I was at a used bookstore the other day perusing the business and investing section when I saw a couple of books about the next Great Depression of America. Of course I had to take a look. The arguments in these books were pretty sound, and I nodded my head often…. that is, until I realized these books were from 20 and 30 years ago! These authors (still doom and gloomers today) were predicting a stock market crash right before the biggest rally the world has ever seen. They touted gold during the beginning stages of a 20-year bear market. Right now, they have a tribe of loyal followers – gained from the crisis of 2008- that have no idea how wrong they were for decades.
I’m not saying these guys are stupid. At the very least they were prescient. But remember, this is the money-making business. There is a reason Charlie Munger says ideology is dangerous in investing. And make no mistake about it- if you stick to one view for 30 years even though the market is telling you something different, you are an ideologue.
Here’s the thing. If I were an adult in the 1980′s, I would have probably seen the national debt and said “gee, this can’t go on forever”. The problems with Social Security were also obvious. But you must be able to disconnect the fundamentals from price action and be aware of the timing of events. And if things aren’t going according to plan, change your plan.
The Correction in Gold
To be honest, this correction in gold has gone longer than I expected. So what? You adjust as an investor. I’m actually happy about the extent of this gold correction because it’s a lesson for me. You must disconnect your beliefs from how you manage your portfolio. Is our government out of control? Yes. Are we going to default on our debt? Probably. Does this bode well for gold? Yes, if history is any guide. But this doesn’t mean that gold needs to rise right here, right now. This is what it really takes to be a full-time investor- namely to believe 110% in an asset, but minimize losses when the asset doesn’t trade exactly as you expect.
Fundamentally, gold is a screaming buy. But the market keeps sending the signal that it is NOT TIME for gold. I respect that signal. When it is time to buy, I will scale in on the way up, then take a long vacation.
Gold is trading like it is attracted to $1000-$1100. The dollar is just beginning to break out. Be patient. Gold will probably play “catch-up” like it always does.
To become a pro in investing, you have to throw out your pride and constantly learn. 23 year old Moses very well may have bought gold all the way down the past 3 years. In order to justify my losses induced by stubbornness, I would have said that someone was manipulating gold. Perhaps I would have bought a 3X gold long ETF to make back my losses. Do you see how these mistakes compound? This example seems extreme, but I fit this profile when I was younger. I learned the hard way, but I learned.
30 year old Moses thinks a little different. Gold is a negative carry commodity with opportunity costs associated with it. So if you are wrong timing gold, you lose twice. Not good. And when gold is falling at the same time that alternative assets like stocks are exploding, even worse.
Gold is not an obvious buy like real estate was in 2011; we may have to wait 6-12 months for that moment to occur. But first, I am really starting to believe gold needs to crash, big-time. Then, hopefully, if I am smart enough, I will be accumulating when there is blood on the streets.Follow