There’s Something Worse than Having a “Losing Position”
David H. Smith
Posted Jan 28, 2016
There’s something worse than giving up at the bottom…
There’s something worse than watching prices fall as you continue to add on the way down…
It’s giving up “three feet from gold,” when if you had just stuck it out a bit longer, things might have turned your way.
This tendency is part and parcel of human nature, and its effect is not to be underestimated. Way back in 1938, Napoleon Hill wrote about it in the classic book, Think and Grow Rich. Consider what his research uncovered. Said he:
More than five hundred of the most successful men the country has ever known, told the author (Napoleon Hill) that their greatest success came just one step beyond the point at which defeat had overtaken them. Failure is a trickster with a keen sense of irony and cunning. It takes great delight in tripping one when success is within reach.
When the precious metals make a turn to the upside that really holds, one of two things is going to happen. Either the price trades sideways for awhile, building higher highs and higher lows into a bona fide uptrend, or there will be a trident spike that shocks everyone, present company included.
Either way, we’ve been so conditioned to expect market failures to the upside into overhead ceilings that almost no one will believe it when things change.
They will wait for the price of silver to rise where they hope and expect it to go before they jump in (above $20, $26 or $40?). They may sell aggressively into each rise until they end up with little or no holdings. Then the mostly empty bullish train will really leave the station, with the “parade crowd” standing forlornly at the gate, wondering what went wrong.
Of course, no one can predict the future, and the price of silver might stop at say, $25. But by doing your homework and looking at the evidence – from the very accurate to the not-so-helpful – you’ll be on the way toward making the right decision… for you.
If you believe silver has a $2 downside risk, but see the potential on the upside as $10, then your perceived risk/reward would be 1:5. You could be wrong. But if you spend time studying others who have successfully been and done – It’s likely that you’ll come out a winner if you decide to stay in the game. Not to mention – if “being wrong” means that instead of a 5x return, you end up with 10x… or more!
Eric Sprott, who went from “just” wealthy to perhaps billionaire status during the previous rise, worked through several up/down cycles along the way. He no doubt had to ask himself the same questions you’re wondering about right now. His conclusion?
If you believe you’re right; hold your ground. Normally there’s a big payday at the end.
Are you willing to “stick to your guns,” adding on a dollar-cost-averaging basis?
If so, take encouragement from people who have gone through this before – who watched gold decline by 50% into 1976 – then saw it rocket 850% higher during the next three years or so?
Or will you be swayed by the financial channel talking heads, as they trash talk gold and silver – just like they did from 2002-2011 while gold rose from $275 to over $1,900… while foolishly buying none themselves?
Looking forward, the odds are much better than even the remaining perma-bulls can now imagine – that during the next few years, gold will change the first digit on its four-place handle several times, and silver will come to be defined by a three-digit price tag.
If you’ve lost your belief that the precious metals are going to rise meaningfully and perhaps move to all-time nominal highs while you are willing to wait for that to happen, then honor your conclusions and move onto something else.
Investor Spirit Needs to Be Nurtured and Strengthened…
But if you’re still willing to be convinced, or just need a little more emotional support, consider this quote from Stu Thomson of Graceland Updates, an analyst who has established an excellent track record charting the movements of the precious metals, as well as the investor sentiment which drives the price. Recently he said,
When an investor in a major asset class has draw downs, care must be taken not to break the spirit of that investor. Investor spirit needs to be nurtured and strengthened…The Western gold community is now entering the year 2016, as gold approaches another mighty support zone, this time at $1033. It’s unknown whether gold enters that support zone, or rallies from just above it. What is known is that this is a major buying area, and a generational low appears to be in the works for both the bullion and the miners. Intestinal fortitude, and nurturing of investor spirit, are all that is required now.
You can watch from the sidelines as a spectator while the crowd in the parade builds in size, or buy your ticket by holding and adding to a sensible stash of “hold in your hand” physical gold and silver. Are you willing to not stop “three feet from gold”?
David H. Smith
David Smith is Senior Analyst for TheMorganReport.com and is a regular contributor to MoneyMetals.com. For the last 15 years, he has investigated precious metals mines and exploration sites all over Argentina, Chile, Mexico, China, Canada, and the U.S. and shared his findings and investment wisdom with readers, radio listeners, and audiences at North American investment conferences.
WARNING: BEAR MARKET RALLY TRAP AHEAD
Stocks around the globe were pummeled again last week.
This is no surprise to our subscribers as our predictive trend analytics model gave us clear technical evidence that important multi-year highs had completed back in the middle of 2015.
I continue to remain steadfastly bearish in my outlook for stocks.
Last Friday, January 15, 2016, the SPX broke below its Aug. 24, 2015 low, which is equivalent to a major sell signal if price closes the month below that level.
Last week, The Dow Jones Industrial Average slumped 511 points, or 3.1%, to 15,866, while the S&P 500 slid 64 points, or 3.4%, to 1,856.34, led by the financials, technology and energy sectors. The Nasdaq Composite tumbled 190 points, or 4.1%, to 4,424.35.
Subscribers and I managed to catch a 33% quick intra-week bounce trading the SSO ETF and then got out of harm’s way as volatility took hold once again.
European stocks were unable to escape the downward trend from other markets, and the Stoxx Europe 600 index lost 2.8%. The dollar fell to a one-year low vs. the yen. Gold rose $22.40, or 2.1%, to $1,096.20 an ounce.
The SPX is currently testing major support. This is consistent with a “cycle low” that arrived over the weekend. Even though we are in a bear market, we should expect a “Bear Market Rally” sucking every last investor into long positions, before dropping much lower through previous support areas. This will be a very “short term bottom” this week.
We are in a long term downtrend now; it is not a “hiccup” as we experienced back in 2012.
If the stock market is going to stage a rally from here, this is a good time to start, right when everyone is jumping off the ship and the sentiment is so extremely negative. Just to give you a feel for the level of panic selling on Friday, my panic selling indicator which tells us when short term bottoms are likely to happen as everyone is running for the door, this contrarian indicator spiked to 50. Now any reading over 3 is panic in the market, and a reading of 9-18 is typically a multi week low. So you can see how 50 is VERY extreme.
Because we are entering a bear market and institutions will be unloading shares area record pace going forward, I feel this extreme level of panic selling (50) is only going to trigger a bounce lasting a week or so, then more distribution selling will take hold.
A slew of disappointing U.S. data shows that manufacturing and consumer spending are in trouble. Empire State factory index declined sharply this month to its lowest level since the recession. Retail sales declined by 0.1% in December 2015 and a report on industrial production compiled showed that activity declined for the third straight month.
The New Year is not off to good start. In fact, it may be the worst start ever of a New Year in many world stock indices. Instead off irrational exuberance that had previously been so evident, investors of world equity markets are clearly starting to panic.
We all know things are not right. We know it hasn’t been okay since the 2008 financial crisis. The effort by the central banks to get over the hump has fueled an “Asset Bubble” in the stock markets.
This in turn should start to fuel safe haven buying in gold. Gold’s day in the sun is soon approaching. I believe this new year will prove to be a pivotal year for gold, silver and miners.
The “talking heads” tell us that the stock market is falling because energy prices are falling. We need higher energy (gasoline) prices. Really? They claim that energy companies are going out of business and that tens of thousands of people will lose jobs and unemployment will rise. Really? Didn’t the jobs numbers show hundreds of thousands of people getting new jobs – in fields outside of energy? Who are you going to believe?
Later this week I will be posting an exciting video show you how to make a fortune during this pending bear market and exactly how I did this in 2008 – 2012 to become financially free before I turned 30 years of age. Stay tuned and be sure to opt into my free email list if you want to see this exciting, inspiring and educational video! Visit: www.GoldAndOilGuy.com
David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.
As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?