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The financial markets have millions of people competing for
profitable trades but unfortunately their natural instinct gets in the way of
the final goal. Through evolution these investors are programmed to proceed
(buy stocks) when they are feeling confident and run (sell) when they are
scared. The result of this "basic instinct" mentality is the
classic, buy high and sell low, losing trade.
It is our opinion that the average investor falls into one of
the following two categories.
1. Apathetic, uninterested, do nothing, buy and hold indefinitely
2. Very active, interested, over trade, instant gratification
Is one of these you?
Apathetic, uninterested, do nothing, buy and hold indefinitely.
This investor typically has no interest in the topic of
investing yet naively believes that by following a few cookie cutter
principles they will outperform the market and retire comfortably. This
investor tends not to question an advisors motive or consider potential
conflicts of interests or even the source of their advice but generally
"follows the crowd." Their long term investment decisions are often
outdated and their portfolios can sometimes underperform for decades.
Interestingly enough, this investment mentality continues on and on without
questioning assumptions. On the contrary, this type of investor will defend
failing strategies again and again while waiting to hopefully one day be
proven correct.
Very active, interested, over trade, instant gratification.
This investor is generally interested in the financial markets
and actively seeks out advice, guidance and strategies. However, the fatal
flaw of this investor is the expectation of unrealistic results the moment a
position is taken. The active trader tends to chase performance by buying the
latest hot tip too late and selling it after it drops. This investor will
watch financial television programming and constantly jump from one idea to
the next, expecting to be given very specific, "no risk" advice for
instant, high profit returns. These investors sometimes fall for the 'big
talking', 'big hype' marketing guy who promises outrageous and unrealistic
short term trading results. Unfortunately the interested, active investor can
even underperform the apathetic investor by constantly placing unprofitable
bets and locking in losses again and again.
So what is the secret to easy, profitable investing? There is
none.
Can an investor recognize their natural instincts, thereby
improving their probability of success? We think so.
We have written many articles about recognizing long term trends
and rotating asset classes for superior returns. To read these free articles
we suggest you visit investmentscore.com. In this article we are focusing on
the current silver and gold bull market.
Let's look at where the big money has been made in the current
2000 - 2010 precious metals bull market.
 
The above chart illustrates that there has only been about four
periods of time in which adding to positions really made sense. Obviously it
makes sense to add to positions in the red sections prior to the next burst
higher and then take profits as the price rises in the green sections.
Remarkably, the average investor wants to buy during the green portions of
the chart as they continue to bet on the price going even higher. As you
would guess, this same investor typically ends up selling when the price
drops and trades sideways in the red sections of the chart. This is because
the low price creates fear and the investor "runs" by selling
positions.
The above chart illustrates that silver, like most markets, is
trending sideways or thrashing up and down the majority of time. Aside from
periods of short lived bursts higher, the silver market experiences
frightening drops or it simply trades sideways.
The above chart shows us that since 2002, the longest duration
of a major up move in silver was about 11 months, the shortest duration was 7
months and the average advance lasted about 9 months. This is important for
two reasons.
a. Like the first chart, this tells us that the price of a rising
market is not actually heading higher the majority of the time, but it is
more typically dropping or trading sideways, scaring investors away.
b. The duration of the current advance is about thirteen months and
that is much longer than the past three advances. Given this fact, we wonder
why investors are desperate to find the next short term buying opportunity
when this current advance has already lasted considerably longer than the
rest. If the average duration of the last three advances is around nine
months and the current advance is already thirteen months long, history would
suggest that even higher prices in the coming months is a risky bet. Can
silver and gold head higher in the short term? Absolutely! But when the price
of silver has been advancing for thirteen months, longer in duration than any
other point in the current bull market, does it make sense to buy more at
this point?
It is our opinion that the average "Buy and Hold"
investor continues to lose money in the market as they hold onto their
outdated broad market stocks. Over the past ten years the place to invest has
been hard assets and not the Dow Jones. The last decade of poor investing has
cost the "Buy and Hold" investor dearly.
The "Active Trader" may have found commodities as they
have come in and out of popularity over the past ten years. However, the
"Active Trader" is likely to buy in as the price rockets higher and
then sell out at a loss a few months down the road, cursing the markets as
they go.
Both of these flawed strategies and poor results must be very
frustrating and yet many investors continue to hold to their convictions and
do the same thing over and over again.
At investmentscore.com we do not have a magic bullet, fool proof
strategy to investing. However, we recognize the flaws many investors make
and we have created proprietary indicators that help us increase our
probability of success. To sign up for our free newsletter and to learn more
about our strategies as well as our paid service we encourage you to visit us
at www.investmentscore.com. Good luck.
Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach is
the President and Editor or www.investmentscore.com,
an online publication designed to show investors how to make profitable entry
and exit trading decisions in high growth potential investments.
Investmentscore uses a unique scoring system as a visual guide to assist
investors in making lower risk / higher reward trades.
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