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The ‘Investment Seminar’ Index. Redux.


 

The ‘Investment Seminar’ Index flashes a warning whenever hype overtakes reason. Gold investors take note. (For a prep read, see October 2008 publication).

It has to be said that the Index is based on nearly zero empirical data. It’s a ‘gut feel’ indication. Still, it has been a contrarian signal and has had some predictive usefulness at price inflection points. The basic hypothesis is that a trend reversal is signalled by broadly advertised seminars (of sorts) that tout (shout?) strong past performance. The ‘seminar’ might be sold via a trusted radio personality, testimonial, billboard or, this time, by infomercial. The index is indifferent to any stock, bond, fund, region, country or sector or real estate. And now, Gold. (Again. Recall the Gold seminars of the early 1980’s). The October 2008 signals included the seminars ‘selling’ U.S. real estate. Investors were encouraged to use a Loonie at par. (A two-for-the-price-of-one signal). At that time, U.S. real estate was (already) going, uhm, south and the Loonie had a brutal fall. ‘Turn out the lights, the parity is over’. Right now, the Index says something will happen to the price of Gold.

Gold price 1975-2010 chart courtesy Kitco.com

 

Indications include:

Strong recent performance. See chart.

The ‘In-Your-Face’ nature of the DollarsForGold type of TV infomercials. (‘Slap-Chop, Vince’, where art thou)?

The Ease of Selling: ‘Phone, go online, operators are standing by’. ‘It’s as simple as putting your old, scrap gold in an envelope and putting it in the mail’. (Who keeps scrap gold lying around)?

The Herd:  Over 100,000 customers served so far.

The ‘Wow’ factor: Over $50 million in gold bought so far.

The Target Audience: Infomercials on Victoria, B.C. TV station, CHEK, (Victoria must be demographically target rich).

The Differentiation:  ‘If you can find a better price from a nationally advertiser, we will double it.’ (One advertiser offers ‘up to’ $34 per gram. Who quotes Gold by the gram? At 28 grams / ounce … that’s ‘up to’ $962 / oz. Gold today is just under $1,400. That’s about a 1/3rd discount … at best).

As always, there is a sense of urgency. ‘Don’t hesitate because this won’t last’. Sadly, the trend usually doesn’t.

Serious investors know that strong recent performance tends to revert to more average results. Gold was $255 to start 2000. Now, as it nears $1,400, they know the easy money has been made.

The ‘Investment Seminar’ index says something is about to happen to the price of Gold. The infomercial even confirms it as it closes with ‘remember Gold prices won’t always be this high’. At the very least, infomercials like this will continue to add to the general gold price hysteria.

 

Doug Cronk CFA is Manager, Investments for a Canadian Pension Fund.

Next time?

Index diversification. 

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