Starbucks | 34% |
| Hershey | 49% |
| Philip Morris | -9% |
| Coca-Cola | 23% |
*Returns between November 1, 2018 and February 1, 2020.
Since I went to the sidelines in gold in the fall of 2018, these companies are up an average of 19%, including dividends. Gold is up 28%.
In other words, 15 months in, my horse is winning the race.
Living Like Fugitives
Meanwhile, Kate, Dusty, Miles, Penny, and I are “jobless,” school-less, homeless, baseless, and divorced.
We gave away all our possessions and belongings two years ago, turned all our savings into gold, and we’ve been traveling around the world like fugitives running from the law, living out of a suitcase and hopping from town to town every few days.
Somehow we have to survive like this until the Dow-to-Gold ratio hits 5 and we’re able to turn our gold back into stocks and begin collecting dividends again. I’m hoping that’ll be in less than 10 years. We’ll see.
I’m writing to you from Baltimore today. We’re squatting in an empty corporate apartment that’s been loaned to us for a couple of weeks.
Next week we’re going to Nicaragua. Then after Nicaragua, we’re going to South America.
Lots of fugitives go to South America. So we should fit right in.
– Tom Dyson
P.S. Everyone except me has been sick with flu-like symptoms. They caught it at the homeschool gym class we took the kids to last week. We’re over it now and ready to explore again…
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FROM THE MAILBAG
A reader weighs in on Tom’s plans to move the family to Argentina for a bit of hyperinflation research…
Reader comment: Argentina? Planning on doing a bit of ranching? It would be good for the kids to learn to be gauchos, or cowboys here. I was a cowboy in my youth. Had a hat, boots, and a pistol on the hip. Actually, down lower for quick draw. Have fun on Bill’s ranch.
While others ask Tom about buying and selling gold… retirement accounts… and owning silver…
Reader comment: I am an avid reader of your postcards, and last Wednesday’s email postcard brought up all kinds of questions.
Can you give us your opinion on how best to buy physical gold (small ingots or coins)? How much of a premium does the average dealer charge over the spot price for ingots and for coins, and how much of a discount will they take from the spot price if you want to sell?
When it comes time to sell, do you recommend selling back to the same dealer we bought from or does that matter? How can we tell if a dealer is honest? Can you recommend some dealers who you think are honest?
Tom’s response: These are important questions. Tomorrow I will write a dedicated essay on the subject of buying gold coins.
Reader question: I am so glad your kids are becoming avid readers. In my opinion that is one thing that is sorely lacking in today’s younger generations.
I consider books to be my best friends. I constantly have four or five books going all the time: a couple of business books, a historical or political book, an adventure story for when I need to turn off the stress of running my business, and the Bible, which I am determined to read from beginning to end. I am on Deuteronomy.
Thank you for sharing your family’s amazing story through the postcards.
Reader comment: Hi, Tom. Years ago when you and Mark Ford were heading up The Palm Beach Letter, one of your recommended holdings was PHYS. Since most of my portfolio is in tax-preferenced accounts, PHYS comprises the majority of my gold allocation.
I am still a few years away from retirement, and since I am already in a rather high tax bracket, I am reluctant to take the tax hit that would come with a substantial IRA withdrawal in order to purchase gold coins.
In your opinion, is PHYS still a good choice for folks with most of their wealth tied up in IRAs and 401(k)s?
Tom’s response: Yes, it is. I also have a chunk of money tied up in retirement accounts. I used it to buy ETFs and mining stocks because like you, I don’t want to withdraw it. I used cash to buy the coins.
Reader comment: What says that the government won’t take your gold as it did in 1933? It took your gold for $20.67/oz. and then revalued it for $35/oz. The country is far more crooked today than it was in 1933.
Tom’s response: I’ll break that law.
Reader comment: This morning I bought some gold from a trusted vendor who informed me that some 40 states are now charging sales tax on gold purchases. What do you make of that?
Tom’s response: It’s horrible. Such a scam. They’re treating gold and silver like they were consumable products. It’s not fair. Collectibles should be exempt from sales tax.
Reader question: I subscribe to many investment letters including Stansberry Alliance & Palm Beach Lifetime membership where you used to work. I really enjoyed your options trading letter when you worked there, and it made a lot of money for me.
A few years ago I remember reading an article about the silver-to-gold ratio being out of sync, and that until it still came back to the normal ratio, silver was actually a better investment than gold. Can you please elaborate on that a bit?
Tom’s response: At current prices, an ounce of gold is worth 89 ounces of silver. That’s about as cheap silver has ever been in terms of gold in history. (There were two other brief moments in the last 100 years when silver was even cheaper, but not by much and not for very long.)
I like silver a lot and it’s got a big allocation in my portfolio. Will it do better than gold? I don’t know. So I bought both.
Reader question: Truly enjoy your adventures. So happy for you and your family. I’ve done some bumming around the U.S. when I was younger. Really nothing like it, and very difficult to explain the sense of freedom to someone who hasn’t done it. Now, I know gold is the way to go, but I was thinking of vintage silver coins or possibly even “junk” coins, merely for the silver content. I’m on Social Security so cost is a factor. What are your thoughts?
Tom’s response: We own a bag of old silver coins. They’re great. Very bulky. But I think it’ll turn out to be a good investment.
Reader comment: I’ve been reading your postcards from the beginning. You are definitely an interesting character!
Sir, I not only believe the Dow-to-Gold ratio will go to 5, but I think it’ll go to 1, where an ounce of gold is the same as the Dow, as it was back in 1980. Actually, I won’t be surprised to see gold more expensive than the Dow at one point.
Tom’s response: A Dow-to-Gold ratio of 5 is the MINIMUM I’d accept for swapping gold for stocks. I expect it’ll go well below that and when the time comes, I’m going to figure out a strategy to capture as much stock for my gold as possible. I’ll probably use some sort of trailing stop loss…
And as always, thanks for all for the kind messages! Kate and I find them very encouraging. Please keep writing us at [email protected].