The Pause that Refreshes!

By Mike Hoy  May 25, 2006

Nobody likes a correction but the fact remains that corrections are an integral part of “Bull Markets!” No market ever goes straight up or straight down.

The experienced market investor has used the move up in stocks this year to take profits from the stocks they no longer want to own or stocks they feel have gotten way ahead of themselves. I am very pleased to say that this up move has given me the opportunity to thin the stocks in my portfolio that I, for one reason or another, no longer want to own.

This pruning of my portfolio has freed up cash which I am pleased to have on the sidelines. This cash is coming in very “handy” in building positions in the companies that I feel have earned a greater part of my investment capital.

WHAT TO DO NOW?

For those of you who are fully invested I realize that this can be a very anxious time. Many of you are new to the precious metals markets and base metals markets. Many of you allowed your emotions to make your investment decisions for you. As a result, many of you made purchases after stocks had run up near their highs. For those of you who fall into this category you must reexamine your thinking on where you believe the industries you have invested your money in will be six months to three years from now. If you feel the fundamentals of the industries your capital is invested in are in a bull market then you should shut your computer off and give yourself a much needed break.

If you feel the bull market in the precious metals has ended then you probably need to move your money to greener pastures. As for me, I feel that the party is just getting started and I welcome the correction so that we can get it out of the way. Here again, the experienced investor realizes that most precious metal companies stalled long before gold prices peaked to the upside. The fact that the precious metal companies failed, in the end, to keep up with the ultimate rise in gold prices signaled to me that a correction was necessary, in the price of gold, for the precious metal stocks to continue their rallies.

Once the price of gold corrects to the levels that it will seek and find; I believe that the precious metals companies will fully participate in the next move forward. I actually believe the precious metal companies will lead the next move forward.

Today, Wednesday May 24th 2006 was a very tough day for physical gold investors. Volatility like today’s fall, in the price of gold, is telling me that the weak and panic sellers of gold are being thinned out of the market. Many of these people are in gold simply because that is where the money is and has been made. I am not going to get involved in the guessing game of “how low gold will fall in this correction” because I believe the worst is already passed and investors should have identified the stocks they want to build positions in and have buy limit orders in place below the market hoping to get fills at prices which are very favorable to where these stocks traded at one to two month ago.

I have not allowed this pullback in gold and precious metal stocks to bother me because I know that six months from now I will look back and be very thankful for the opportunity to have picked up additional shares at some very reasonable prices. History and experience has taught me the best way to profit from corrections is to take full advantage of the opportunities that these corrections offer by adding to my positions.

The most important point to understand about corrections of this nature is to not let the market and your emotions bluff you out of your positions. The only stocks I would sell at a time like this are stocks that I no longer want to own. The only reason for selling these stocks is so that the capital can be reinvested in strong companies that I do want to own.

WHAT THE SHARP RISE IN THE PRICE OF GOLD IS TELLING ME!

I believe the sharp rise in gold prices, without the precious metal stocks having the same sharp rise, is signaling to me that the physical market for gold is very strong and that capital is beginning to recognize physical gold as being a very timely investment. I think that the hundreds of billions of dollars in the hands of foreign corporations and governments are beginning to “wear their welcome out!” The owners of these dollars realize that they need to diversify their reserves into something other than a currency that is controlled by a very few: select individuals” in this world. I believe these current owners of paper realize that the spigots and the floodgates are wide open and the creation of these worthless currencies can only grow exponentially. The exponential growth of paper can only decrease the value of what they already own. Why should these corporations and governments continue to be the receptacle of worth less paper in payment for the goods, services and natural resources they are selling on the other side?

Hyper-inflation is a way and fact of life for as long as these “select few” have the ability to create paper from thin air! I must be missing something here as I have never been able to understand how a select few families throughout the world have the right to create money, out of “thin air.” The creation of the “FED” has to be the “Biggest Scam” of all time.

Volatility in the gold and silver markets is going to remain with us and we just as well begin to get used to the fact that this volatility is a “necessary evil” for our investments to reach their full potential. We must recognize that the factors, reasons and circumstances for the growing interest in gold will only continue to build a stronger case for continued investment into gold. As we continue to educate ourselves and draw on our current knowledge we will then recognize that these corrections do not have to have to wind up being negative memories if we do not panic or get forced out of our positions due to the use of margin and leverage.

I AM OF THE OPINION THAT THIS PULLBACK IS JUST ABOUT OVER FOR TWO BASIC REASONS!

1) The severity of the selling in the gold market is the type of selling that normally comes at the end of the correction. This selling is indicative of panic and those doing the selling tend to be the weakest owners of the stocks and the contracts that they are selling. I am thankful for the opportunity to buy their valuable shares from them at fire sale prices.

2) There is a terrific amount of money on the sidelines just waiting for the right time to commit their funds back into the markets. These investors had plenty of time to free up lots of money and I believe the possibility exists that many of these people were selling all the way up and missed out on a great deal of the money that was made. Many of these people have been calling for a pullback and I believe they have gotten just what they had hoped to see. Now we will see just how efficiently they can get back in!

I do not like paying taxes so I am very reluctant to sell my shares in companies where management is proving their worth by creating value for the shareholders. I have been around long enough to know that long term capital gains is the way to go and that I am financially better off, in the long run, holding the companies I want to own rather than thinking I can outfox both Uncle Sam and the market as well. In a bull market corrections are short and can be severe. I believe each passing day creates more reasons to be exposed to the precious metals markets not less! The possibility exists that these markets could turn and begin to move up just as easily as they have come down. If this scenario begins to develop we could see panic on the buy side from these investors who begin to realize the train is about to leave the station without them being on board.

This is not the first time we have had a correction in the precious metals bull market and it seems to me that not only did we survive prior corrections but following these corrections we rebounded to new highs. This time will be no different. If you are like me you recognize that we are invested in the precious metals, natural resource and base metals industries because these are the only investments that make sense in the world today! Like I have said; corrections can be no fun but in the end corrections are THE PAUSE THAT REFRESHES!

For those of you who are interested in the stocks I own you can sign up for my free e-mail updates on the stocks I own by clicking on my e-mail address below and asking to be added to the list.

Mike

402-483-4484
mhoy@neb.rr.com