Gold Croupier Investments?

[txlaw]

Sprott, Paulson, and Einhorn have now created gold funds for their investors where they have supposedly taken long bets on the price of gold.  Of course, if gold merely stays at the same price, they still collect fees on these funds since they are managing them.

 

It seems to me that this is a win-win situation for the fund manager.  The fund manager can stabilize and increase AUM by saying, "Look, we've got our investors covered for inflation/currency devaluation by creating these gold funds and having positions in these funds."  Thus, these guys get more juicy fees coming into their asset management holding companies.  Any appreciation in gold is gravy for them.

 

So here's my question: is there a way for us retail investors to become a gold croupier? 

 

Or are there any other publicly traded companies that take advantage of the fear out there as croupiers?  I believe brokers who derive a lot of their profits from market making should see increased revenues due to the increased amount of fear in the market.  Is that correct?

 

Any other ideas?

[Parsad]

Who knows how much further this gold bull run can go, but if we are asking about trying to become a gold croupier, then I'm guessing we are getting relatively close to the end.  I just noticed recently that Sears, yes Sears the department store, has added a gold for cash program in their jewellry department at most Sears locations.  I think I told the board about three-four months ago, that a well-known payday loan/check-cashing place in Canada called "Money Mart" also added a similar service. 

 

I've seen more gold ads, services, exchanges, and public presentations offered at hotels in the last year than anytime in my life...eerily similar to the internet craze in the late 90's.  I still remember when Alnesh, yes my cousin Alnesh and investment partner, told me about a company he was investing in called 360 Networks.  He was asking if I wanted to invest alongside him.  I said no, that I didn't know if they could make money going forward, or if they could develop any sort of edge over their competitors.  He told me "Ok, don't come crying to me when I'm wiping my ass with $100 dollar bills!"  I said "Ok, don't worry I won't."  That was a good lesson for both of us and he's been paying attention to Buffett ever since!  ;D

 

Are we at 1997, 1998 or 1999 in the gold bubble?  I don't know.  I'm a value guy, so I'll probably be wrong for a long-time before I'm proven right, but we see a distinct bubble in gold...and all these value guys jumping in just makes me more and more nervous.  Cheers!

[txlaw]

My take is that these value guys starting gold funds are not really talking about their true motive for setting up these funds.  That is, they say they are long gold, but I think they're really trying to capitalize on a frenzy for gold, where everyone and their mom is saying that gold should be a part of one's asset allocation strategy. 

 

I am also very nervous about gold, although I've bought a little just to see how it performs.  Nothing like putting some capital at risk to get you to pay close attention to how the investment works. 

 

I believe Soros has actually said that he thinks gold is in a bubble and that he's going to ride it up. 

 

 

[Parsad]

I think Jeremy Grantham said the same thing the other day...he said if he's buying gold, then he knows for sure its a bubble!  :)  Cheers!

[bargainman]

If you're really itching to get gold, just get some GLD call LEAPs or something no?  That way you limit your downside.  If GLD goes up then you can roll them up and lock in some gain but if it crashes you only lose a smaller investment..  probably the best way to ride a momentum 'stock'...

[txlaw]

Actually, my broader question, which I framed as "gold croupier investments" in order to catch people's attentions (hasn't worked, it seems), is whether as value investors, we can capitalize on fear in the market by making "croupier" investments. 

 

For example, I haven't done much research into IBKR, but my understanding is that the profitability of its operations increase markedly when there is more volatility in the market.  For those who have done detailed research into IBKR, is this the case? 

 

If so, it could be a better way to profit from fear than using the VIX or GLD/PHYS.  There is a better margin of safety than using those proxies because there is an underlying business that will provide profits regardless of what happens in the market.

 

Or if there is a correlation between volatility and the use of options for hedging, then options-focused brokers might do better in markets where there is a lot of fear in the air. 

 

Just seeing if there is anybody else thinking along those lines.

[beerbaron]

Actually, my broader question, which I framed as "gold croupier investments" in order to catch people's attentions (hasn't worked, it seems), is whether as value investors, we can capitalize on fear in the market by making "croupier" investments. 

 

For example, I haven't done much research into IBKR, but my understanding is that the profitability of its operations increase markedly when there is more volatility in the market.  For those who have done detailed research into IBKR, is this the case? 

 

If so, it could be a better way to profit from fear than using the VIX or GLD/PHYS.  There is a better margin of safety than using those proxies because there is an underlying business that will provide profits regardless of what happens in the market.

 

Or if there is a correlation between volatility and the use of options for hedging, then options-focused brokers might do better in markets where there is a lot of fear in the air. 

 

Just seeing if there is anybody else thinking along those lines.

 

Take a look at Broadridge Financial Solutions, they make money on the amount of fixed income transactions. I have been taking the last week trying to understand them (quite complex operations). I got the idea from an article from Columbia Business School. If they fit my criterias I will post my thesis.

 

BeerBaron