Guns... A Better Buy than Stocks.

[ccp72]

I got an interesting email yesterday. Here's a cut and paste from the body of the message:

Guns: A better buy than stocks
Posted Apr 16 2009, 12:20 PM by Todd Harrison
Rating:
Filed under: investing, stock market, Todd Harrison
Forget stocks and bonds, the real money's in guns.

The Wall Street Journal reports artillery enthusiasts are stocking up on guns and ammo, not necessarily ahead of widespread civil unrest resulting from our ongoing economic swoon, but as an investment. These trigger-happy speculators are betting President Obama will institute a ban on assault rifles, which would crimp supply and send prices, well, shooting up.

For it's part, the Obama administration says it has no plans to enact such legislation and supports the Second Amendment right to bear arms.

During the federal ban on semiautomatic weapons from 1994-2004, prices soared. Recent buying has reached almost a frenzied pitch, creating backlogs for popular models and enabling resellers to list certain guns well above suggested retail prices. AK-47s doubled in price between September 2008 and the end of last year.

Ammo, as well, has become a hot commodity. As one supplier said, "(Ammunition) beats the hell out of money markets and CDs. You can double your investment in ammunition in a year."

Equity investors, too, are betting on Americans arming themselves to the teeth. Smith & Wesson (SWHC), maker of Dirty Harry's weapon of choice -- the .44 Magnum -- has seen its stock jump from around $2 per share to over $6 since Inauguration Day. Still, shares are off around 70% from highs seen as recently as late 2007. Sturm Ruger (RGR), another gun manufacturer, has seen a rise of almost 100% in 2009.

As Minyanville's Kevin Depew is apt to say, "These are heady times we are living in." The Journal running a front-page story on buying guns rather than stocks is indicative of just how strange things have become.

Recent volatility in financial markets is driving Americans to seek alternative ways to protect -- and even grow -- their money. And while we're yet to see widespread construction of bunkers, protective trenches or armed militias patrolling the streets, the country is on edge to an extent not witnessed since September 2001.

I mean, pirates are all over the news, for God's sake. Pirates!-rflynn

[Guns4Fun]

Yeah, interesting read.

But, if you bought low a year or two ago and are selling high now, you're good to go.

But, if you're just buying now at the inflated prices and a new AWB never comes, it will end up just like the housing market. You won't be able to sell those guns for what you paid for them.

Could guns be the next bubble to break?

[dman]

They also make a fine ATM withdraws......

[PA Rifleman]

Yeah, interesting read.

But, if you bought low a year or two ago and are selling high now, you're good to go.

But, if you're just buying now at the inflated prices and a new AWB never comes, it will end up just like the housing market. You won't be able to sell those guns for what you paid for them.

Could guns be the next bubble to break?

They could drop somewhat, but not likely. Remember there's a substantial difference between the forces at work in the housing market and the gun industry.

The housing market depression has at least part of it's roots in the repeal of the Glass-Steagall Act (details), which was put into place in the 1930s to prevent the very disaster we're in right now. Without getting too side-tracked on the 2008 Depression, I will concede there certainly were other exacerbating factors to the 2008 Depression such as predatory lending, high debt, overbuilding, overextended borrowing and trade imbalances. As you can see, there were a lot of interacting factors that brought this to a head.

The biggest factor driving gun and ammunition prices up now are fears of additional regulation. Note that I'm specifying fears of regulation, not regulation. With each additional layer of regulation, certain class of firearms either disappear or morph into a watered-down compliant version of their former selves. Either way, the erstwhile models suddenly command higher prices as collectors and late entrants scramble for the last remaining examples of the new "pre-ban" models. This was the buying pattern until about 2-3 years ago, now gun buyers aren't waiting for new bans. Prices appear to be influenced by the party composition in government. It now appears that the widespread perception is that a Democratic majority is tantamount to a new gun ban. Irrespective of whether a new ban is on the horizon or not, the gun industry rarely, if ever suffers deregulation. In time, many models become collectors items, especially imports. The worst values are the lower quality guns (high non-ferrous metal content), but with a low purchase price don't pose a substantial financial risk. I've been in the gun industry since the 1970s, and from my experiences, quality guns hold their value, even more so if they have history. This is true of military small arms, W.W.II in particular. This is also why I'm not the least bit concerned about stocking up on W.W.II Mosin bolt action rifles @ $100 when the current gun market's flooded with them. The same condition was true with Romanian SAR-1 (AKMs) about 8-10 years ago, they were about $330 and everywhere. The last ones I followed on Gun Broker were routinely selling for $600-$700.

Also remember, even if you overpay for a gun, (and unlike theoretical assets like stocks, treasuries and bonds...heck, even currency for that matter) a firearm's value can never fall below it's functional value as a firearm. And as a durable good, it can't evaporate into nothing if the market crashes. In this case, it's value will certainly increase, which is what we're seeing now.

I've overpaid a few times for guns I really wanted. I knew it even before I pulled out my wallet. I -also- knew I'd have the gun a long time, which amortizes the purchase price out to very small amounts over 20 or 30 years. I also know the chance of devaluation is almost nil. Sure enough, the market price creeped up and surpassed what I paid.

Summary: go buy a gun. Lots of guns.

[pandemic]

meh, doubtful. I hope the bubble breaks though so that the prices come down

[unclejumbo]

Something to consider the author did not. Some of the proposals I have seen would grandfather the rifles currently held but would make them non-transferable. That would cause a severe spike in price between signing of the law and the date it becomes effective. Then, well they aren't really worth anything if you can't sell them.

[Guns4Fun]

They could drop somewhat, but not likely. Remember there's a substantial difference between the forces at work in the housing market and the gun industry.

SNIP.....

Summary: go buy a gun. Lots of guns.

While you certainly make some valid points, I'll give just one example. I know there are others that could swing the other way though.

Say you decide to purchase 20 colt le6920's for investments---we all know colt's hold there value. We'll also assume that there are hundreds of other people buying them for investments too.

Right now, we have greedy dealers / sellers selling them for $1600-$1800. When in actuality, these guns should be selling for $1300-$1400. So, right off the bat you and everyone else is paying $300-$500 too much.

Then there is no gun ban. So, all the new shooters stop buying these guns because of the fear that brought them to want one in the first place. Pretty soon, the market is saturated with extra colts. Colt continues to make these guns on a regular bases and now there are tons of civilian investors holding them too.

Do we honestly think that once the frenzy dies off that every colt 6920 will be able to be sold for a profit above these crazy prices of today---I do not.

You might be able to sucker some noobs but the die hard colt guys won't pay the inflated prices.

Now, lets say a ban does come---then you will be able to sell these for pretty much whatever you want---but, what happens if the new ban does not allow future transfers of "pre-ban" arms? Then you're stuck with colts you can't sell---unless of course you unload them fast. The only way I see this working out for profit is if a ban comes to light. Otherwise, i think prices will come down as supply goes up and fear subsides.

I wont come right out and say buying guns as an investment is a bad idea but I will say doing it now has a great deal of risk---because of the unknown. Plus, if the economy continues to tank where are people going to get the funds to continue buying at these inflated prices? Eventually, those that bought out of fear will need to choose between food on the table and the gun. Then the market starts getting saturated with extra guns. Too risky for me. I'll buy my guns as toys and if they happen to go up in value great.

I'll leave the speculating to the speculators. I just don't feel confident that the money spent could / would become a profit.

[Mr_Anderson]

I agree with Guns4Fun. I am not buying my guns as an investment. but I know that if things got really bad and I had really had no choice I have a few thousand dollars tucked away in the safe. Regardless of profit or loss the only way a see selling anything is If I had no choice.

[Guns4Fun]

I agree with Guns4Fun. I am not buying my guns as an investment. but I know that if things got really bad and I had really had no choice I have a few thousand dollars tucked away in the safe. Regardless of profit or loss the only way a see selling anything is If I had no choice.

I agree that most common Joe's aren't buying for investments. But I think the idea of the article was that people should invest in guns / ammo instead of the stock market.

I will admit that about a year ago when it looked like either O or H was going to be the new President --- i thought very hard about pulling 20K out of my retirement fund to invest in colt 6920's. My 401k was losing 3k per quarter until i put it in safer holdings. Had i pulled the money out then and bought guns, strictly as investments, i would be looking at 8k profit in under a year. That would have been a 40% return on investment.

However, i don't think that now is the time to get in because prices are too inflated to be sustained.

I wish i was smart enough to follow through with my idea back then because my 401k didn't barely break even in that same time period.

[PA Rifleman]

While you certainly make some valid points, I'll give just one example. I know there are others that could swing the other way though.

Say you decide to purchase 20 colt le6920's for investments---we all know colt's hold there value. We'll also assume that there are hundreds of other people buying them for investments too....

Now, lets say a ban does come---then you will be able to sell these for pretty much whatever you want---but, what happens if the new ban does not allow future transfers of "pre-ban" arms? ....

Not to pick your argument, do what works for you.

You're assuming all transfers, both private and through dealers, could be prohibited. This has some serious ex post facto issues, nor has it been formally introduced on a Federal level at any point. Further, it would be useless unless a mandatory national registration went into effect first (read: early warning). I think most of us can agree this would never get serious traction any time in the near future.

The Dems are avoiding the old 1994-2004 ban like the plague, they aren't even discussing anything like a total ownership freeze even at a whisper level in Washington.

The Dems learned the value of not alienating the gunowners at large in the 1994 Congressional elections, we're safe for now as far as Congressional action. Obama's a whole different matter, but his recent musings in Mexico reflect that he got political gun religion fast in 1994 also. Schumer, Pelosi and all the extremists will continue prematurely ejaculating at the mere thought of the political equivalent of Krystallnacht II, going after gun owners. They're overachieving idiots whose only tool is a hammer. Small wonder they view every challenge as a nail.

You are correct on one point: If a buyer overpays too much in the beginning and the market doesn't catch up in time, there is a risk of loss. This is where knowing the gun's true value and market condition comes in handy. IOW -- buy low, sell high.