Once again its been a while since I’ve had a chance to write blog update. I have been posting brief updates to my twitter account along the way. If you are on twitter, follow me. If you aren’t on twitter, you can still get my updates as text messages by texting “Follow LTETFInvestor” to the short code 40404. Please also join my newsletter to keep updated when I have the time to write these more detailed updates.
So what’s been happening since my last post 10 months ago. Well… the miners have seen some serious swings. The gold miners appear to have hit their bottom at the end of 2015, which I was fairly close to calling in October of 2015 on this post: Calling a bottom in the precious metal mining sector.
The blue dot in the chart below is where I made the bottom call in October of 2015, a little under a year and a half ago. As you can see I wasn’t far off from what is currently the final bottom.
FYI: I tend to write about the VanEck Vecor Junior Gold Miners index fund which is traded as GDXJ on the NYSE. I write about it because I believe it has the biggest potential for the highest long term gains and also because its a very large, high volume fund that is highly representative of the overall market sector.
Since the current bottom, we’ve seen GDXJ post over a 200% gain.
The peak of that 200% gain came in the middle of August 2016. The month before, in July, I tweeted there would need to be a 20%-30% correction at some point.
Did I back up what I was saying by selling? No. The long term trend from here is upwards. I’m a long term investor that believes you can’t make gains by trying to trade in and out of the market with short term trades. The short term movements are too random. People with money in the market think they can trade in an out in the short-term to increase their gains. Whether or not they realize it, all they are doing is spending a lot of time to do nothing. Short-term trading is almost the same as playing blackjack at a casino. You can win for a short while, but at some point, in the long run, you’ll go cold and give it all back.
… Actually Black Jack is a little worse, with the difference that short term markets are random (nobody’s guaranteed to win; if you are lucky, you’ll break even), but in Black Jack, the odds are on the house; no matter how good you are, you are statistically guaranteed to lose in the long run.
Sidebar: I live in Las Vegas and don’t gamble… I live here because I love the weather and the gamblers pay my state income taxes – i.e. Nevada has no state income tax.
Back on topic: Nevertheless, as pure short-term luck would have it, I did end up looking like a prophet as the correction came not long after my tweet.
But realize the psychology if I had sold my positions and the market did continue to go up after I called a correction. If I tried to trade on my tweet, I might have watched that bump up happen without my money in the market, gotten nervous that I was missing something, bought back in trying not to miss yet another big spike (short term mind-set), and gotten crushed when it did correct.
Regardless of the noise, it did end up correcting. And it corrected hard!
That correction dropped GDXJ about 45% from that most recent peak in August (remember, as GDXJ is representative of the sector, the sector had relative corrections as well so this analysis goes for all metal miners). This is where a lot of short term bull traders probably got crushed (shorts probably did well, but will get beat in some reverse fashion as time averages them out from the randomness in which they live).
Finally the bottom of the correction came on December 22nd. A few days later, I posted an update on my twitter account that the correction was in and it was a great time to start getting involved in this sector if you hadn’t already started.
Even if you did buy in August around the recent peak, before the 45% correction, if you decided you were in for the long term and purchased as it went down (I will someday reveal my major/minor buy technique to do this effectively), you’d still be in a good position for the long term. Believe it or not the precious metal miners are still down in the muck. While the miners do get a little press here and there, they are still relatively forgotten.
After the correction, and my call that it was a good relative time to enter, GDXJ came back 50% to where it’s now sitting at just under a 150% gain from the current bottom. Again, these types of swings happen in the muck.
Sidebar: If you are keen enough to keep score… yes the miners corrected 50% and then came back up 50%, yet after the 50% return, they aren’t back to the same peak as before the correction. That’s math. You’d think if you go down 50%, then come back up 50% that you’d be at the same place. But that’s not true. Percentage money math is interesting. I’ll write an article about it someday. Join my newsletter to get notified.).
All of the above is a pretty wild ride for just over one year! And with all the political turmoil and change happening after the recent presidential election, the roller coaster ride will definitely continue.
But the roller coaster ride does not matter to me, as I built my portfolio in this sector in a strategic way. The way I bought into the sector in my portfolio is important. With a strategy, I have been able to hold through lows that were even lower than I thought they could possibly get, while even increasing my portfolio size to be in a position to reap massive gains when the market finally realizes how its undervalued the precious metal miners, returns to an acceptable valuation, and subsequently begins its excessive irrational exuberance phase.
That could be soon or even years from now. I don’t know when it’s going to happen, I just know that it will happen, because that’s what markets do. I’m a long term investor that uses a method that allows me to eliminate my emotions, stopping myself from making bad decisions when I feel like my world is coming to an end, and hold to make large long-term gains.
Where will things go over the next few months or even the next year? Well, I’ve done a lot of work in the article to point out the accurate calls I’ve made in the relative short term. Can I do this on a regular basis? No. I’ve just been right in the relative short term as the long-term tides seem to be finally turning. But the tide-turn is still short term and I wouldn’t be overly distraught if the miners dropped back down to make new lows because I’ve invested with a long term strategy that has prepared me to weather such movements.
Beyond the short-term volatility, for many reasons I’ve written about in the past, I still thoroughly believe gold is just starting out in long term bull market. The fundamentals are too overwhelming for it not to happen. And the irrational exuberance that is always somewhere in the market is currently in another sector, but it will return to the mining sector at some point as well. Both could come soon or not happen for a while. I don’t try to time it and I will be there catch the massive gains when it happens.
Long term, it’s not a bad time to start getting involved in the precious metals sector so long as you do so cautiously with a long term plan so that you do not get spooked out of the market but instead add to your portfolio and increase your future gains if there’s another 20%, 50%, or even bigger drop.
If you haven’t perused my blog yet, read some more articles, including this important article I wrote over three and a half years ago: Why are the values of gold and silver mining stocks going so low?. Its all still relevant because its all long-term strategy.