Guns as an investment

Last night Piers Morgan interviewed the owner of a gun range and fired various weapons ostensibly as journalistic research. One comment caught my attention near the end of the segment when Morgan asked the  range owner, a seemingly intelligent tuned-in individual, who would need a Browning M2 military machine gun. The guy honestly demured any practical value and said that he bought it as an investment for $12,000 and they are now selling for $25,000 to $45,000, presumably because they have not been available for primary purchase since 1986.

The gun range owner gave all the standard reasons for gun ownership: personal protection from intruders, in the event of a natural or human-induced catastrophe, and of course, for safety from the impending Stalinist regime. This guy owns a gun range so he's cashing in on the fear, but he is doubling down and investing in guns as a speculative commodity as well.

Ain't that America? Little pink houses and big brown weapons....

Like gold coins, this Browning M2 has no practical value (he said that it was too expensive to shoot) and really just sits around 99.9% of the time until a TV celebrity comes by to shoot it. My take is that if the jack-booted thugs of the US government decided to off someone I doubt the Browning would help against unmanned drones and how long would it take to run out of ammo before an Abrams tank or F-35 vaporized your house? And what practical value is such a weapon against an intruder, armed or otherwise? For hunting? Nope.

Beyond practicality, is the Browning a good speculative investment? Depending on when his guy bought it, I would say not really; there have been several easier ways to capitalize on the existential fear that seems to have gripped our populace. Since Obama was first elected in 2008, gun maker stocks Smith & Wesson (SWHC) and Sturm-Ruger (RGR) have been up 280% and 700% respectively. Cabela's (CAB), the sporting goods store that sells guns, is up 450%. So, the 100-200% appreciation of the Browning M2 does not seem spectacular, especially when you factor in the relatively illiquid market and the risk and expense of having the gun laying around. (Is it insured against theft and damage?)

Gold has lost its shine. It occurs to me that some of the same individuals who might be buying gold as a fear hedge are also likely in the market to purchase guns. Guns and gold coins have some similar characteristics from an investment standpoint: they do not provide dividends, they have little if any practical value, they need to be guarded against theft, and the market has variable liquidity. Guns have the added problem of potential damage to your investment and the liability problem of injury to self or others.

On the other hand, gun maker companies have real earnings since real people are buying real guns. For example, Smith & Wesson (SWHC) had earnings last year of half a billion dollars and trades at a relative low forward PE of 9. While I have no position at the moment, I would think that this would be an easier way to play the gun market.

One more comment: the irony is that the US population has $billions of extraneous capital to piss away on guns, ammo and gold which serves as a testament to the lack of any real basis for the existential fear that has brought on this investment opportunity in the first place. We live in a culture where the majority of people are employed in pointless jobs or are unemployed altogether, most of us spend an inordinate amount of our days in diversionary activities, and after all our necessities have been provided we have still have enough wealth to buy consumer products like huge TV's, superfluous SUV's, guns and useless gold coins.

But in the defense of goldbugs, at least a gold coin never went off accidentally and killed a kid.