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We
believe in investing in long term bull market trends. To illustrate this
point consider the following. In theory, with only two trades and two and a
half long term trends, an individual could have turned only $10,000 into more
than $47.6 million dollars.
 
The
above chart helps illustrate the power of identifying a long term trend when
it comes to building wealth. However, the following arguments could be made
in regards to the above chart.
- The
chart does not consider taxes paid or other investing fees.
- Hindsight
is 20/20. We can't expect to pick the perfect day to trade.
- We
don't all have 30 years to invest.
Let us
address these comments individually:
- The
chart does not consider taxes paid or other investing fees.
The simple illustration above does not consider some costs such as taxes
paid or trading costs, but it also does not consider the benefits of
dividends from stocks or mining equities within a mutual fund. To
clearly illustrate our point we wanted to keep the math very simple and
easy to understand so we left out external considerations that both
increase and decrease the end number.
- Hindsight
is 20/20. We can't expect to pick the perfect day to trade.
The above chart uses monthly price data and the profit would be larger
if we had picked the perfect intra-month day to trade. Additionally we
recognize that we cannot pick the ideal day, week or month to trade all
of our capital from one investment to another. However, it may be
reasonable to attempt to "dollar-cost-average" into positions
over time near a perceived bottom, and "dollar-cost-average"
out of a position near a perceived top. We do not expect perfect results
but instead we try to locate multi decade bull markets and avoid multi
decade bear markets.
- We
don't all have 30 years to invest.
This is a valid statement as many individuals may not live long enough
to invest for 30 years. However, the above chart was meant to illustrate
the power of the mega trends so we only used a modest initial investment
of $10,000. Over a lifetime, investors will most likely invest more
capital than $10,000, and that would increase their profit potential
within a shorter period of time. Additionally, we try to identify
intermediate term moves within the long term trends to help us identify
lower risk entry and exit points within the mega trend. Our goal here is
to maximize our profit potential from the major trend.
Basically,
in the above chart we are trying to illustrate the power of identifying long
term trends, investing in the bull markets, and avoiding the bear markets. In
our opinion short term trading is a very difficult and time consuming skill
to master. At the same time the indefinite "buy and hold" strategy
concerns us as investors ride multi decade long term bear markets.
Instead
of trying to guess what will happen day to day and moment to moment, we want
to identify the major bull market trend in the markets. When we backup and
look at the large macro moves, the smaller fluctuations seem rather trivial.
Imagine if you could build significant wealth and spend more time focusing on
your career, relaxing and enjoying your family. Imagine if you simplified
your investment decisions instead of spending many hours of your day in front
of a computer screen making various short term decisions.
So how
about now? Commodities are doing great! Silver is up to about $36 from a low
of around $4 in the early 2000's. You can't lose by putting your money in
commodities right? Wrong. Although we think precious metals are eventually
going much higher we are careful not to forget about the intermediate down
turns that all markets go through.
We get
nervous when investing in one asset class or another gets "too
easy." Silver, gold and commodities in general have been
"spiking" in price. Most people would agree that government money
printing can only cause precious metals to rise further. In our opinion, this
seems too obvious to be right from an intermediate term perspective.
Additionally, the media has been focusing ever more attention on precious
metals as they climb to new highs. In recent months we have seen three
different instances of characters on reality TV shows "hunting for
precious metals". We are aware of at least one reality TV show solely
based on gold mining. Where was the media attention on precious metals in the
90's or early 2000's, when they were hitting lows? In our opinion, the time
to buy any investment is when it is out of the spotlight and on
"sale".
We
suggest that when the market appears to be too obvious and too easy to
predict because it continues to advance in one direction, it often means that
a turn in the opposite direction is nearing.
Are we
long term bullish on precious metals and commodities? You bet. In fact, we
are probably more bullish than most. However, in the excitement of the
current bull market move we are preparing for the new trend that will arrive
sooner or later.
Michael Kilbach
Editor
Investmentscore.com
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