James Goldfinger smirked at the game show host, Guy Smiley.
Every week, for the past 10 years, Goldfinger had asked his assistants to get him on the show as a contestant.
“If I win the $10 million grand prize, I’ll buy vegan burgers for everyone at the office.”
He was certain he would win. Goldfinger had worked as an investment broker at Silverman Sachs for the past 15 years. And this game show was all about investment knowledge. When he received the call to appear on the show, James wet his pants (just a little bit).
In the early rounds, he battled a sanitary engineer, a florist and a 10-year-old boy. It was tough work. But he reached the finale and was now the only contestant left.
“Today, we’re going to ask you four questions about gold, Mr. Goldfinger,” said Guy Smiley. “You’ve done well so far. All you need to do is answer one of the following four questions correctly. If you can do that, you’ll win $10 million!”
“You might as well write that cheque now,” Goldfinger gushed. “I’ll get four out of four.”
“And if you win the $10 million, what will you do with the money?”
“The first thing I’ll do is buy vegan burgers for everyone at the office.”
“You investment brokers are a generous lot. Let’s begin.”
Question 1: Between 1972 and 2023, which asset class recorded the lowest number of losing years, gold or US stocks?
Goldfinger laughed. “Everyone knows that gold is stable and stocks are volatile. Gold had fewer losing years.”
Guy Smiley turned serious.
“No, Mr. Goldfinger. Between 1972 and 2023, gold recorded 21 losing years. US stocks recorded 12 losing years.”
“Those must have been small drops for gold,” said Goldfinger, looking annoyed. “Bring on the next question.”
Question 2: Between 1972 and 2023, which asset class recorded more calendar year declines of 10 percent or more: gold or US stocks?
“That would definitely be stocks,” laughed Goldfinger. He then looked at the camera. “Edith and Joey, can you taste those burgers? I might even splurge for fries!”
“Not so fast,” said Smiley. “You got that one wrong, too. Between 1972 and 2023, gold recorded 8 drops that exceeded 10 percent. US stocks recorded 7 such declines.”
Goldfinger stomped his feet. He had just two questions remaining. To win the $10 million, he needed to get one right. “Bring on the next question,” he said.
Question 3: Between 1972 and 2023, which asset class recorded more calendar year declines of 15 percent or more: gold or US stocks?
“No doubt, the answer is stocks!” said Goldfinger. He jiggled his belly in jubilation (something his wife said he shouldn’t do).
“I’m sorry Mr. Goldfinger. That’s also incorrect. Between 1972 and 2023, gold experienced 7 calendar-year declines that exceeded 15 percent. US stocks had 5 such declines.”
Goldfinger had just one chance left. "Next question, please,” he mumbled.
Question 4: Between 1972 and 2023, which asset class lost more frequently to inflation: gold or US stocks?
Goldfinger began to sweat. “I would say, stocks.”
“No, Mr. Goldfinger. The cost of living rose higher than the price of gold during 23 of those calendar years. But inflation beat US stocks only 16 times. In fact, if someone bought gold at its peak in 1980, that money would have lost to a box of Kleenex over the following 43 years. Gold averaged a compound annual growth rate of 2.91 percent. Inflation averaged 3.23 percent.”
At this point, Guy Smiley addressed the televised audience.
“Imagine two immortal codgers. One invested $1 in gold, back in 1801. The other invested $1 in a broad basket of US stocks. By August 2023, the guy who bought gold would have $98. That barely kept pace with inflation. To make ends meet, he might be polishing his buddy’s yacht. After all, the $1 invested in US stocks would be worth $40.07 million.”
In an attempt to salvage his ego, James Goldfinger speaks up.
“At the best investment firms, we know how and when to get in and out of gold.”
“No,” Guy Smiley replied. “Market timing doesn’t work.”
Goldfinger starts to say something. But his lower lip quivers.
He thinks to himself, I never should have offered to buy anyone a burger.
Long-term returns for stocks and gold (1801 forward) - Jeremy Siegel, Stocks for the Long Run and Morningstar.com
US inflation and calendar year returns for gold and stocks (1972-2023) - portfoliovisualizer.com