Source: Wikipedia

Dear Diary,

The Dow posted another record high yesterday.

Gold was flat.

We began buying gold in the late 1990s, when it was still cheap.

To illustrate just how cheap it was, for a brief moment in 1980 you could buy nearly all of the 30 Dow stocks for just 1 ounce. By 1999, the Dow had risen so high that you would have needed 43 ounces to perform the same trick.

At this point, you could scarcely go wrong buying gold and selling stocks. Stocks were expensive; gold was cheap.

We are too lazy to do real stock research. And we are too inattentive for trading or meticulous timing systems. We don’t aim to beat the market. “Live and let live” is one of our market mottos.

Here’s an easy way to do it – a refinement of our Simplified Trading System (STS) described in previous Diary entries.

You are either in stocks. Or you are in real money – gold. You buy stocks when they are cheap. You sell them when they are dear.

And you use roundish numbers to make it easy. When the Dow components are selling for 5 ounces of gold or less, you buy the Dow. When they are worth more than 20 ounces, you sell.

100 Years of Boredom

If you have followed that formula for the last 100 years you would have gone crazy with boredom.

You would have bought the Dow in 1914… suffered through World War I… the 1929 crash… the Great Depression… World War II… the Eisenhower years… and held on until October 1961.

That long stretch of inactivity would have convinced your friends and family that you shouldn’t be trusted with money. But you would have turned each ounce of gold into 4 ounces.

Then you would have stayed out of stocks for 13 years, until April of 1974, when the Dow fell below the 5-ounce mark.

You would have bought back into the Dow at that point. Alas, stocks continued to go down and you would have felt like a dummy again.

Mr. Market’s giant wheels may grind slowly, but they don’t stop. By 1997, it would have been time to get out again, with another 300% gain in gold terms. You’d have 4 ounces for every ounce you invested.