When it comes to investing, does the title “Party Time…. Let’s Celebrate!”
sound counter intuitive right now?
This title is the most opposite/contrarian and therefore it is likely
the most appropriate title we could think of at this time. Why?
Valuable stocks and investments are on sale! Note that we did not say all stocks
are on sale but “valuable” stocks and investments are on
sale. In fact they are available
for potentially ‘fire sale,’
‘everything must go,’
rare ‘clearance’ kind
of sale prices. Who’s
getting out of the stock business by clearing out their inventory of stocks? We think it is the leveraged public
and institutions. Who is buying
these stocks? Answer, the same
elite “rich” who keep getting richer as they pursue the opportunities created by the panic selling.
It is times like these that an investors self proclaimed,
contrarian principles are truly tested.
It is when everyone is panicking, selling and running for the hills
that it is hard to buy in true contrarian style. We believe this is why only a few
brave investors are able to make fortunes in these markets.
The following chart illustrates what we believe is
the emotional response of the average investor to a rising investment.
The next chart illustrates how a profitable investor
likely views a rising stock price.
The key difference in the two examples of an investor’s
response to a price rise is:
The Effective investor gets
nervous as the price rises and interested when
the price drops while conversely
the poor investor gets interested as the price
rises and nervous when the price drops.
Maybe it is time to party because prices and public
sentiment has fallen a lot. Perhaps
it is time to cautiously deploy new capital into the financial markets; but
where?
During times like these we focus on the following:
1) We believe markets are cyclical and not linear. Overall most stocks will not go to
zero and high value stocks will likely rise again.
2) We also believe that when extreme panic and fear are prevalent in the
general public, it may make sense to cautiously take new positions in
investments that have good value.
3) What is good value? In the
long term, what investments are undervalued relative to other
investments? What asset classes
are experiencing a major bull market pull back and what asset classes are
experiencing a major bear market crash?
The bottom line is that we believe commodities are
in a major bull market as funds flow away from investments people
“want” and into assets people “need” such as commodities
like silver and gold.
We believe that commodities and in particular silver
and gold are undervalued relative to paper assets. Stocks were in a bull market for
twenty years from 1980 to 2000. The
Dow Jones climbed roughly 13 fold as it marched higher year after year. Since 2000 it has struggled as it trades
sideways and capital flows out of stocks and into commodities such as silver
and gold. Commodities were in a
bear market for 20 years until roughly 2000 when they started a new mega bull
trend. But bull markets typically
don’t end in eight years and they don’t usually end with public mass
skepticism or with only a 4 fold increase. If we compare the bull market in gold
and silver to the 1970’s bull market and the 2000 bull market in the
Dow Jones, we can see that there is likely much further to run both in terms
of time and appreciation.
Also, commodities such as silver and gold currently
have high demand and are reported to be in tight supplies. Physical silver and gold products are
currently selling at significant premiums as retail precious metals products
are difficult to find. When
credit markets are imploding and major companies are going bankrupt, tangible
assets such as precious metals may be viewed as a safer alternative for preserving
wealth. In addition, our Custom
built Long Term Timing Charts show us that capital has been flowing out of other
asset classes and into precious metals.
When this pessimism passes and stocks once again head
higher, we think precious metals related investments will do better than
yesterday’s favorites such as technology and
financials etc. Currently, we
believe that all signs point to a bull market pull back in precious metals
creating an opportunity for a long term investor. To be clear we are not suggesting that
all stocks are created equal and all investments will climb after this
pessimism passes. We are also not
suggesting investors throw caution to the wind and jump into the market with
both feet. It may be likely that
lower prices across the board are still ahead of us. The world may also be headed directly
into extreme economic pain and hard times. Caution is strongly warranted. However, given the above comments, we
believe it may make sense to use a contrarian investment strategy and deploy
new capital into high value investments while everyone else is panicking. After all, many high value investments
are on sale… Wooo Hooo!
At www.investmentscore.com we use big picture, custom built timing charts to help guide us in
our investment decisions. If you
would like to learn more about our investment strategy and sign up for our
free newsletter, you may do so at www.investmentscore.com.
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.
Legal Disclaimer: No content provided as part of the
Investment Score Inc. information constitutes a recommendation that any
particular security, portfolio of securities, transaction or investment
strategy is suitable for any specific person. None of the information
providers, including the staff of Investment Score Inc. or their affiliates
will advise you personally concerning the nature, potential, value or
suitability or any particular security, portfolio of securities, transaction,
investment strategy or other matter. Investment Score Inc. its officers,
directors, employees, affiliates, suppliers, advertisers and agents may or
may not own precious metals investments at any given time. To the extent any
of the content published as part of the Investment Score Inc. information may
be deemed to be investment advice, such information is impersonal and not
tailored to the investment needs of any specific person. Investment Score
Inc. does not claim any of the information provided is complete, absolute and/or
exact. Investment Score Inc. its officers, directors, employees, affiliates,
suppliers, advertisers and agents are not qualified investment advisers. It
is recommended investors conduct their own due diligence on any investment
including seeking professional advice from a certified investment adviser
before entering into any transaction. The performance data is supplied by
sources believed to be reliable, that the calculations herein are made using
such data, and that such calculations are not guaranteed by these sources,
the information providers, or any other person or entity, and may not be
complete. From time to time, reference may be made in our information
materials to prior articles and opinions we have provided. These references
may be selective, may reference only a portion of an article or
recommendation, and are likely not to be current. As markets change
continuously, previously provided information and data may no be current and
should not be relied upon.
Copyright © 2006-2007 Michael Kilbach
|