by Alexander Trigaux, Editor, GoldSilver
World-beating investments are made with sweaty palms, gritted teeth, and through a serious twinge of crippling nausea.
Looking at historical charts is both informative and misleading. Static in their stately, frozen-in-time way, past market crash chaos is presented in a frozen snapshot, absent the blood-in-the-streets, fight-or-flight mania that accompanied it.
Whether or not you are conscious of it, your brain is sizing up these charts and telling you one thing: “I could have seen it coming. It’s pretty obvious in retrospect. So this time, I’ll just wait for the bottom, then buy.”
A siren song. An utter fiction. A simple, rote impossibility.
Exact market bottoms are forged in a maelstrom of a thousand different entropic factors. For example, on the one hand, emotional investor fear-selling reaches a wild crescendo, while on the other, the unblinking and emotionless algorithms that trigger margin liquidation eviscerate over-leveraged portfolios at the lows.
We forget, so fast. At the time, our brains were screaming at us: “Whatever you do, do not buy! Everything has plummeted for days and will continue to plummet for days! Or weeks! OR MAYBE FOREVER!”
It’s not willful, it’s chemical. What’s one of the human behaviors that displays the most similar greed/fear chemical response in the brain (you know, the ones that push you to buy high and sell low) that investing does? The one that makes you heedless of risk, makes you throw good money after bad, and chase, chase, chase those already-in-the-past outsized risk-asset returns?
I don’t need to convince you not to invest while you’re high. But it can be more difficult (and here’s where ‘willful’ comes in) to fully appreciate how it is in your best interest to do exactly the opposite of whatever your emotions are telling you to do when you invest.
You have an extremely sensitive built-in marketing timing device in your head. It just works exactly opposite of how you think it should.
Right now, gold and silver are an exquisite torture chamber of both sharply falling prices and medium-term, channel-bound price depression. Investing in either one feels like adding one more stone to your already-heavily-weighted pockets as you wade into the ocean. Pointlessly self-injurious at best. Downright financially suicidal at worst.
“And look over there at all the people riding the Cyclone! So effortless! So simple and fun! It just goes higher and higher! Why am I doing this to myself?”
This basic chart is why:
After The Great Recession, in August 2011 if you sold a single share of the S&P 500, you could only buy 0.67 ounces of gold. Stock market fear was high. Investors were willing to pay a steep premium for the safety and security of gold. Stocks were scary and bad!
Fear dictated their investment behavior. They sold stocks low and bought gold high. Bad trade.
Fast forward to today. If you sell a single share of the S&P 500, you can buy 2.3 ounces of gold. The very same single share of the S&P 500 now buys you 3.4 times as much gold.
It’s the exact opposite of August 2011. Stock market complacency is high. Investors deeply undervalue the safety and security of gold, and continue to chase extreme high-risk euphoria at any cost. “Stocks are awesome and always will be!” is the mental mantra in the head of the average investor right now.
They’re wrong. And you’re not the average investor.
Feel the sweat. Grit the teeth. See the data. Know the history.
Let the stomach-turning revulsion pour over you.
Maybe shake your head a little at how incredibly obvious the opportunity is, yet how counterintuitively you have to behave vs. your emotions in order to take advantage of it.
Feelings are not reality. Once you mentally turn that watershed corner every great long-term investor must, celebrate by making a super-savvy, fundamentals-driven, emotions-as-opposite-indicator buy.