Wow… I’ve been so busy working, getting set up in our new house and raising our 3 year old, I haven’t had a chance to write about what’s happening. Its been six months since I last posted and that’s too long. I’m sorry. I’ve failed you.
Anyway, gold likely hit its bottom at the end of 2015, which I pretty much called in October on this post: Calling a bottom in the precious metal mining sector.
Since then the miners have been on a rebound terror. GDXJ is up over 77% from its very bottom as of yesterday and that was before today’s nearly 7% gain (I’m writing this article 4/11/16).
Tides are turning and and surprises are to the upside. Like today’s big 7% gain, even after a 4% gain the trading day before.
Once the ball really gets rolling and things go exponential, I’m expecting there will be days of unexpected 15% gains (See my post on Why the Precious Metal Sector Gets So Over/Under Valued). That come as the media starts to report on the sector with non-stop upside stories, after which prices will get out of control to the upside.
That could be months to years. Who knows. It’s definitely not happening yet.
What I do know is that I used methodical framework for “buying down” as gold – and subsequently the miners – dove into nothingness; causing their prices became relatively and staggeringly cheap.
Now, the miners are up 77% in less than three months from their very bottom, and that’s a huge gain. That’s a whopping gain off the bottom. But realize that its not probabilistic for someone to be able to catch those type of gains on a regular basis; though every investor and adviser will often try to tell they can do it; or they’ll brag about the time’s they’ve done it, leaving out all the times they’ve lost the same amount on other bad decisions.
If you caught the 77% gain, congrats to you… you are lucky! You probably hit this one, but lost a similar amount on another short term purchase.
The next tier are those that were buying over the last 6 months. As it dropped and they kept buying, they’ve averaged about a 50% gain. Those that are buying for the long term in this category have done well. But likely anyone that made that type of gain in the short term is going to sell and move on to the next thing, likely losing 50% somewhere else along the line.
Another tier back, are those that have been buying over the last few years. You guys are averaging about even. Some are down a little, some are up, depending on when you started purchasing and if you kept cost averaging down.
Worst of those are the people that were buying heavily in early 2013 when the miners were already down 50% and it seemed like that was already ridiculously low such that it would likely be the bottom. You’ve taken a beating and could still be down anywhere in a wide range from 20-70%. That’s how much of a killer the Q1 of 2013 was to people buying heavily during that period.
If you didn’t keep averaging down from then until the beginning of this year, you probably instead sold and got out; taking your losses. You are likely an emotional trader. I bet you are looking at prices now and kicking yourself telling yourself if you had just caught that bottom, or if you had just held on, you would have been ok. And as such, you are likely going to ensure yourself that you missed the bottom and will buy in again as you try to catch the big gains currently happening. One big surprise to the downside and you’ll jump out, living in fear of your past mistakes, blah blah blah.
Don’t Invest like this. Very bad. You are a step below a day trader (I personally believe the market is random in the short term; to be explained in another article, yet to be written).
So what’s left after the short term trader, the emotional trader and the day trader?
Well there are long term investors like me. I look for long term opportunities to buy into counter trends while using a methodical frame work for which to eliminate emotional losses. Emotional losses are one of the bigger ways many traders reduce their gains, and/or cause their own losses.
Now, I’m the guy that saw the beginning of this HUGE decline in the mining sector back in 2011. I even started buying cautiously back then. I did start purchasing a little too early as the sector continued to plunge even further form there. But I continued to average down using my method of “major” and “minor” milestone buys. The majority of my buys were in 2013 with my biggest volume purchases in late 2014 and during 2015 near the bottom.
If I had jumped in heavily when I first saw the big decline, I’d have gotten crushed. But I used a method that gave me stability and a plan to focus on. I’m still using that plan and will continue to use it.
But here’s the rub. I’m now at a point where I’m heavily invested; probably with the most of my portfolio I I’ll ever put in this sector and my gain is still slightly negative.
So. You could put all your money in right now and be just about where I’m at; maybe a little ahead, as the sector continues to go up over the long term.
But the difference between you and me is that I have a method and I’ve used it through the lows. And I will use it through another low should this sector miraculously head down to another low. Personally, I believe the bottom has been set, but this sector has been soooooo beaten up, I wouldn’t be surprised if we miraculously erased the 77% plus gain and saw a lower low.
We are down in the volatility of market nothingness. The forgotten zone. …Well, we were… before the beginning of this year. The media was not talking about this sector; other than to report the usual dismal drops, with a discussion here and there, from an analyst on how much longer it can continue.
Things are picking up, but its not at the point where everyone is talking about the sector, so its not going to get overblown just yet. Though it could happen at any time. Again, you need to understand that anything can happen in the short term and to be in the right position when the long term trend kicks in, because it can kick in so fast that you may not have a chance to respond or you may not even notice it until you look back.
Thus, if you put in all your money right now, you don’t have a long term strategy and you are likely to dump and take a loss if we go back down. If you get a quick gain, you’ll probably sell and move on, finding another place to trade your gains and losses in and out.
I’ve weathered the storm. I have seen my method have significantly negative short-term results, but I didn’t jump ship because I have a long term plan. I know that long-term this sector is going to go ballistic. I just don’t know when. So I’m positioning myself for when it happens and just letting it happen when it does. I’m not trying to game the market. I’m investing. Investing for the long term.
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