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Preoccupation with the Short-Term

By Robert Bishop

For The Gold Report
November 2003

. . . 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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