Stocks vs. commodities; Girl Scout cookies vs. gold

By DAVID MOON, Moon Capital Management
February 10, 2008

My little girl is growing up. No, my daughter hasn't gone out on her first date or asked if she can have her nostril pierced. (No, sweetheart; you cannot. Either of them.)

My seven-year-old daughter engaged in a maturation rite of passage a few weeks ago. She came by her daddy's office to sell Girl Scout cookies. In fairness to my co-workers, I agreed to reimburse them for any of the little diabetic neutron bombs she coaxed them into purchasing.

I was pretty busy that afternoon. The Dow Jones Industrial Average was in the midst of a 100-point decline. I wasn't thinking much of Thin Mints.

I should have, however, as there was an excellent investment lesson in that guilt-inspired capitalistic sales call.

Girl Scout cookies cost $1.50 a box in 1984 and $3.50 now, so over the last 24 years, that's cookie inflation of 3.6 % annually. We'll call that GSPI, or Girl Scout Price Index, to differentiate it from the CPI, or Consumer Price Index.)

The CPI over that time frame increased 3.1% annually.

Girl Scout Cookies have been around a while (since 1917), but gold has been around a bit longer. For thousands of years, gold has been used as a both a store of value and medium of exchange. Kings have killed for it. And in times of trouble, investors have flocked to it.

In the last 6 months, the price of gold has increased 33% while the S&P 500 has declined.

After my daughter left the office that afternoon, we were commiserating about the day's stock market demise, while listening to one of the TV talking-head experts espouse the current virtues of gold, as opposed to stocks.

Think about it, however. In 1984, when gold was $360 an ounce, an ounce of gold would purchase 240 boxes of Girl Scout Cookies. At today's prices (gold: $890 an ounce; cookies: $3.50 a box) an ounce of gold is worth 254 boxes of cookies ' an increase of only 5.83%, or 0.24% annually.

Despite the recent decline in the S&P 500 and the Dow, however, the GSCPP (Girl Scout Cookie Purchasing Power) of stocks has far outpaced that of gold over the past 24 years.

Annual appreciation in the S&P 500 from its average value in 1984 has been 9.20%, resulting in an equivalent increase in GSCPP of 1,744 boxes, compared to only 14 boxes for gold.

Of course, there may be historic differences in box equivalent units (BEUs, for short), due to changes in trans-fat content and box size.

What's the point?

If you plan to buy any Girl Scout cookies in the future, you will be much better served by storing your earmarked cookie funds in stocks than in precious commodities like gold.

And if you plan on buying any Girl Scout cookies in the present, send me an email. I know a very clean-cut seven-year-old Scout with Friday evenings free for business.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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