Investors in gold are commonly called gold bugs. Yet, gold bug is a derogatory term. As Marc Faber has put it nicely, a bug is an insect. The word “bug” or “insect” has a negative connotation to it. Calling gold investors gold bugs makes just as much sense as calling equity investors "equity cockroaches". It’s a way to prematurely end a, for many, much needed debate on whether they should include gold in their investment portfolios. Rhetoric beats reasoning.

Over the years the meaning of “gold bug” has changed dramatically. Earlier, the term “gold bug” was set aside for a different type of investor, instead of being a derogatory term for anyone investing in gold. Yet the latter definition is now commonplace, which is clearly shown by what legendary equity investor Charlie Munger had to say about gold investors. “Gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939,” Munger said, “but civilized people don’t buy gold.”

Clearly, Munger failed to distinguish between varying types of precious metals investors and his advice might make little sense to a great majority of investors. This great majority generally fails to outperform or even match the general market — not by a long stretch. They are not as gifted as Munger; they consistently underperform.

And given the fact that many US and European stock indexes have had a terrible run since 2000 — NASDAQ: -14.7% (-1.17% annualized), S&P 500: +21.7% (1.47% annualized) — many people would have lost wealth at least due to currency depreciation and taxes. We could certainly call it a lost decade for stocks. If these very civilized people would have bought gold instead, they would — even today — still be sitting on a total return of over 300%, which equals an annualized return of more than 8%, despite committing a mortal sin by buying that, according to some, barbaric relic.

Serious investors should recognize, however, that gold has not always been a good investment. It is undeniable that investors who bought gold in 2011 have little to show for, although their gold might rise in value in the future. It is also undeniable that gold was a terrible investment for over twenty years after its peak in 1980.

Twenty years is one quarter of our lives. That’s a lot of time. Smart investors obviously shunned gold during those twenty years, also because stocks had one of their greatest bull markets ever. Twenty years is the difference between becoming a millionaire and enjoying an average pension. It’s the difference between trinkets and treasures.

The term gold bug should be reserved for another group. A group that would have invested in gold in 1980 regardless of its price. When gold prices drop, some of them blame systemic manipulation; others blame futures markets, or even both. And others even argue that returns shouldn’t be calculated in terms of ‘fiat money’ and that any unrealized loss, no matter how big, is of no importance since gold is money.

Gold is not money, however. Money is a commonly used medium of exchange, and I cannot go to the grocery store to pay my groceries with gold. Gold is an asset. It is a very special and peculiar asset, but it is not money. We could conceive that gold will be used as an anchor in the future for a paper currency, but this initiative will most likely not come from politicians or governments. This initiative can only come from the voting public and such initiative seems farfetched in the short run. Only after a full-blown currency crisis the general public might be willing to press for a revival of a variant of the gold standard.

Gold prices fluctuate, as any other asset. Gold is sometimes a good investment, sometimes not, just like any other asset. Losses in euro’s (or dollars) do matter, as with any other asset.

Many argue that you should buy gold because the end of fiat money (paper money) is upon us. But fiat money is to stay, for now at least, simply because it doesn’t follow from the worldwide indebtedness that the fiat money system will collapse. It’s quite realistic to assume that — at some point in time — debts will be written down, countries will go bankrupt and currencies will blow up. In that sense, nothing has changed throughout world history. But it doesn’t mean the end of fiat money. Most likely, according to my reasoning, some fiat currencies will strengthen while other currencies will suffer from a full-blown currency crisis.

Just like gold at any price is not a good investment, stocks are neither. We could, therefore, call people who swear by stocks regardless of price and value (and, consequently, of over- or undervaluation) “equity cockroaches,” opposed to the term “gold bugs,” because buying US or European stocks at current valuations is self-defeating.

In the end, the attractiveness of investments – whether gold or stocks in general — depends on their price relative to their value. Neither gold nor stocks are good investments per se. Sometimes gold outperforms, sometimes stocks outperform.

Given worldwide debt levels and current stock valuations, gold is the good investment whereas stocks are a bad investment. I urge you to avoid being either a gold bug or an equity cockroach: be an intelligent investor instead. Intelligent investors shun stocks for the moment and take a position in precious metals.