One of my favorite books is “Manias, Panics and Crashes” by Dr. Kindelberger. Yes, I am an odd duck in that I enjoy reading and thinking about economics. But this book provides a superb perspective into several facets of our current economic environment.
One of those is a framework to decide when an asset is going through a valuation bubble. Bubbles are always a lot easier to recognize after the bubble bursts. But to avoid the pain associated with a burst bubble, it would be very helpful to be able to recognize a bubble before it bursts.
Dr. Kindelberger’s easy standard is that whenever an asset doubles in price in 12 months, that asset is going through a valuation bubble. His analysis was that demand never doubles in a year and supply is never cut in half in a year.
But, we have all seen assets burst without doubling in value. There are markets that are relatively small and therefore can be manipulated or distorted relatively easily. One of those is the gold market.
In late August of this year, the gold market declined significantly in just a couple of days after reaching a record price. While it is too soon to know if the gold market bubble has burst, it could easily have done so.
During highly liquid markets, investors and speculators herd together and all chase the same assets looking for “yield”. In Kindelberger’s book, that mental condition is wonderfully described and the resulting cycle is vividly recounted.
But wise investing requires not following the herd. As another one of my favorite economists shared with me two years ago, “In uncertain times gold is actually a bad investment because if the worst thing happens, you cannot eat a bar of gold”.
His recommended investment was agricultural or forest land. Both are hard assets that retain value in inflationary times. Even better, on agricultural land one can grow food. While you cannot eat a tree, timber and timberland values long term tend to exceed the rate of inflation.
The best news is with about half of Virginia’s land being in forest, the balance is either crop or pasture land. Therefore, it is possible to invest in a good piece of rural land that has both timber and cropland.
Give us a call. We will enjoy helping you find a great tract of land that will be a better long term investment than a bar of gold.