Last week Trader Dan made a post on cults and precious metals websites. He went on to point out many cultish similarities with the TFMR site in particular, as a criticism of the advice to buy and hold PMs during a prolonged bear market in same.
The comments which followed his post were interesting, and many came from ex TFMR active members.
Now I’ll bet that there are several who wish I was not choosing this particular subject as my topic for today ( Turd's not one of them BTW). You see, there really are a small group of people who post at TFMR for whom I agree with Trader Dan that his criticism does apply. But there are a lot of others to whom I think it doesn’t apply. That would be the majority by far.
Does it apply to Turd? I will say this: Turd espouses a buy and hold PMs as a bet against the debt, and he took a big one on the chin during the last 16 months as the 2012 rally turned out to be a bear market rally which was retraced to the downside, and more. Nobody's perfect.
I must say that I do not know what Mr Norcini was suggesting as his own readers' trades in PMs during the same period, and whether this turned out well or adversely, as I only look into his site every now and again. I have no desire to go back to check as it would not add anything to my own skills or expectations. So I will say this is not about Dan, not a criticism of Dan who has his reasons and own forum to look after. Nor is this intended to refute Dan’s comments, but to add my 10 cents.
I raise this point: if buying to trade - it is illogical and costly to hold when the market goes against one’s position. Get out fast, and try again to buy later and lower, and hope that works better that time than this time. Basic trading 101. And that would be Trader Dan’s timeframe, and mode of business I expect.
But what about the core stash which is in physical? This is not practical to buy, and sell, and buy back again many times, taking wide margins on the chin each time. Churning physical holdings is not practical or wise. So what if an averaging in process is done, buying regularly and regardless of the market price on any given day? It's not my way to do things I assure readers, but there are many out there, who advise such a strategy with eg Exxon, Coke, and other blue chips, and gold while it does not pay a dividend is a sort of “blue chip” I suggest. Like blue chip stocks, Gold comes back over time.
Now if one buys at the top, and gold then begins to decline for a year and a half, and “say” it takes a year and a half to make a comeback before moving onwards to new highs, then what? There is an opportunity cost incurred, because if the money was invested in TBonds instead, a loss of interest would follow during the gold holding period. Aaah, but interest rates are on the floor now. Not much loss there so.
The next problem is that there is opportunity cost by buying gold high, presumeably on the averaging cost basis with money which could have been alternatively employed in buying stocks which are rising over the period gold was falling.
But I feel it needs saying that if I were to give up buying at lows and instead choose to average cost buy my assets, then I would be averaging into gold, and at the exact same time I would be averaging into bonds, commodities, TBills and stocks too! One half goes up while the other half goes down, it’s a balanced portfolio. So what’s the problem, so long as one does not sell at lows after averaging in at every price? So long as one does not divest at lows, averaging in works in any inflation proofed asset which returns to fashion later.
So it is clear that the greatest losses were suffered by those who bought and held at a high of 2011 or 2012. They had to buy overweight. They had to have no counter balancing asset to move in a contrary fashion to act as a hedge. In short they had to believe the world was going to end or near, and that right soon after their purchase. That was the setup belief system for the greatest losers in the recent or current PM bear market. Oh yes, another thing: they also probably leveraged up to the eyeballs too. After all “the world was going to end. Gold is tame, deal in silver. Silver is not volatile enough, go for the mining stocks and get 5x leverage to silver”. Or options ....
Unfortunately the world did not end, and it’s not about to. And even if empires are to fall, those things take decades if not lifetimes to work their way out. And this is not rocket science.
Now I mentioned near the start of this article that there are some who will wish I didn’t bring this up. I really wish those readers will please consider the paragraph above this carefully. Prepping is all very well. But aliens arriving tomorrow, nuclear detonations in the backyard, and the implosion of the entire western financial system in a week – these are not items on my list of immediate concerns – and the sources who these people quote, and to be fair and totally clear about this, Turd is not who I have in mind here, they are purveying far out terror porn. Like Dan I will not mention names but the alt media has an oversupply of wacky far out doomsters that do not help people all that much, and that's putting it mildly.
But I like TFMR which has only a small clique of over the top doomsters, and they are not on my ignore list. I want to see the latest shout of coming annihilation or whatever, just so I can reconsider my own premise and scenarios. Every “source” has a track record of success or failure. Every source’s track record is going to improve or disimprove over time. It is good to remember that and take it into account. Many people are wiser now than they were a couple of years ago. I posit that trading in the stock market would teach the same lessons over time as the PM market has taught in the past 16 months, or 3 years depending on entry date for buy and hold long positions.
But here is the big deal. To buy physical, it is not a good idea (in my humble opinion) to average in, despite the many voices who advise this. Dan does not address this point as he buys and sells.
So with an illiquid asset like physical PMs, which has high transaction cost, what is best to do? Simply put, it to do the majority of buying after a substantial decline, and then hold for the long term and amortize the high transaction costs over time. This works for Coke, Exxon, and Gold. It is tried and tested with the other great but even more illiquid asset – I mean land. We all know this.
And the people who got hurt knew that all the time. Deep down inside they knew it. What made them disregard it was a fear to miss out on the imminent end of the world. They bought into the doom alt media and disregarded reality and the inherent stability of even declining systems and structures.
Many months ago I posted a blog article making the case that the Dollar is an institution and wasn’t going away, overnight, or in a very long time, which goes to the heart of this matter. That blog article was posted here at TFMR in August 2013:
In October 2013 I posted this article about groupthink in internet fora and websites. :
Those are just examples that come to mind at the moment. Of course I was not contributing at TFMR in 2011, but started early 2013.
So did Dan bring anything new to the table not discussed before? Not to me, given I've already raised these issues at TFMR, but possibly for some other readers. But I enjoyed his article, and considered all the arguments again to see if anything had changed since I last thought about those issues. He was correct in that there are a few who round on anyone who criticizes Turd to protect, which is unnecessary as Turd is well able to speak for himself. I do think these members constitute a "cultish" force at TFMR, and wish they wouldn't do that, but because they are relatively few they don't stop discourse between the rest, who do what we all do, and pay more attention to some than others.
I was happy enough for SRoche to bring the article to my attention, and felt no need to blindly attack or deny anything. I just saw more fresh information, so I read it, and assimilated it (like the Borg!), and hopefully my judgment gets better for that.
If a silver round has the host's image on it, and it's low cost silver, the price is what matters, and the rest is a bit of fun. ASEs are nice but expensive and weigh one ounce too. It's the buyer's choice, as in everything else. I have some ASEs and some Turd rounds.
For the record my average cost of PMs is located a tiny bit above the current trading range high for the metals. No transactions, just buy and hold. Buy as wisely as possible as it's a single shot transaction which requires great care. If they go down more, I’ll buy more at the extreme low if I can identify it. That is how long term accumulation of illiquid assets gets done in the real world.
Dan mentioned about providing information for free as a test, and trading for a living. A bit disengenuous, since not many have what it takes to be a successful trader. Should all traders open a free blog? Rhetorical only, reply not required obviously.
But my blog is here and that part is free, so I do my bit. I hope it's not considered "free internet BS", as I put a lot of care and thought into it, and hopefully readers get value from it. But if someone can't see the value in it, I'm not bothered and have no worries about quality control.
But I as well as everybody else have my good days and worse days, so like the Curate's Egg, it's good in parts!
There are many varied voices at TFMR, both measured and more urgent, often in opposition to one another, but sometimes in accord, discussing a myriad of issues. A lot more than just trading I would add. Readers are free to pick and choose from the many views put forth on this website.
The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmNPrice.