Category Archives: Strategy

Miners are down in the muck!

My father was out visiting back in early October and while he was out here he asked me what I’m currently investing in.  I told him I’m weighting in on the mining sector as it has been absolutely getting crushed.  He asked me to send him an email with the ETFs we discussed (GDX, GDXJ, SIL).

In the email I sent him, I made sure to comment that although I am confident that the miners will have vary large gains in the long term future from where they are now, they are currently down in the muck and suggested they could easily lose another 20-40%.

I gave him specific instructions, that because this sector is so far down in the muck, not to put all the money he intended to invest into the sector right away, even though I think they are currently dirt cheap.  I gave him a plan to purchase into the declines as the sector would potentially continue to get beat up.

I sent that email on October 4th when the price of GDXJ was at $32.  Over the last 2 months, there have been incredible daily swings, with a 2-month low of $22.71.

If he listened to my instructions, he would currently have 75% of his investment for the sector invested at an average price of $26.60.

If another friend or family member were to come to me with the same situation, I would give them the same investment plan, but not with the same numbers.  The plan I would give that person would not be geared toward the sector or any specific price target.  It would be based on that person’s timing and entry point.

I get so frustrated when I read investment newsletters where the “guru” gives specific buy and sell points based on his own “guru” portfolio. People are always frustrated and I’ve rarely seen anyone actually achieve the results the “guru” gets.

If you come in late to the “guru’s” game plan, that investor may have a long term gain, but because you got in late, you lost money as the “guru” lost 20% in the last X amount of trades which were the ones you were involved in.  So the “guru” claims success while you lose.

In the future, I plan to release a membership section to teach my strategy that is built on creating success for your individual situation based on your individual timing and investment funds.  Join my newsletter to stay up to date and get notified when it comes out.

 

Sticking with your investment plan

As the gold miners are once again posting a larger uptrend gain than previous rebounds, I’ll soon be doing an update to my previous post on the increasing size of major rebounds in the mining sector, specifically the small cap gold miners exchange traded fund GDXJ.

UPDATE: I did write an update on the most recent update on the GDXJ rebound trend.

For now, I’d like to discuss the emotional impact of these rebounds and how I have to force myself not to get emotional and stick with the plan.

I have been investing into the miners as they have fallen with my own proprietorially developed technique that has served me very well.  With the recent rise, my losses have been nearly evaporated and I will soon be posting a gain.

While sticking to my technique through the recent bottom, I was able to make a “major” purchase just before the most recent bottom, which is one of the biggest goals of my technique (With my proprietary technique, I make “major” and “minor” purchases at various predetermined levels – to be discussed in my future membership section – join the newsletter to be notified when its available).

As I purchase down in a pyramid of-sorts fashion, I can get discouraged as the un-realized losses add up.  However, I know that I’m investing in a sector which is out of favor and tends to have multiple combined reinforcing forces acting against it, and I have faith in my technique as it continually proves to be profitable for me.  So I have to keep a level head and stick to the plan.  I never put money in the market that I will need in the next 10 years, so I never sell for a loss.

Then, when a reversal finally comes and I get back to where my total investment in that sector/ETF is basically even, I tend to get a surge of energy to exit the plan and sell.  There’s this instinctual emotional relief that causes thoughts to sell and walk away with a “No harm, No foul” attitude.

Where I’ve made my biggest mistakes in the past is when my account starts to show un-realized gains and I decide to exit the plan and realize my profits.  My biggest missed gains have been in this area.  When this happens, I tend to lose sight of the bigger picture.

This has actually happened to me in the recent past.  I will write a more in-depth article on the subject in the future, but I was investing in the solar alternative energy sector and sold for an early profit.  I really missed the recent exponential upside and cost myself some major profits.  Going from the an entrenched downside to a minor gain, I allowed my emotions to get the best of me and I sold for only a modest gain.

So now as a similar thing is happening to me again with the mining sector, I have to make sure to keep my emotions away from clouding my ability to follow my own well proven investing technique and force myself to stick to the plan.  I know from experience that, while it can be difficult at times, sticking with the plan and staying on track with the technique will allow me to achieve incredible gains.

Investing In Gold Isn’t Only About ‘Dooms Day’ Scenario

Most gold investors will tell you that you need to own gold because they believe US dollar is becoming a fiat currency due to all the money “printing” by the Federal Reserve in the Quantitative Easing (QE) programs.  They believe all the money “printing” is going to cause the economy to crash after the world realizes that all the “printing” is not really helping and gold will be the only currency to survive the devastating world economic crash.

I somewhat agree but mostly disagree with this esoteric point of view.

First, the Quantitative Easing programs don’t directly cause inflation.  The programs are intended to help banks square up their balance sheets so that they’ll feel more inclined to loan money. It isn’t until the banks actually loan the money that the subsequent inflation kicks in.

In simple terms, you can think of it like your credit card.  Your credit card company gives you credit to go an buy things, which is your individual money “printing”.  But that credit doesn’t change your life (or effect the economy) if you leave the card in your pocket and do nothing with it.  Once you actually go out and buy stuff with your credit card, that’s when the money “printing” gets put into play and subsequently affects you and the economy.

Since the banks are mostly hoarding the money the Federal Reserve is loaning them (keeping their credit cards in their pockets), Quantitative Easing is not yet causing massive inflation.

So the gold investors are missing a major step in how things would likely play out.

The economy has to really take off to the point where banks are back in the business of heavily loaning money for massive inflation to set in and gold to subsequently follow along with inflated pricing.

So from this point of view, if you are investing in gold, you are investing for the economy to continually pick up to the point where this massive inflation kicks in, and that means that the economy is running in high gear (or more accurately in overdrive since the QE is masking the faults in the engine).

Now gold investors do have it partly correct that if the economy crashes, gold will increase in value.  But it will be a short lived increase if we really head into a depression, as depressions cause deflation and even gold goes down in value in a depression.

I say there will be a “short lived” increase for gold as the fear of a coming depression will cause money to scramble from the highly inflated stock market into gold as overall market investors look for temporary safe-havens. If the government then steps in and prints even more money, the fear of inflation will kick in with even greater ferocity, causing gold to rise with equivalent vigor.

So investing in gold at this point has a double upside potential.  If the economy continues to pick up, inflation will ultimately set in, and gold will follow along by going up in value.  If the fear that Quantitative Easing is not helping the economy instead sets in, gold will rise from the demand, as money moves into gold as a protection.

The way I see the economy right now, we are headed for an overly-stimulated economy with heavy inflation, but we aren’t there yet.  It’s still years away.

In the mean time, QE is supporting the economy making us all feel safe, which is why gold has seen a dip for the last 2 years.

At some point (possibly as long as 5-10 years from now) the economy will pick up (likely due to some new invention on the scale of the internet revolution) and once it gets going, all that extra QE “credit card” money will get put into play and things will take off in a parabolic fashion.  That’s when gold will most likely go through the roof as massive inflation sets in.  The Fed will have to drastically raise interest rates to slow the economy.  If the takeoff in the economy is simply due to excessive exuberance (as opposed to new invention), that would be the time to move your money from gold related holdings into high interest vehicles as a crash will be likely to follow.

With all the above said, I don’t necessarily put much of my investment money into gold.  I don’t like paper gold (gold funds traded on the stock market) and it’s too much of a pain to keep an investment amount of physical gold safe.

I invest in gold mining companies, which see exponential effects, partly directed by gold’s change in value.  Currently, in the long term point of view (there has been a recent run-up), the miners have been beaten up badly and are highly undervalued (see my article on investing in Gold Miners over Gold).

I am currently heavily invested in the mining sector (gold, silver, etc.) with a proprietary technique that I have developed over my many years of investing.  I plan to open a membership section where I share my technique to help you invest your money wisely.  Join my newsletter to be notified when I open up the membership section.

Miner ETFs VS individual stocks

Depending on where you look on the web, you’ll find a different average cost for miners to pull gold out of the ground.  Whichever amount you choose to believe, you can fairly estimate that gold is currently selling at or below the cost to mine it.  Thus, the miners are not likely to be profiting.  Hence, their stock prices are currently trading at a significant discount (see my article on Why stock prices for mining companies can go so low).

I like the miners because when the price of their respective commodity drops significantly, they can scale back operations and go into more of a survival mode, by cutting production and lowering expenses until the commodity price starts to re-elevate. Once the commodity hits a price that becomes more profitable, they can kick things back into high gear while having learned a few lessons in efficiency due to the downturn.  Their biggest objective during the downturn is make their debt payments.

And that’s why I like holding ETFs over individual gold stocks.  Since I don’t have the time to investigate each of the miners and learn how each manages its debt (as well as many other business factors), I know that by buying an ETF, I’m buying the average.  Some companies will do well, and some will not do so great.

In fact, some companies will do so poorly with their debt that they may go out of business.  Since the actual mine is the collateral of the loans, what is likely to happen should a miner go out of business?

Well, the debtor would come in and foreclose on the property.  But the debtors can’t do anything with those mines as they are in the lending business, not the mining business, so they would just turn around and sell the mine to another mining company (or more realistically, one of the better managed miners will first step in and buyout the company/debt for a discount).

Thus, if you are in an ETF that holds many mining companies, you are likely to get that mine back through another company in the ETF.  So it sort of all comes out in the wash, which is another reason why I like holding an ETF over an individual stock at this point in my life (see about me page).  For every company that significantly under performs, another company is likely to significantly outperform.  You do give up the chance for even greater gains but you gain security of knowing you didn’t pick a catastrophic company (see my article about knowing your risk tolerance.)

I have developed a proprietary investment technique for stable investing which I’ve developed over my many years of successful investing while going through major life changes. Having the knowledge above alone is not enough. You need to implement a stable, intelligent investing technique to get substantial, stable gains while protecting yourself from losing money.  I intend to release my technique in a membership section in the future. Please Join my mailing list to be notified when it will be available.

 

Should you invest in Bitcoin?

Bitcoin is a new digital currency that is gaining quite a bit of notoriety lately, especially since the Winkelvoss Twins (of Facebook fame) started promoting their involvement in the cryptocurrency by reportedly owning a significant amount of the virtual coins and also trying to bring to the stock market, a way for investors to easily purchase shares of Bitcoin value in an ETF.

I started researching bitcoin to learn more about what it is and how it works and it didn’t take long before I realized its not likely to be a long term, stable investment that I would put my money in for one big reason.

No… my reason is not that Bitcoin is not backed by something of physical value, like gold, as many other articles have pointed out.

If you read the original white paper that introduces the Bitcoin peer-to-peer financial network concept, you’ll continually see references that make statements like, “The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.”

In my opinion, once there’s enough value to be stolen, there’s nothing stopping a well funded terrorist type group from attacking the integrity of the system by taking control of the system by overpowering the “honest nodes” with “dis-honest nodes”.

Also, I don’t like that the inventor of the protocol is a pseudonymous developer (named Satoshi Nakamoto).  It doesn’t sit well with me that the inventor(s) have chosen anonymity.  They seem to be pretty clever to have created such a brilliant scheme, but how do we know that their brilliance doesn’t go beyond what they are showing.  Maybe they have a secret, undisclosed, hard to discover, technique within the protocol to make a small amount of CPU power act like a lot of CPU power, such that they can easily take control and overpower all the “honest CPU” power on the network.  As the inventors are anonymous, they could easily watch the value of their invention skyrocket and cash out into real money before crashing the system and anonymously walk away with a huge amount of value.

Also, with something so new and untested, some form of a loophole will likely someday be discovered that allows someone to control the network in a negative way.  I haven’t delved into the encryption strength that Bitcoin uses within the system, but I do know that as computing power continually grows, we continually need better and better encryption technology.  There was a time, in the early internet days when 40-bit or 56-bit encryption was considered safe enough for financial transactions (https connections).  Now advanced 128-bit is considered the minimum.  So if the encryption strength is not easily modifiable over time, there is a likelihood that years down the road, someone will be more likely to be able to hack your Bitcoin encryption keys.

With all that said, I will not avoid using Bitcoin.  I hope it becomes as ubiquitous as PayPal.  I like the idea of it.  I own a couple small online storefronts and may soon start taking bitcoins as payment.

However, based on the potential network takeover possibility, I don’t plan to invest or store any significant amount money in the system as an investment.

As a final note, I’m not predicting that the value of Bitcoins won’t exponentially increase.  In fact, based on the growing hype, and especially if ETFs get created where big money can easily flow into and cause massive inflation within the Bitcoin system, a short term investor could make some decent gains, especially if one was to get in before the ETFs start showing up (it may be too late already).  However, I am a married man with a family who invests for the long term, and based on the discussion above, Bitcoin investing is too risky for me to have significant involvement.

 

 

Know your risk tolerance and limits when you invest!

NOTE: This article is still in draft form. Due to work and family obligations (ie lack of time), I haven’t had a chance to fully re-read and fact check it.

When I started investing back in college I would invest in individual stocks.  Now that I am older and have more responsibility, my risk tolerance has changed.  With a family to take care of, I can no longer take large positions in individual companies which are inherently more risky than funds like ETFs.

Back when I was single, I was invested mostly in individual companies.  During that period the “Great Recession” of 2008/2009 hit.  I was in companies which I thought were great, but they really got beat up by the market.  Seeing them go down in price, I kept purchasing into them.  I remember buying into one particular small cap company that was falling lightening fast in its stock price, but the company was still reporting earnings of around $2/share, while its stock was trading for as low as $4/share!

Four dollars per share on two dollars per share of earnings is an absolutely insanely low valuation for its “earnings per share” ratio, which is just 2 to 1.  In a more stable and normal market, companies will nominally trade for ratios of 20 or even 40 times their earnings. It was either an unbelievable discount or the company was going out of business!

Towards the end of the crash, my portfolio was down 75% and I was getting crushed.  It was, however, within my real risk tolerance that I could take at the time, because I was single and had no real financial responsibilities, other than to take care of myself.

I believed I was correct in my valuation of the company being worth much more than its then current trading price and I believed the market was wrong in the pricing of the stock, so I continued to purchase it as the price plummeted.

At that time, everything was just going haywire and nobody really knew what was happening.  The market was just crashing.

We all found out later that major funds and hedge funds had to indiscriminately sell everything to cover debts and short positions.  So everything got crushed, especially small capital companies, even if they were solid companies.

After all the financial shock issues finally shook out, that company returned to a more realistic valuation of 20 times its earnings and even shot beyond to somewhere around 40 times its earnings. I sold early at about 10x my cost, making 1,000% profit.

While its great to think back about the successful investment, I learned a lot about my risk tolerance that I would not want to learn at this point in my life, since I have a lot more responsibilities.

During that “great recession” crash period, I was down a HUGE amount in value and was EXTREMELY stressed out.  I wasn’t sleeping and was feeling fairly depressed.  The only thing that kept me together was my belief in my knowledge (which dwindled with every price drop) and my belief in the fundamentals.

I remember that to relieve my stress I would work out extremely hard (running and lifting weights).  One day I even distinctly remember thinking to myself “Is it a positive thing if I try to commit suicide by running myself to death?” because I figured I was taking a negative (committing suicide) and turning it into a positive (forcing myself to get into even better shape).

Because of that experience I really learned a lot about myself.  I thought I had the mental strength to handle the amount of decline I took, but I really didn’t and I know for sure that I could not go through that type of decline at this point in my life.

I’m much more cautious these days, primarily investing in Exchange Traded Funds (ETF) which are funds that hold a bunch of companies, usually all within a similar sector.

The reason I don’t invest heavily in individual companies is that even if I do all my diligence on company (looking at management, balance sheet, cash flow, etc.) there’s still the chance of corporate espionage and scandals.  Issues like Enron had where the company was doing insane things with their accounting, bookkeeping and reporting are happening more often (or so it seems).  A company could look great from all the business and financial views you can think of, but you can’t easily spot the espionage and scandals.  So I know that my current risk tolerance couldn’t handle losing a large position in a single company due to something like that and I stick with funds for a majority of my portfolio.

To sum up, if there’s a first piece of advice I could give a new investor, it would be to learn your risk tolerance and to be honest with yourself when you evaluate your tolerance.  Its one thing to believe you can handle a large decline in value, its another completely different thing when it actually happens.

 

 

Is it better to invest in Gold or Gold Miners?

Even after its significant recent decline, it’s interesting to see that over the last seven years, gold has doubled in price, while the over the same period, the gold miners, as a sector, has declined.

In the charts below, the top chart, Gold is represented by the gold tracking SPDR Gold Shares ETF (GLD), which trades at 1/10th of the actual gold spot price.  The index, representing 1/10 gold spot price was around $60, meaning told was at $600/ounce in 2006.  It nearly tripled to $180 and has come back to be at $120, double its early 2006 price.

The lower chart shows the miners index as represented by the GDX Market Vectors Gold Miners ETF.  Over that same seven years the miner index is currently down from $40 to $24, nearly a 40% decline.

Gold vs GDX Gold miners over the last 7 years

Per my previous article on the exponential profitability of the gold miners as the price of gold raises beyond the miners expense level reasons, you would think that if the gold miners were at one value seven years ago and gold has doubled, the miners would be at a higher level today, possibly even an exponentially higher value than seven years ago.

However, if you look at the chart below which starts from the major dip in mid 2008, you’ll see that the miners can exponentially outperform the the price of gold when coming off of a deep decline.

Ratio of gold to gold miners since mid 2008

The blue line in the chart above represents the miners and the red line represents gold.  You can see that around mid 2011 the gold miners were drastically higher than gold; nearly 120% higher.

The reason that gold has outperformed the miners over the last seven years is because gold had just come off of a major increase seven years ago so the miners were already blown up to a peak. Take a look at the action starting at 2011 in the charts above to get a visual feel for how this same thing happened starting in 2011.

Golds recent decline has really hit the miners extremely hard and they have come exponentially down because both the declining action of gold and the negative market sentiment of the miners have weighed on the miners (see my article on whether gold mining stocks move in relation to gold or market setiment).

This is the cycle.  Gold springs up and the miners jump exponentially higher.  Gold goes down and the miners shoot exponentially lower. We are currently somewhere in a big decline that has brought the miners exponentially downward.  Depending on where you buy, you’ll get very different results.

Thus, based on the above charts, if one wanted to invest in gold or gold related investments and was to ask me which would be a better investment, I would have two answers.  If you were choosing to invest at any random time without previous or current knowledge, I would suggest you invest in Gold as it is more stable over the long haul.

However, today’s current timing presents a major buying opportunity, in that we are currently in a very large decline that is setting up for the miners to exponentially outperform gold as happened from 2008 to 2011.  So if one were to include past and current analysis in to account, I  would suggest that at this current time, one should be purchasing gold miners.

I have developed a proprietary investment technique for stable investing which I’ve developed over my many years of successful investing. Having the knowledge above alone is not enough. You need to implement a stable, intelligent investing technique to get substantial gains and keep from losing money.  I intend to release my technique in a membership section in the future. Please Join my mailing list to be notified when it will be available.

 

Do Gold Stocks move with Gold or the Stock Market?

I recently came across an article that referred to research that, over the long haul, 50% of Gold Miners price moves are based on the price of Gold and the other 50% is based on the stock market.

The article doesn’t go into what it means to move “based on the stock market”, but the author comes to the conclusion that if you are in the Gold miners to get an amplified move on Gold the historical odds are against you.

I though that was a pretty poor conclusion to obtain from that research.

First, of course Gold miners aren’t going to move 100% perfectly in an amplified manner to the movement of Gold.  It seems logical that some portion of the movement in miners is going to be based on the business of mining gold as well as market sentiment of the sector (read my article on how market sentiment affects the gold miners).

I interpret this 50/50 research to help strengthen the argument that now is the time to be getting into the gold miners as both sides are strongly pulling down on the gold miners.  The price of gold is falling, so right now, the miners are less profitable.  Because the price of gold has dropped so much, miners are less profitable and the market sentiment towards mining stocks is incredibly low.

Below is a chart of the ratio of the Junior Miners vs the relative price of Gold (as reflected by the Spider Trust GLD which virtually tracks the price of gold).

Radio of GDXJ to GLD (gold) over the last 3 years

Notice that the ratio of Junior Miners to the price of gold has drastically decreased over the last 3 years.  That means that Gold has drastically outperformed the Miners. Or you could say that Gold’s decline has been amplified in the miners.  If the two move perfect correlation without any amplification the ration would stay the same, and there chart would show a line straight across the graph.

Below is a graph of the ratio of Gold Miners to the Dow Jones Industrial average:

Ration of Gold Miners to the dow jones industrial average over the last 3 years

This graph also shows that the Junior Miners have significantly underperformed the Dow Jones Industrial Average.  Again, if the miners were in perfect correlation with the Industrial Average, the graph would be a straight line across the page.

So there’s a double witching happening.  Both portions of the “50/50” research outcome are working against Gold.  So when the turn around in the price of gold comes, there will be a double amplification in the opposite direction to keep the 50/50 rule in tact.  That will spell monster gains for the Miners as the sentiment will turn around and not only will the lost ground need to be recovered but the euphoria in the opposite direction will be required to compensate for the lost ground over the long term.

 

 

Why I now invest in Exchange Traded Funds (ETFs) over individual stocks

Before I was married, I would invest in individual stocks.  Individual stocks are inherently more riskier than something like an ETF, not only because individual stocks are more vulnerable to larger swings, but there’s always the likelyhood that the individual company could go out of business, causing you to lose your entire investment.

It takes a lot of time to research and individual stock.  Beyond higher level macro picture of evaluating the economy and indivdual sectors, you need to spend time looking at intricate details like the company’s target market, finances, outlook, and management.  Failure to spend time to accurately look at and understand any of the major components that makes a company successful will leave you vulnerable to investing in a company that may go out of business.

Even if you do your diligence, then you are still vulnerable to the illegal espionage that can take a company down.  Management could be mis-reporting or there could be embezzlement.

No matter how well you research a company something could go wrong.  When I was single and didn’t have any dependents, I was more willing to take these risks by investing more of my investment money in individual companies.

Now that I am married and starting a family, both my time and risk tolerance have decreased.  I no longer have the time to obsessively bury myself in balance sheets and research various companies intricate details.  I also can’t risk the possibility of investing a significant portion of my portfolio in an individual company and having the company go out of business.

I now invest primarily in ETFs (Exchange Traded Funds), and I have become more sector focused.  I look for sectors that are getting beaten up for one reason or another.  I look more at the macro picture and have cut out the extra time it takes to investigating the intricate details of a particular company.

ETFs are funds, so there is virtually no chance of losing your entire investment.  Things may get rough and the value may diminish.  A few of the companies within the fund may go out of business, but since each individual company only represent a small portion of the ETF portfolio, the loss of that business won’t erase your investment.    Also, due to the law of averages, in really bad times, a couple companies within the ETF may go out of business, but likely that business will be picked up by other companies within the ETF and those respective stocks will gain in value (especially when the sector picks up), which will mitigate the damage done to your portfolio by the loss of the weaker companies.

I like ETFs over mutual funds because they don’t have “load” fees and usually have lower “expense” costs.  Most ETFs I invest in have an “Expense Ratio” around 0.5%.  Mutual funds tend to have higher management fees of around 1-3%.

When you purchase a mutual fund, the higher expenses go towards paying the fund manger, administrative fees, and advertising fees.  I don’t like paying for a fund manager because there’s so many fund mangers out there that the chance of purchasing a fund that actually does have an exceptional manager that’s worth the fees the person is getting paid is minimal.  To me, mutual funds are for the ignorant.  You are paying someone to sell you something and make you feel good about your investment, though its really no better than lesser managed fund that simply tries to represent a market segment, as mosts ETFs do.

 

 

I am a contrairian investor

I have pretty much always been a contrarian investor, meaning that I invest against the crowd.  I believe that commodities tend to get extremely over-valued and under-valued, and I don’t like to purchase any investment for more than its worth.

As you can read in my “about” page, I currently invest in ETF funds that tend to mimic sectors of the market which I believe are undervalued by the market.  I used to invest in individual company stocks, but now that I’m starting a family I have adjusted my risk tolerance accordingly.

For the most part, this “undervalued” usually translates, in simple terms, to a a stock or ETF that is trending down in price.  I believe the market to be extremely and obtusely emotional and that it tends to over-extend its trend in pricing on various commodities and therefore their respective sectors.

I also believe that, thanks to online self-investing platforms (i.e. Ameritrade, Etrade, Scottrade, etc.), that the amount of investors that have the ability to easily “short” sell a stock, and are doing so, is growing rapidly.  These  growing number of “day traders” act to help exaggerate already overly pronounced swings to the down side that create prices on commodities that are extremely undervalued.  I tend to purchase these discounted commodities.

It is very difficult to be a contrarian investor, for as you are purchasing against the short term market trend, you will have that sinking “wrong” feeling for some time, with the commodity continuing to fall after you’ve invested.  I understand and live with this, because I don’t believe anyone can call the bottom in a stock or sector on an accurate and regular basis.  Thus, I use a proprietary technique that I’ve developed over my years of investing where I start to purchase when I believe the stock/sector is already extremely undervalued.  Then I continue to purchasing in larger and larger quantities as the investment becomes more and more discounted.

To keep my sanity, I only put money into the market that I won’t need for at least 10 years.  My investments are future, long-term focused.  I am not a day-trader and I understand that I am purchasing something that is out of favor and may be for some time.  For me, this helps take a lot of the short term emotion out of worrying about the price as it drops.

My belief is that if I am pragmatic in my assessment of an undervalued sector and start purchasing at a point where I already think the sector is quite undervalued and it goes down far beyond that, I will be purchasing the majority of my allocated investment money into an extremely undervalued situation, and in the long run, I will receive outstanding returns.

Market sectors are very cyclical.  They go up and they go down.  One sector becomes the big rage, due to the appearance of the big current global or national situation.  Often the news drives a sector higher.  Since there’s only so much money, for the raging sector to go up in value, the money has to come from elsewhere, part of which is other sectors and those “out of favor” sectors become temporarily undervalued.  For me, this is the time to buy into those sectors as they are selling at a discount.

In the short term I tend to lose value as I build my investment into the sector, but long term I am almost always right.  I rarely sell a commodity for an overall loss, and on those few occasions that I have, I almost always regretted it as I ended up missing our on very good gains when the stock did finally take off towards the overly exaggerated “up side”.

When I follow my own investing techniques and don’t allow my self to deviate due to emotional responses, my worst case scenario is usually that I sold too soon, for not enough profit.