The Mises Institute, dedicated to “proceeding ever more boldly against evil,” appears to take issue with some of my comments on gold ($GLD $GC_F):

Charles Sizemore, CFA, wrote back in June, “Gold today is as risky as tech stocks in 1999 and Miami condos in 2005, and the arguments supporting its rise are every bit as flimsy.”  Sizemore goes on to say that gold is not an investment and that anyone buying gold is only speculating, engaging in the “greater fool” theory.  The greater fools are those that don’t stash some yellow metal away.  (Source: “Who Are the Greater Fools“)

I suppose I should be flattered that a think tank found my off-the-cuff comments on gold so offensive that they felt obligated to denounce them in an article of their own.  Yet somehow “flattered” is not the word I would use.  “Bewildered” would be a better description.  It’s hard to see how the suggestion that gold is not an attractive investment at current inflated prices would be that offensive.

A gold hater, no doubt.

I will never understand the cult-like mentality that surrounds gold. With other investments, you have “bulls” and “bears.”  Only in the vocabulary of the gold bug do these words get replaced with “good” and “evil.”  Alas, in the mind of a gold bug, I must be evil.  Or if not evil myself, certainly led astray by the forces of evil.

In the August 29 issue of Barron’s, Gene Epstein wrote that “In addition to being a commodity, gold is also a cause.” The cause, of course, is that of sound money and responsible government–worthy goals indeed. Surely every American wishes that their government exercised some level of self control.

Yet investors who buy gold for ideological reasons are acting no more intelligently that investors who buy shares of McDonald’s ($MCD) because they like the taste of a Big Mac.  You do not put your hard-earned investment capital at risk because you “like” something or because it fits your utopian view of how the world “should” look.  You make an investment because you expect to earn a reasonable total return.

Returning to the theme of good and evil, this is precisely why vice investing is so much more profitable than “socially responsible” investing.  Because vice industries like alcohol, tobacco, gaming and defense tend to be shunned by the socially conscious, investors with no such moral qualms are often able to buy them at attractive prices and dividend yields.

The proof is in the pudding.  Consider the chart above.  The Vice Fund (VICEX) has outperformed the Domini Social Equity Fund (DSEFX) by roughly 50% over the course of its life.  And the difference would have likely been far greater had the Vice Fund’s investments in the gaming sector not been hit so hard during the 2008 meltdown.

I’m getting somewhat off topic, but my point stands.  You will never make outsized returns over the long term by investing in what you like or in what makes you feel good.  In order to do that, you need to follow Warren Buffett’s advice and be greedy when others are fearful and fearful when others are greedy.  Today, this means buying what no one else seems to want–European blue-chip equities selling at their lowest levels in decades (see “The Pain the Spain“).

As I write the article, gold has backed off of its recently-hit all-time highs.  Does this mean that the gold bubble is bursting?

Perhaps.  Perhaps not.  Given the wild volatility plaguing this market anything is possible, particularly if the European sovereign debt crisis takes a turn for the worse.

Still, the question to ask now is “Where is the best place to put my money going forward?”

This current spate of volatility will not last forever.  When it subsides, what then? Do you want to hold on for that last gasp of the decade-long bull market in gold, joining what has become a very crowded trade?  Or would you rather put together a portfolio of solid multinational blue-chips trading at valuations not seen in decades that have the financial strength to survive whatever may come?

Given the options, I’m taking the blue-chip stocks.

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