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Don’t Forget Where You Came From

By: Michael Kilbach

-- Posted 17 December, 2010 | | Discuss This Article - Comments:

Unfortunately, due to millions of years of evolution, human beings make absolutely terrible investors.  It appears that most investors seem to have a good memory for very long term trends and very short term trends but for some reason they seem to forget about the intermediate term trends.  As a result of this they lose money!


For example:


Long Term

From 1980 to 2000 a long term trend in the stock market catapulted the general stock markets like the Dow Jones and NASDAQ to dizzying heights.  The massive long term trend was powerful, profitable and hard to forget about.  Ever since the NASDAQ bubble popped in 2000 many investors have been adding to their beloved tech stock positions trying to ‘dollar cost average’ for the next wave up.   Eleven years later these investors continue to rationalize why their buy and hold strategy will be paying off any year now.




Real-estate and its bull market is yet another example of investors remembering a long term trend and expecting the market to go right back to “normal” any quarter now.  The same psychology kept investors away from gold and silver in 2000 because it had been a poor performer for the previous 20 years.  Although precious metals are in the lime light today, the same was not true even a few years ago. 


Short Term

On the other extreme we get the short term, tunnel vision investor who seems to forget everything prior to a few days ago.  In this case I am not talking about the very short term “Day Trader” but rather I am talking about the investor who loses sight over where they just came from.  This investor will get so caught up in a profitable trade that they will continue to buy more and more until they eventually sell out from what inevitably becomes an unprofitable drop.  In other words this investor will turn profitable trades into unprofitable trades because they lose perspective on the bigger picture and rarely take profits.


So why don’t investors remember and pay attention to the intermediate term trend?  To be honest we aren’t really interested in why; the answer probably has something to do with evolution and survival.  We are interested in recognizing the weakness so that we can profit from it and outperform the market.


Take a look at the price of Silver from a daily perspective:




From a daily perspective silver really looks like it has pulled back.  Perhaps this is a great low risk buying opportunity.  These comments are being typed “Tongue- in-cheek” as we try to illustrate our point about perspective and market swings.  The following charts will clarify what we mean by this.


Let’s look at the price of silver and this same potential buy point from a little bit larger perspective:



As one can clearly see the pullback in the daily chart is nothing more than a tiny blip in the overall move.



Again we can see that the seemingly great buying opportunity from the up close view may actually be a little on the “not so low risk” side of things.


Now let’s look at the long term price of silver from a Monthly perspective.



This chart clearly illustrates how significant the recent move of silver has been compared to its historical price action.  From a monthly perspective we can clearly see the parabolic spike action.  This is much harder to see from the close up daily chart.


Before we continue we would like to be totally clear that we are extremely strong Gold and Silver bulls.  It is our opinion that the price of Silver and Gold will be many multiples of their current prices in the future.  We are by no means trying to suggest that the silver and gold bull market is over but we are trying to raise a point about intermediate term market swings.


We believe that investors should ask themselves:

a)     Do I find myself feeling like I am missing out and I should buy more positions in precious metals so that I don’t “miss the boat”?

b)     Is it becoming easier and easier to add to my positions because I am so certain these investments have to go higher?

c)     Am I starting to count how much money I will make in my precious metals investments without regard to how much money I may lose?


Recently we have observed a “professional” precious metals advisor explaining that investors should buy a position in silver and gold right now just so that they don’t “miss the boat” in this bull market.  Interestingly we didn’t observe such a comment in November of 2008 when silver was at $9.00.


In our opinion the above observations are warning signs that things are getting a little over heated in this sector.  We do not mean to suggest that investors should sell all of their precious metals positions because we are predicting a top in the market.  Interestingly we believe that an even larger spike in the price of silver is a very real possibility.  However, we are trying to bring to light a common investor mistake and the warning signs that we see in the current bull market.  The warning signs are almost always there for those who are willing to pay attention to them.


At we try to first identify a long term trend such as precious metals in the 2000’s and then identify the intermediate term trends to add to or lighten up on positions.  This strategy takes a combination of foresight to make the right decision and patience to wait for the opportunity.  To assist us in our decisions, we follow proprietary long term and intermediate term timing charts.  It is likely that others are stuck with their outdated models from last decade, or busy watching their investments up close and personal until they lose their profits.  If you would like to learn more about our strategy you can read more and sign up for our free newsletter at



December 17, 2010 

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-- Posted 17 December, 2010 | | Discuss This Article - Comments:

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