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The Big Lesson You Must Learn from Gold TodayBy
Thursday, June 27, 2013
"I sold my gold," a family member told me a couple weeks ago.
"We probably sold at the bottom," he told me. "But we sold."
He was dejected when he told me this... as if he should have sold closer to the peak in gold. But who knows when the peak is?
I was proud of him... He limited his loss. That is the right thing to do... especially since he is retired.
So far, selling back then looks like a brilliant move... Gold has been in free fall in recent weeks. It's down from $1,400 an ounce in early June to $1,275 an ounce today.
These days, when I see the price of gold, I remind myself of this life-changing investing quote from legendary investor Jim Rogers: Markets often rise higher than you think is possible... and fall lower than you can possibly imagine.
When I first read that in the book Market Wizards over 20 years ago, I didn't believe it. I didn't get it. But since then, it's proven to be right over, and over, and over again...
And I always keep that quote in mind...
That's why I sold gold much earlier than my family member. In my True Wealth Systems letter, we sold our two remaining gold plays on January 2. We were down 2% and 7%, respectively. I didn't want to sell... but I had to...
When we sold those two positions in True Wealth Systems, I was dejected like my family member was... Even though I know losing small battles is part of winning the war, I hate it when my readers take a loss from following my advice.
And in my True Wealth letter, we don't own any gold stocks or funds, or even any gold bullion. (All we have is one semi-rare gold coin.)
We sold our last gold stock in True Wealth months ago – we hit our trailing stop on it. Again, I hated taking a small loss... In hindsight, cutting those losses early is the best thing we could have done.
I personally believe that gold stocks are ridiculously cheap... But I have been patient...
Gold stocks have been in free-fall. But I haven't tried to catch that falling knife. I hear Jim Rogers' voice in my head... and I sit on my hands. Markets often rise higher than you think is possible... and fall lower than you can possibly imagine.
The big lesson today from gold is that Jim Rogers' advice from 20 years ago was exactly right.
Don't ever forget it – for gold or anything else – and don't ever catch yourself saying "but it can't fall any more..."
It can...
I very much look forward to buying gold and gold stocks again... some day... once the carnage is over. But that day isn't here yet.
Good investing,
Steve
Editor's note: Jeff Clark also shared his take on the gold-stock sector this morning. He agrees with Steve that more downside is possible. But he's watching out for a "violent rally" sometime in the next few months. Read his full argument in Growth Stock Wire right here.
Further Reading:
"We love to sell our winners too soon and ride our losers too long," Dr. David 'Doc' Eifrig writes. "It's a nearly universal impulse... but a terrible investing choice." So how do you know when to cut your losers short? Doc says the strategy for selling is "determined by why you bought in the first place." Get all the details on Doc's strategy here.
Another way to protect yourself from losses in the stock market is through position sizing. Position sizing tells you exactly how much money to put in a given trade. And "if you don't know the basics of this concept, it's unlikely you'll ever succeed in the market," Editor in Chief Brian Hunt says. Fortunately, it's an easy concept to grasp. Find out how to use position sizing in your own trades in our interview with Brian here.
Market NotesTWELVE YEARS AND DONE: GOLD'S STREAK IS OVER It's been an incredible run... but gold's 12-year streak of price gains will end in 2013.
Longtime readers know that we've been outspoken bulls on gold since we started publishing DailyWealth in 2005. (We were gold owners and gold bulls years before that.) Since then, we've published hundreds of essays on the right ways to own it. We even published a book on the stuff. We own gold and hope to never have to use it.
But even we were surprised to see gold register 12 straight years of gains. No widely traded asset of the past 100 years has registered that many consecutive winning years. After such a stupendous run, it was only reasonable to expect a big gold correction.
As you can see from the chart below, that's what is taking place. Gold reached a peak of $1,900 an ounce in 2011. Since that peak, gold has worked its way below $1,300 an ounce. It's so far below the price it started this year at (around $1,675) that we feel comfortable saying this streak is over. Done. Kaput.
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