Insanity
and Madness in the Market Always
this same morbid interest in other people and their doings, their
privacies, their dirty linen, always this air of alertness for
personal happenings, personalities, personalities, personalities.
Always this subtle criticism and appraisal of other people, this
analysis of other people's motives. If anatomy presupposes a
corpse, then psychology presupposes a world of corpses. Personalities,
which mean personal criticism and analysis, presuppose a whole
world laboratory of human psyches waiting to be vivisected. If
you cut a thing up, of course it will smell. Hence, nothing raises
such an infernal stink, at last, as human psychology. Our reason for entering the market is to simply make as much money as possible or as much money we think is necessary for us to sit down and take it easy for the rest of our life’s. We usually look for some financial advisory service to usually help us in our quest. However we are not patient, we want these gains fast, we do not realize the principle of easy come, easier go at all. Let's take the Mkt Update service as an example; I did this example around Feb 2003 or so, when our indicators issued a very strong buy on Gold. The service costs approx $600 a year. Not cheap by any standards, but neither is it extremely pricey when compared to some services that charge upwards of 5K a year. There are quarterly discounts too. What am I am trying to get at here is that most of us feel that even if we pay $20 a month we should be getting trades all the time, that we should be doing something so that we can get to our so-called retirement target even faster. Not once do we take the time to think that staying in cash is actually a position and that it takes great discipline for a service to slowly issue less plays or sometimes issue no plays. Lets take this one more step further. We will pay anywhere from $20-500 a month for a service and yet when they make just one recommendation we will invest $500 plus per play (some of us will put thousands of dollars into this one recommendation.) Now, look at the idiocy here. We are unhappy if the service is not constantly issuing new plays, so in a way we have made it known in the financial arena that issuing as many plays as possible is a good thing and the way to go. Now what happens if this stock crashes? In only one play we have almost lost a years worth or more of a subscription service and if we lose in two plays we have lost 2 plus years worth of subscription services. We never stop to think that if no news plays are issued that it's perhaps because the market situation is very volatile and that all we stand to lose is between $20-500 (500 being a very extreme figure) A more accurate figure would be 20-80 a month). I am not trying to say we will not issue new plays, I am trying to illustrate the principle and virtues of patience as opposed to the virtues of greed, and the must have it all and save a penny to lose a pound principles. Those that try to squeeze money out of nowhere usually end being crushed like an orange and sucked dry. Our desperation and greed to make money as fast a possible leads us to make many a stupid mistake. If we were just a little more patient none would have been committed or at the worst they would have reduced by a factor of 80% or more. Going one step further, we will use the Market Update in this example. To date we have never had a losing year. And almost every year like clockwork we have had several 100% plus gainers. We have already had some this year. So lets take a very unlikely scenario, lets assume for 5-6 months we sit down and do nothing but nibble here and there and our portfolio has not gone up much (to date we have never had such a situation). Six months later we are out $300 dollars and we are starting to question the brains and logic behind this type of thinking. Now how many people would have bothered to say, "let's look around and take a look to see what is happening." If they did this, they might have seen that the market was in an extremely volatile time period and if they asked around they might have seen that many investors had actually lost money. If looked from this angle suddenly one's position is not bad, because you are only out $300 odd dollars instead of several thousand. Then what happens if suddenly from the 6 month onwards your portfolio starts to rocket and you end the year up 30-50%, was it worth waiting for this? You answer that question. Now lets finish of with reality. From Nov 2002 to about April 2003, we were buying nothing but gold and silver, the updates dealt with noting else but metals. One would have almost thought we were gold bugs at that point in time. And our portfolios did not remain unchanged, instead they took a beating initially, but we kept recommending Gold. At one point in time I remember the test portfolio I was keeping was down almost 30% so we initially felt extreme acid. This portfolio had a few speculative plays so the move was more drastic here. To make a long story short there are plays in this portfolio that are up 600% plus from their entry price and the average gain is I think somewhere in the 80% range. Now did patience pay or not? I think it did. We kept buying Gold, Silver, and some diamond producing companies etc because this sector was hated with a passion and the cycles were extremely oversold. This example is no way being done to say the Market Update is the Holy Grail or to pump our services. It is being done to explain the reality of the situation. I had warned many times last year and this year that everyone should not get spoiled by the super fast fat gains we were making, that there would be a time when pickings would be harder to come by. It’s the natural market cycle and in order to survive you need to be able to sit through each phase of these cycles. I also warned that we were entering a more volatile time period in the markets. This time period is going to be such that most likely in the initial stages it is going to kill the bears and the bulls at the same time. Due to the fact that the market has no very short term focused direction. The next stage could then either be serious resumption of the so-called bull or a correction that could be severe enough to be mistaken for the big one. If this correction does transpire it will make a few bears temporarily fat and drive many a bull close to insanity. However, when the bears least expect it they will be massacred by the thousands as every penny they made and 100 more are sucked from their fattened corpses till they are bled dry. And the bulls will cry to the wee hours of the morning for selling their long positions at the precise bottom of this correction. By the way, we do not have any indication that a correction is definitely going to occur. I am just talking about a possible scenario. This is the pain stage, this is the stage where you have to face your fears, this is the stage where you might be prompted to ask yourself what the hell am I doing in the market and what side of the market do I play? We are at a juncture where jumping from side to side is simply going to result in quick death. There are only two decisions to be made currently: 1. Stay bullish, as the crowds are getting slightly nervous or 2. Stay out of the markets till this period of volatility and indecisiveness passes us by. Now do this final test. All of us old enough and I think doing well enough to say that we have at the very minimum 10K set aside for investing and have had this 10K at our disposal say for at least 5 years or so. I know subscribers who have had millions for years or so, but we are not dealing with the exceptions, but rather trying to get an average. I am also purposely taking the very low end of such an average. All of us want these big huge gains, and all of us think or claim we know how to invest. Well this simple test should reveal something. Instead of taking the Market Update gains, which far surpass our more conservative Mutual Fund Timer service, we will use the average gains of the Mutual Fund Timer service. We have averaged 25% plus for the last 5 years or so. For more than half that time period we were just a private service not dealing with the public at all. Last year we did 28,5% or so and if we keep at the level we are at now we will exceed the 30% mark very fast this year. But let's use 25%. In reality this is not so hard to do. What makes most of us lose is our impatience to hold onto our gains and believe that we have to keep churning the money from one investment to another. 10k invested at that rate compounded for 5 years would yield the following: $30,500. That means you have tripled your portfolio. Now ask yourself this question How many of you can say that you have tripled your portfolio in 5 years? Go look at your portfolio and perform this calculation, perhaps you might have even been up momentarily as much 400% at one point in time, but greed and desire to keep your money moving resulted you in losing it and then some. Notice how this slow, quiet conservative service that most really don’t care for supercharged ones portfolio! It's funny that people are still cramming and begging for the OEX option timer service. We certainly do deserve to lose because we look for losing solutions to our problems with extreme precision and with dedication. There is no creature that goes out of its way as much as humans will do in order to try to lose, and to guarantee that the outcome will be nothing but negative. Take this even step further. Say you added just $50 or $100 a month to this investment, $50 a month bring it up to 36K plus $100 a month extra brings it up to $41,600. Now it's very easy to assume that most of you actually have $20k plus. Now look at the portfolio rocket. Don’t get me wrong. There are many variables here and we are assuming that someone joined at the beginning of the year and then invested in every recommendation. The point is not to fixate on 200% gains only. The point I am trying to illustrate is how patience and taking a stress free approach actually not only aided you by keeping your body and mind healthy and young but also keep your portfolio in a very healthy state. Look at this simple goal of trying to make 25% a year actually resulted in such a turbocharged gains when compounded. Can you imagine if you could just keep making 25% a year and being satisfied with it? How many times have we actually seen our portfolio go up between 20-40% and even more a year? But instead of taking time out and cashing in, what do we do? We get greedy. We look for the next big one, we must find it! The thought behind the process is if I made 20-40% and I still have 6 months left, imagine how much I can make by the end of the year. We never stop to say, hey dam it imagine how much I could lose. I have the 20-40%. Let me cash it in and fly away and do nothing for a few weeks or months if you can afford it. Use that time to read, and relax. Then you can finally decide in a relaxed and fully refreshed mind what your next step should be. My main point is here is losers will always lose and winners will take everything from the losers and more. We were not created equally. That's why idiots were made to show us what happens to those that stop thinking. Live and think like an idiot and you will be bled and sucked dry like one. The stock market is unforgiving and cares not for your disposition. Cry a little and you will be made to weep till your tear bags are dry. Beg for help and you will be trampled upon mercilessly. Drown in self-pity and you will never see the light of day. But stand up like a man or woman, accept responsibility for the mistakes you have made, and deal with your greed issues. Have fixed goals set for the year (do not keep changing them.) Plan, yes plan on how you intend to spend this money and most of all, never forget to take some of this worthless money and give yourself a beautiful relaxing vacation. And never leave your home; no I know you want to say, without your American Express card. No, never leave your home without several good books, doing that is an unforgivable act. You must always, always feed that wonderful organ that we call the brain. Then it won’t be a matter of if you succeed but simply a question of when. This is another reason we keep stating that investing is a way of life and not just a means to riches. 90% of the world must (listen once again to what we are saying) must not might but must and will lose. They will lose not only in the investment area but they will lose in every aspect of their lives. They have chosen to believe the garbage out there, that we cannot take control of our greed pain and pleasure desires. The most important aspect we need to control is the greed component. It is very closely attached to the secretly wanting to lose desire that has been programmed into most of us. You will notice that losers have a great time when they hang out together, hence the saying, "Misery Loves Company." Why don’t we have the saying happiness loves company or winners love company? Sadly, there are not too many winners or happy people out there. That is why you should be very careful what you wish. Your biggest punishment might be that you actually get what you wished for and now you don’t know how to deal with it. Being a winner is not an easy task for you will not have many friends up there to share your joy. Therefore you have to learn how to love yourself and be happy with what you see in the mirror. For when you become a winner there is nowhere to run or hide and who you really are will be finally exposed. If you don’t like who you are, all the money in the world won’t help one bit. You will sink into the pits of depression and self-destruction. It's funny that we have organizations that represent every aspect of human failure. We have drug groups where one can sit and with others and talk about their painful mistakes, we have the AA for those that let the bottle get control. We have groups for people that lost their shirts and pants in the stock markets. We have groups for people that cannot find a job and are depressed, then we have groups for people who are depressed for the sake of being depressed and the list goes on and on. Now, how often do you see a group called the winner's circle. Ladies and gentlemen, we are looking for winners or individuals that have made something out of their lives, who have been in extremely trying situations and found a way to turn them around. If these groups exist they are far and wide and their memberships are very low. Once when I was very naïve and full of hope (I did not know that hope at that time was an affliction to avoid like the plague, since hoping gets you noting but the opposite of what you hoped you would get.) I tried to set up such a group. To say it was a simple failure would be a pleasure. It was a screaming failure. I won’t go into the details of my experiment, but one good thing did emerge from this so-called negative experience. I learned to like myself more and understand who I was and what I wanted in life and it helped me become happy with myself. Therefore, I am now able to spend extended periods of time all alone because I don’t feel alone if I am a stranger in a new place and don’t know anyone. I am just as happy being alone as I am spending time with a group of people. Okay we will carry on this topic in another update. Let's finish with my sentiment report from Florida. I did not post all the details before because some friends were still collecting data for me. We spoke to a total of 500 people or so. First of the all, the state of things is simply terrible. I had no idea that we had gone to such an insane state, where common sense is really not so common anymore. I think it's time we changed the term to uncommon sense. Because common sense does not exist anymore only common madness and its in abundant supply. In total we have responses from 500 people counting the ones that my friends helped me with. 200 or so are individuals that fall into the 18-22 age group. When I looked at what these individuals aspire for, I was totally shocked. The main theme seems to be getting a job, then get a nice fast car, cell phone and have a great time. I found the most appropriate term for them currently would be to call them happy idiots. I kept running into individuals who had regular cars and who felt it was time to upgrade to Mustangs etc on their waitresses, or clerk salaries. Most of them had not even finished paying of their loans on their existing cars, but were all smiles when they spoke about the next car they wanted to buy. And yes they wanted to buy this car soon and trade the "junk" they were driving in. Mind you, these cars were not even 3 years old or so but they were being referred to as "junk." One individual really stuck to my mind. She was 22-year-old waitress. She was already driving a Mustang and paying through here nose in insurance charges, as she was under 25. And guess what she was looking to buy? A Corvette. I was pretty stunned. I asked why did she want to do that. Why not invest in the stock market or put that money aside for a rainy day? For a second I felt like I just learned a new foreign language and had forgotten to speak to her in English. The look she gave me was one of complete lack of comprehension, one that screamed out, Hey Dude, what's with you? Get with the dam program. Her response was a Corvette is cool, a Corvette is me and man, a Corvette is a fat car. Fat is slang for really good or cool. Some of you might get the impression that I am an old wise man. I am actually not that old, perhaps one day I will talk about my age. But like most things in this world, age is nothing but an illusion to try to justify your position in life. Age or maturity is seen as an open pass to state that they know more than anyone younger than themselves. It is interesting to note that it is not only wisdom that comes with age, but senility too and most people who think they are wise are actually closer to the senility arena than the wisdom arena. One sign that you met a wise person is when the person does not try at all to impress you and in most cases goes out of his or her way to state that they don’t really know that much. An empty can makes a very very loud noise. My small experiment simply tells me this nation has been sold lock, stock and barrel to the concept that it is good to have as many loans outstanding as possible and that credit is a word to be proud of. Saving, investing and looking for deal are not "in" and so those that do so, must be shunned. As far as Gold goes, the young generation knew nothing about it other than it is basically used in jewelry. When I informed that it had taken off from a low of $250 and was at that time in the $420 range, they seemed totally unfazed and not interested in this. Many of them actually said, "So what’s the big deal and how can I buy gold anyway and how would I sell it?" This attitude tells me that the pure Gold Bug is in la la land if they think this generation is going to get up and embrace Gold anytime soon; and for that matter, if anyone else in the other age groups that have embraced the credit principle as these youngsters have will not embrace gold either. The only time they will look at gold is when they go to the gas pump and find out that a gallon suddenly costs them $5, a loaf of bread $4, a gallon of milk $5 and the 99 cent menu’s in all the fast food places have vanished and are replaced with $3 dollar menus. Then these dazed cows will finally awaken. The only problem is will it be in 2004 or 2050. If it is 2050 I could care less if Gold goes to 100K an ounce. I heard that James Dines was stating that Gold was going to hit 5k. While it is possible that this situation transpires and I have stated that when the price of Gold takes off it will go to heights that no one could ever imagine. However, I feel that pumping this kind of information at this stage of the game is very unbecoming of anyone. In fact, I was disappointed when I saw a huge mailing being sent out by his company pumping the greed principle with this commodity bull market. In essence it stated we see gold hitting 5k! Can you imagine how much money you will lose if you don’t invest in it? My response is Gold could well hit 20K. The question is will you be alive to see it hit that price and in the end, time is all that matters. What time frame are they talking in, in our time frame or that of our grandchildren? Forget where Gold and Silver are headed. Just remember the trend is your friend and if the trend is up then don’t fight it and play it till it ends. Back to the sentiment studies... So let's break down all the data of 500 people:
What does this mean as far as Gold and Silver go and the other precious metals? I believe that Silver will lead the metals by a huge factor when we examine the returns on a % basis. In addition, silver is not only viewed as a currency but it is something that we use in our every day lives and we desperately need. There is a chronic shortage of the metal, which is being made up with reserve supplies and finally, It Is Much Cheaper To Buy and Hold as a safe hedge against inflation. Remember, people are CHEAP and cheapskates look for the easiest way to protect themselves. There is a reason why silver is referred to as the poor mans gold. The main reason being that people want to get the most for the least and Silver fits this principle perfectly. Gold will carry on being a good investment, but in reality it's only use is that of a currency and the problem here is convincing all the blind to accept it as currency. To convince the blind that Gold is a currency is more than just a monumental task; it is task that is almost impossible. Blind people do not get sight miraculously. They have to want to see and for the near foreseeable future they have no desire whatsoever to find the light. To make matters worse, they don’t think they are in darkness. No outcome in life is guaranteed other than the fact that we will all die one day and that we will never be free of idiots. When anyone guarantees you an outcome and it concerns money and you believe it, 9 out of 10 times the best thing you can do is to go to the nearest Home Depot and buy yourself and your friends the best shovel you can find. Then get a beer and start to dig your future-resting place. Investor sentiment as far as the Stock market is concerned. 55% thought the market will go up more but actually when pushed we found out that only 39% or so have actually taken a position to try to benefit from their so called perceptions. 45% fell into the bear and neutral category. Bears and neutrals are the same right now, as they have no clue as to what is going on. Like a broken clock they will be right sometime soon only to be proven wrong again. And finally when its time to be a true bear they will throw the towel in and sit and moan in self-pity. When pushed to see if they had taken any position, we found out that only about 35% had taken some position. So what do we have here? 39% or so of the bulls taking a position and about 35% of the bears taking a position. That leaves a whole 26% who are doing nothing but blabbering away. For all intents and purposes we can put the deaf with the blind since they both are lost. The blind being the bears and the deaf being the ones who have a lot to say but listen to nothing other than the roar of their voices. Combing these numbers and we come up with 61%, we can say for all intents and purposes that 61% are more or less bearish as the neutral are just to afraid to stand up and take a position. The number of individuals in the bullish camp has increased, so this means that we are now going to enter a period of volatility that will be further hampered by extreme levels of uncertainty. The question will be Direction. And no one can give you an answer during these times. We have to listen carefully to what the market is saying and then act on this information. Sometimes the market is stingy and gives you no clues for weeks on end. The market was made to make the few sane people insane and to make sure the insane never see the light of day. If you want to fall into the very small category of 1-2% of not only successful traders because we know 10% are successful, but sane and successful traders, learn to deal with your demons. Learn to understand that nothing comes easy, that you will and must lose every and now and then. This is, after all, the most rigged game in the world and in no other place are you guaranteed to lose with such precision and accuracy as when one jumps into the stock market. Understand that winning is also learning to understand that there is a time to win, a time to lose and a time to sit tight and do nothing absolutely positively nothing. While you are doing nothing as far as your money goes, read as much as you can and find out who you are and what it is you really want. Most of us don’t do this because we are scared of finding out our true selves. Fear is nothing but ones inability to deal with reality. And reality is nothing but the place where insanity and sanity converge. We could also suddenly enter the correction phase, which would actually be healthy for this market and gives us the real power we need to blast off and take out 11k. However, things never always work out the way they should and as of right now esoteric cycles are not fully clear as to where the market is heading so we are taking this as a sign that we will enter a stage where volatility levels will be above the norm. For those of you that are risk averse, right now is the time to enter the markets with caution. The last stage of the bull is the most rewarding but the most painful. There will be some stupendous gains but there will be some unreal pain. You have been fairly warned. Now decide on the level of poison you want to put in your system. And remember: Nothing that ever was worth anything in this world ever came easy. If it did, it was not worth anything to begin with in the first place. The first step to success is pain, the second step acceptance, the third step is patience and the forth step is huge gains. Hence the saying "No pain, No gain." Remember, failure is also a form of pain. Accept it, study where you erred and make sure you do not repeat it again. You will notice that I have been spending a lot of time in the last few weeks on psychology. Many of you wrote in and asking us to give you pointers on how to go about becoming better investors. And In case you have not gotten the point yet, psychology has probably more to do with investing than any other TA tool out there. So start asking yourself the question, Who am I? as soon as possible. And then ask the second question, Who are those people out there? And finally, What is it that I really want? The reality is this, if you have a problem answering any of these questions, then you are going to once again be donating a lot of blood to the sharks that are circling around you eagerly waiting. You cannot win if you do not know what wining entails and you cannot win if you have no target to aim. Making lots of money is the dumbest target one can have. Quantify it; how much you want and don’t just say I want a lot. Success is not guaranteed but failure is; and furthermore, it is a very easy Goal to achieve! One final thought: Until you can truly strip down to the bare essence what it is you really want you will not have won anything regardless of whether you have a million dollars in the bank or just 10 bucks. A winner is not defined by the amount of money he or she has, but by the fact that they are content with what they have and understand that in the end money is nothing but a tool. A tool can always be bought. Happiness, health, self-satisfaction are all beyond money. They all represent a state of mind. Heaven is a mind in peace and hell a mind in pieces. © 2004
Sol, Tactical Investor Contact Information Sol |
