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The reason why investing and speculating is inherently difficult is the relative value of all tradable assets is constantly shifting in relation to all other assets. I am indebted to oftwominds.com correspondent Harun Ibrahim for helping me grasp this key concept.

The only way to maintain the purchasing power of whatever asset you own (money, gold, beads, bushels of wheat, acres of forest, etc.) is to be alert to the shifts in relative value. There is no one measure of value; many use gold as a measure of "real money," but gold also fluctuates in relative value. Priced in dollars, it has risen from $450 to $1,000, dropped to $700 and then risen to $1,000 in a few short years.

Priced in some other currency, its fluctuations would be measured somewhat differently.

Many analysts compare the relative value of gold, currencies and oil: how many barrels of oil will one ounce of gold buy? Compare that to the relative value of a currency--for instance, the dollar--and one can discern historical patterns. Over time is oil near the bottom of its value range when an ounce of gold buys 10 barrels?

This analysis of relative value and purchasing power leads us to conclude that the only way to maintain (much less increase) the purchasing power of our assets is to buy an asset when it's cheap and sell/trade it for another asset when it's dear. To do that, we have to become aware of each asset's value in relation to other key assets such as gold, oil, wheat and various currencies.

Once again I return to the concept that control has intrinsic value. If I own a piece of arable land, the relative value will fluctuate against other assets. But unlike gold, I do not need to sell the land to realize an income. I can plant some crops and create an income stream--or, if the relative value of the crops is low, then I can decide not to plant, or rotate to another crop which is in demand/scarcity. Owning oil which has yet to be pumped shares this same feature: I don't control the market value of the oil, but I do control when and how much I will pump out and sell.

The same can be said of stocks which pay dividends, with the important caveat that I do not control whether the dividend will continue to be paid or not. My control is limited to holding or selling. If the dividend vanishes, much of the value of the stock will vanish before I can sell it.

If I own photovoltaic solar panels, the "income stream" is measured in kilowatts. The relative value of those kilowatts will fluctuate, but regardless of the relative value of the kilowatts, the income stream is within my control. Energy has intrinsic value; it can drop in value but not to zero.

If a virus from space kills 50% of humanity then demand for energy would drop, and the price would plummet. But the surviving owners of energy would quickly cut production until supply aligned with demand, forcing prices up to the point a profit could be earned.

Supply and demand are not static, which is why measuring purchasing power is inherently challenging.

One last point needs to be made about relative value and intrinsic value. All fiat currency (paper money) is in essence a promise of future value. It has no intrinsic value. Thus it is vulnerable to rapid fluctuations in relative value and even a collapse to near-zero valuation. Thus we need to be especially sensitive to the difference between assets with inherent/tangible/ intrinsic and their relative value to currencies which have no intrinsic value.

If a currency is being devalued by the State which produces it, then owning some tangible income-producing asset is a much better hedge against a loss of purchasing power than holding the paper currency.

Modern States have freed themselves from the burdens of maintaining a currency with intrinsic value--that is, one backed by some tangible assets such as gold and silver. The promise of future value is cheap to reproduce, hence the slow but steady loss of relative value of all paper money over time.

There may come a time--perhaps after