LONDON — The price of gold bounced around last week, ranging between $1,366 and $1,395 per ounce. However, by the end of the week, little had changed, and gold for immediate delivery ended the week 0.4% higher at $1,387 per ounce.
Of course, the only practical way for most private investors to invest in gold is through exchange-traded funds. The largest gold ETF, the $51 billion SPDR Gold Trust (ETF) (NYSEMKT:GLD), ended the week 0.73% higher at $134.43, while London-listed Gold Bullion Securities Limited (LON:GBS) edged up 0.53% to end the week at $133.93. So far this year, shareholders of Gold Bullion Securities Limited (LON:GBS) have seen the value of their holdings fall by 15.2%, while the value of SPDR Gold Trust (ETF) (NYSEMKT:GLD) shares has fallen by 17.6%.
Gold’s big movers Several miners made gains last week, outperforming the price of gold. Although these companies may not have issued major updates last week, their above-average performance suggests that investors may believe they have been discounted too heavily following recent falls in the price of gold.
Petropavlovsk PLC (LON:POG) climbed 3.2% to 140 pence over the final two days of last week after the company reported that asset manager
Schroders plc (LON:SDR) had taken a 5% stake in the company. Petropavlovsk PLC (LON:POG)’s share price has fallen by 62% so far this year but has gained 7.3% over the last month after the company announced cost-cutting plans and said it had hedged approximately 55% of its output for the next year at $1,408 per ounce, slightly above the current price of gold.
Shanta Gold Limited (LON:SHG) edged higher last week and has risen by 5.5% to 11.8 pence over the last month. The firm’s stock climbed on Friday following a report that a strategic advisor to the board of the company, Jonathan Leslie, had purchased 2,300,000 shares in a deal worth £270,250 that increased his stake in the firm to 3.34%, or 15.4 million shares. Shanta Gold Limited (LON:SHG)’s main asset is the New Luika gold mine in Tanzania, which began production in August 2012 and has sold 22,000 ounces of gold to date.
DRDGOLD Ltd. (ADR) (NYSE:DRD) climbed 4.2% to $6.25 last week. Rather than mining gold, this South African firm is focused on large-scale reprocessing of the tailings, or waste piles, of large gold mines in order to extract the gold that was not captured by the original mining process. This business is heavily mechanized and requires a relatively small workforce, giving DRDGOLD Ltd. (ADR) (NYSE:DRD) some protection from the rising labor costs that are reducing the profitability of many South African mining firms.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
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