Pay Attention!

We are investors: Seeking value, not growth, safety and then return. We want to own stocks for return but their safety remains challenged. We would own bonds, but their yields are far from attractive. We would gladly buy real estate, were we to find property but find few with reasonable returns without the need for appreciation.

So we are left with gold and silver. Precious metal that is dug out of the ground and passed around as indestructible money until someone needs them for industrial uses. Oh, we love stocks, and they offer great opportunities for profit as Graham, Buffett and Lynch has shown us. But Buffett amassed most his fortune in the 50s and 80s. A time when neither deeply undervalued companies or cautious investors were hard to find. Commodities were the game of town, where the big money was.

But how do we define sentiment? How do we know when we’ve reached rock bottom? One word: Expectation.

1. The Media
Look around. Ask a freind, a neighboor, your broker, the news. What do they suggest. If there are no more sellers, then people must become buyers or perish. So too when there are no buyers, sellers must show up.

The media has always been a solid indicator of what not to do. Think of it as a direct opposite. If they say buy, you can consider selling. If they say “BUY!!!”, you can be certain 100% that such times call for a full delusion of your portfolio. This is because the media is much like a lagging indicator. It projects what people are doing and what people want to hear. Not what may be true is some months time.

2. Gold Replay
Pay close attention to Gold, very close attention. Why? Because what we witnessed in the precious metals over the past few weeks is a microcosm of what will occur in shares over the next few years.

Word caught on that gold was the place to be. Even one millionaire called me and told me to get into gold. I smiled. In almost perfect correlation to Wall Street’s interest gold swooned down 10%. Traders held on tight. “It will rebound!” they said. “We’ll be back at $1,000 in weeks!”. No can do. Gold took another big dive to 890. “This is it! It’s a value opprtunity! Buy with both hands!”. It fell again to 840. “Buy, Buy, Buy! The short sellers will perish!”. Gold fell yet again this time below 800. There was some hope as traders gobbled up pieces of the carnage. By now most traders were closed out due to margin calls. But after sessions took gold below 800 once again there was only one response, even from the most admant of pundits: Silence. If we would have known better, and now we do, we could have called it right then and there – a bottom.

It couldn’t have been any more obvious. Manipulations, margin calls, panic selling, whatever have you… there was simply no one left who had to sell.

This is exactly what will happen in stocks. Anxiety, Denial, Fear, Desperation, Panic, Capitulation, Despondency. When even the most bullish come to question their senses. Think 1974’s article “Is there a bottom?” or 1980’s Businessweek cover “The death of equities”. We also recall all those Dow 3,000 callers in 1997, which resurfacing again in 2003. I bet they’ll be back, stronger than ever.

An Investor’s Glee
The money is made when you know that you’re getting a killing for the price you’re paying. Not just a good return but a killing. You buy gold at 560 after it hit 710. You buy stocks at 60% below what they sold for in 2000. You buy a Dollar for 50 cents.

What I can’t believe is how many people are still insistent on holding stocks and how few are suggesting even a remote interest in precious metals. I guess it only after gold also seems to work with a buy and hold strategy and the only assets in the black are refined in red, when people will begin to get the gist of things.

Remember, how you felt about gold just one week ago. When stock brokers are feeling the same way, make sure equities are on the top of your To Do list!

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