Investing in commodities? Who are you trying to fool Sunday Times?

I felt rather outraged by the article on Investment section in Sunday Times yesterday. Please be careful not to be persuaded by amatuer-ish writing on investments in the papers. To them its all about how many publications they have and how much money they are collecting. 

Referring to my previous article:
http://hiddeninvestor.blogspot.sg/2013/04/gold-in-not-investment.html

This time, I am going to take an example which i read on SeekingAlpha and adapt it to our Singapore style. lets see their comparison for Coca Cola vs. GOLD:

Lets say you have $15,000 to invest now and you have two choices and keep it invested over a period of 10 years. Lets assume Coca Cola continues its earnings and dividends growing at 9% annually. Annual dividends are still low, around 2.6%.For $15,000 now you can purchase 360 shares at $41.67

Scenario 1: Coca Cola

In 2013, he receives $403 in dividends
In 2014, he will receive $440 in dividends
In 2015, he will receive $482 in dividends

In 2016, he will receive $527 in dividends.

In 2017, he will receive $576 in dividends.

In 2018, he will receive $630 in dividends.

In 2019, he will receive $690 in dividends.

In 2020, he will receive $755 in dividends.

In 2021, he will receive $826 in dividends.

In 2022, he will receive $903 in dividends.

And in 2023, he will receive $987 in dividends.

By 2023, the investor has collected $7,219 in cash dividends. Even if Stock A trades at the same valuation in 2023 that it trades today, those shares will be worth $37,223. That same $15,000 worth of shares in 2013 is actually representing $1,676 in annual earnings that is generating $987 in dividends by 2023. In short, the investor would have turned $15,000 investment today into $44,442 in 2023. That is what an excellent productive business can do for you.

Scenario 2: GOLD

What if the investor believes what SundayTimes told him, that gold is the best investment to guard yourself against inflation. So the investor buys $15,000 worth of Gold like 10oz. credit suisse gold bar for $15,046 from a licensed seller. You bought the physical gold and kept it in your safe box for 10 years.

In 2013, the investor doesnt get any dividends, but pay rental for his safety deposit box.

In 2014, he still gets nothing

In 2015, nothingggg

In 2016, Walaueh! Gold dropped?!!?!

In 2017, C'mon leh, where's the money going?

In 2018, Shit, this safety deposit box is getting expensive

In 2019, Ahhh, better check gold price It may go higher

In 2020, Nope there's nothing

In 2021, Gold price is all time high again?! but for how long?

In 2022, Where are my dividends!??? I thought Gold is safe

In 2023, Why did i listen to SundayTimes? Haiya Sell sell...

By 2023, i predict the investor would be so anxious to sell his piece of gold. While the coca-cola investor keeps getting his dividend checks and keeps on rising. The gold investor receives nothing to accompany the passage of time. Hopefully Gold grew into some ultra-rare commodity. When he looks at his little bar of gold in 2023, he sees the exact same gold bar that went in there 10 years ago. Of course minus all the rental fees for the safety box. 

I like how the original author of the article expressed it: Gold is "non-productive asset" where there is no business growth, no profit, no dividends and no interest, only hope that someone is willing to pay more money for that chunk of metal that you paid in 2013. 

It is entirely speculation that Gold will continue to increase at the rate greater than inflation. I call that GAMBLING. After all, gold has no fundamentals; the only hope is that you sell during a time of particularly high inflation or extreme pessimism (which we have been seeing for the past 12 years). If a company like coca-cola keeps doing what it has been doing, investors will be receiving dividend increases of 8-10%. If we have inflation at 3-4%, thats good news for coca-cola investors, price of their soft drinks will also rise, earning them higher profits and passing it onto investors.

I dont want to sound like i am advocating for coca-cola here, you may wish to invest in other companies which have a great history of annual raises in dividends. For example, Kelloggs, Procter and Gamble, Pepsico, Mondelez, Kraft Foods, Colgate-Palmolive, Darlie. You get what i mean, those brands and household products you need single day till you die, those sort of companies.

Again i am not saying Gold is not a good place to park your money during bad times. Gold is great to trade on, just make sure your timing is fairly accurate. See chart below: