Harry D. Schultz: Buy Gold

Most people have never heard of Dr. Harry D. Schultz. I first heard of him many years ago when I was flicking through a copy of the Guinness Book of Records where he was listed as the highest paid investment consultant in the world (he appeared in many subsequent editions).

In 1981 he was charging $US2,000 for a one hour consultation on weekdays and $US3,000 for an hour on weekends. He currently charges $US3,500 on weekdays and $US4,900 on weekends. Harry Schultz is still the highest paid investment consultant in the world. He has published 23 books (most of which are now out of print).

Harry Schultz writes an international investment newsletter (the Harry Schultz Letter) that was first published in 1964. Each newsletter contains a great deal of information and you can subscribe to it for $US382 for one year. Apparently he has subscribers in 80 countries.

Dr. Schultz himself is based in Switzerland but has lived in no fewer than 18 countries.

Some quotes from his 9 December 2007 letter (on his web site):

Fannie Mae & Freddie Mac will crash.

This is not a time to seek profits, but to protect what you have. Profits will come from precious metals & the Swiss Franc. The Swiss Franc is the safest currency. Don’t worry about interest, worry about safety.

Biggest danger to you is having cash, time deposits, CD’s in banks, as warned before. They can be lost in bank closures, or at best frozen for 6 months to 3 years. Some banks already quietly closed. It’s govt policy not to reveal any bank vulnerability in case it scares off possible buyers of a bank—so you will never get a warning. Safest is switch to shortest-term govt bonds (90-day if possible) of any 1st world country.

Huge profits possible in mid-08-09 buying foreclosed homes at 15-20% (?) of value. If you buy them, be prepared to hold them for a long while.

CNBC & Bloomberg swing from saying things are getting better or worse every 2 hours. Don’t expect wisdom. Remember the saying: “If a jackass looks into a mirror, a jackass looks back out.” Judge the source. Trust not easily.

Soon one or all of the Middle East oil exporters will end their US$-peg or $-oil pricing, & switch to a basket of currencies or euros. They must, for survival. That will unofficially end US$ status as a reserve currency. On that date the $ will probably fall 10-15% in a day.

During 2008 a lot of what Harry Schultz predicted in 2007 actually occurred. Many other commentators were still very bullish in late 2007 – they were wrong and Schultz was right.

In essence, Schultz is a chartist who uses fundamentals, as the following quote reveals:

When investing, don't think in terms of absolutes, think in terms of probabilities. We want to do everything possible to "load the deck" to our advantage. Charts are the pros' secret weapon for doing exactly that. Charts allow us to minimize risk. While we do pay attention to fundamentals, (e.g., industry group, sales, earnings/share, return on equity, profit margins, geopolitics. etc.), they can't tell us when is the best time to "pull the trigger," nor when to take profits or cut losses. If you don't use charts, you're just guessing.

I’ve never embraced charting myself (and I never will). It’s true that price trends can be used to guide the timing of purchases or sales. There is no point buying something if the price is consistently trending downwards, best to wait for the trend to stop and then buy. Of course as you know, that’s much easier said than done and far more difficult to do in real-time than it looks in hindsight.

According to Hulbert Financial Digest, Schultz’s tips have underperformed the US market over the last 10 years – not a good result for the highest paid investment consultant in the world.

However, the very fact that Harry Schultz has so many subscribers means that they are getting some value from his letter. If the comments in his 9 December 2007 letter are any indication of his predictive ability, he certainly has it, but maybe he has trouble capitalizing on it (?).

So what is Schultz saying at the moment?

He’s advising readers to buy gold. He believes that the gold price will rise significantly in the next few years due to the expected inflation caused by massive Government spending globally.

Schultz recommends that readers of his letter put half their money in first world government bonds (but not US bonds) and the other half in blue chip gold stocks and gold bullion. Interesting isn’t it?

Have a look at the table below:

	Compound return per annum
Period	Gold	S&P 500
1950-1959	-1.4%	13.6%
1960-1969	0.0%	4.4%
1970-1979	32.2%	1.6%
1980-1989	-2.9%	12.6%
1990-1999	-4.0%	15.3%
2000-2008	13.5%	-4.8%
Overall	5.4%	7.0%

The table shows quite clearly that when equities do badly, gold usually does well and vice versa.

Gold has appreciated by approximately 5.4% per annum compound over the last 59 years (it’s not a great result). Also note that the return shown above from the S&P 500 doesn’t include dividends.

The big question is: Has gold already had its good run this time round or will it keep going up (if and when inflation starts to become a serious problem?).

If you do decide to bet on gold, you have a few options.

Firstly, you could find a few blue chip gold stocks and allocate some of your portfolio to them (in Australia there are approximately 300 listed companies classified as gold miners – very few of them could be classified as blue chip).

Secondly, in Australia, the Perth Mint will sell and store gold for you (this includes those resident outside of Australia). Gold storage accounts are guaranteed by the Western Australian Government (which has a AAA credit rating).

Thirdly, and perhaps an even better option than the above is to buy Gold Exchange Traded Funds (ETFs) or Gold Exchange Traded Commodities (ETCs) on the stock exchange.

Schultz believes that 2009 will be a year of deflation followed by significant inflation in 2010. If he is in fact correct, gold should increase in price, but who knows for sure?

I may be willing to allocate a small percentage of my portfolio to gold just in case Schultz is right. The arguments for an increased gold price seem reasonably logical to me, what is less clear is where exactly in the gold price cycle we currently are.

For those interested in gold, there are some good articles in the gold markets section of: www.contrarianprofits.com

In case you’re wondering, I’m not a subscriber to the Schultz letter and of course have no financial interest in it.

The Harry Schultz Letter site: www.hsletter.com

Note: None of the above constitutes financial advice. You need to do your own research and consult appropriately qualified people for advice (where necessary).