It’s been said in investing, you can “insist on being RIGHT, or you can focus on making money.” It’s “gut-check time” yet again in the Precious Metals markets. And yes, I mean that quite literally.
Here’s the current context: Silver appears to be on the rise again after very recently testing its mid-April fall to $22ish (ignoring its mini-flash crash last week). Gold appears to be bouncing off a slightly higher low last week versus its mid-April low of $1325.
The big question on many people’s minds is how high can the PM’s run in the face of their own chart patterns, and perhaps more importantly the context of other risk-asset markets?
Following all the research and analysis I’ve down over the past few weeks, my personal opinion is that there is a little more upside in each of the PM’s over the next five to eight trading days, but that we are definitely NOT out of the woods yet. Two of my most reliable sources (Martin Armstrong and Charles Nenner) are being very clear that much more downside risk should show itself in the next two weeks or so.
That being the case, our recently purchased and SMALL PM-related positions have either been harvested, or have very tight stops under them. That’s just the nature of our investment style.
Of course, only time will tell if we have already made a meaningful bottom to rise from, or if there is still more downside left. Will they (and by extension will “I”) be right, or will we move higher from last week’s lows?
While most people are focused on the question noted above, this is a really great opportunity to re-assess your own appetite for risk and any biases that may be clouding your judgement. And the “elephant in the room” question is “Is your own ego getting in the way?”
Here are some questions for you to ponder:
- Is it more painful for you to a) admit you were wrong by selling at a loss, or b) for you to continue to lose money because you refuse to admit you were wrong?
- In the face of hard evidence (i.e. “Price”) that directly contradicts an investment thesis that you’ve fully committed to (by buying and then holding), do you tend to make excuses (e.g. “it’s manipulation!”) and/or change your intended time horizon for that particular position in order to avoid having to admit that your thesis is incorrect?
- Do you find yourself doing even more research to find additional sources that agree with your position so that your intellect (read: ego) gets soothed, thereby further entrenching your resolve to hold your current position?
- When you are faced with these types of financially and emotionally painful situations, do you do what most people do – go back into your head and try to re-gain perceived control over the situation via additional analysis?
The headline to this article makes reference to “gut-check time” specifically because we humans are so incredibly adept at being able to fool ourselves into believing the stories that constantly run through our heads. Unfortunately, developing complex intellectual narratives to explain – to ourselves and others - how and why we are “right” does NOT change the objective reality of PRICE patterns. This kind of stubbornness is yet another manifestation of the unhealthy parts of our personality, i.e. our ego.
So why do I refer literally to a “gut-check?” Our brains can fool us, but our bodies cannot lie. Here’s an extreme example: if you’ve ever had a near-death experience (e.g. in high-speed traffic), you can probably remember the physical sensations generated by your body in response to your fear. This is the electro-chemical reactions generated by your own hormones, in response to external sensory awareness (e.g. you saw a large oncoming truck veering into your lane). It’s an extreme example, but one which demonstrates beyond question how genuinely tuned-in our own body is with reality.
The risk of embarrassment from being wrong and/or experiencing financial loss generates similar – albeit less extreme – sensations, and these often manifest themselves - from just below the rib-cage in our solar-plexus and down as low as our naval…quite literally in our gut area. That knot in your gut is RARELY wrong.
Learning to pay attention to and actually trusting our own physical response to investment decision-making situations – and not relying solely on our “brain power” – is an important part of increasing self-awareness. It’s really learning to value and trust your own intuition, and that’s a pre-requisite to making more frequent profitable investment decisions.
This is all part of being much more mindful in everything we do…not just in investing.
Patience and Discipline are accretive to your wealth, health and happiness.
Andrew H. Ruhland, CFP, CIM
President, Integrated Wealth Management in Calgary and Portfolio Strategist with ETF Capital Management