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| Preoccupation with the Short-Term |
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. . . If the past two weeks and recent
days are any indication, it looks as if trying to predict
the gold market will again be a serious miscue.
I raise the issue because it is anecdotal evidence
such as this that is music to my ears, for one simple reason:
when even the believers don’t believe, you know it’s
early in the cycle. Some investors, it is clear, are masterful
money managers; if that description fits them, chances are
that they have done some judicious trading along the way,
harvesting gains in high-priced stocks, seeking leverage in
lower priced shares, managing risk, and letting profits run.
Others, it is equally clear, are trading themselves right
onto the sidelines, which is not where one wishes to be in
a gold bull market. They find themselves in the rather awkward
position of being bullish on gold’s fundamentals, but
praying for a decline in gold, one that will allow them to
re-enter a market about which they have made a bad short-term
call. In my experience, most of these re-entries will occur
at significant premiums to the price at which a stock has
been sold. . . [For example], earlier in the week one subscriber
described himself to me as a long-term investor, and in the
next breath told me that he has been in and out of Nevsun
three times in the past couple of months. He had small profits
to show for each trade, but considering the commissions, the
wear and tear on his psyche, the risk of not owning it at
the right time (last week being a good example), and the obvious
advantage to allowing a winning stock to win, I politely suggested
he try to square his “long-term” approach with
his decidedly short-term behavior.
At the risk of being redundant…
The widespread preoccupation on the short-term,
in a market that is showing all signs of having a long-term
run, is a common problem that I concede to have beaten to
death of late. My comments in New Orleans on this subject
clearly struck a chord among many in attendance, with at least
a dozen people later telling me, “You’re right,
watching the market so closely is only costing me money.”
My bell-ringing conversations of this week, with people who
are letting their views on the gold price dictate their approach
to gold stocks, would be better served acting on their gold
opinions in the commodity pits. As for their gold stock portfolios,
they are better put on cruise control, subject to adjustment,
but not to exiting based on personal views of the next direction
of the gold price. (I’m not really advocating commodity
trading, just noting that segregating one’s short-term
views on gold from their gold share portfolios might be a
sounder strategy than acting on the latter because of one’s
views on the former.)
As long as we’re on the subject
of gold, it’s probably worth noting that Wednesday’s
close represented the yellow metal’s highest close in
seven years, and that the battle to clear $400 continues to
be waged. With many stocks having outpaced the metal, the
shares continued advance in the near-term is highly dependent
on gold not suffering anything that could be termed a meaningful
setback. While I can find much less that I want to purchase
or suggest you do so at current prices, a sustained advance
over $400 is going to change the entire character of this
market. Rather than claiming any omniscience or expertise
in the market timing of gold, my advice is to remain focused
on individual stocks, their relative valuations, prospects
for news, and their likely ability to gain and hold an audience.
If gold is going to clear $400 on the current run, which is
my leaning, my advice in the wake of that event will be to
use the opportunity to harvest partial gains in some stocks—not
because they won’t go higher, but rather because some
of you have substantial profits in many of them. I want to
do any profit-taking in my portfolio only during manic runups
in gold, not on days when people are questioning whether gold
is ever going to get over $400. That, of course, is when people
should be spending their gold investment dollars.
(November 14, 2003)
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