Gold’s Future Will Be Questioned

If you fancy yourself an objective investor, you should be very excited right now. I’ve been going against the grain repeatedly amidst this volatility because I don’t get overcome with emotion. Months ago I said I was long the dollar because when 95% of people are bearish on an asset, that’s an automatic fade. I keep on telling you that the markets aren’t going to move the way you think. This is a complex situation and I am much more confident in my long-term predictions than my short-term predictions. Longer term, $3000 gold is very, very conservative.

People are surely scratching their heads over this latest collapse in gold. Isn’t Europe collapsing? Isn’t confidence in our leaders collapsing? Yes and yes, but this is what I mean when I say that most people will lose money in the next 5 years. You must feel out these markets; there’s no formula I can give you. Stocks are going to explode and this is going to be shocking since the unemployment rate will be hovering above 10%. Stocks are cheap, but they are probably going to get cheaper. A great buying opportunity in stocks is coming because the bond bubble will eventually pop, and I can tell you bond money is not going under a mattress.

When Should I Buy Stocks?

People often ask me if they should be buying stocks right now. Well that’s a loaded question. If stocks go down 20% the day after you buy, will you panic and sell? What’s your timeframe: 6 months, 2 years, 5 years? When a correction comes, can you back up the truck even when everyone thinks you’re nuts? My style of investing is catered to my temperament. Even when I see a big correction in gold coming, I rarely go short because I prefer being long and buying into dips. Shorts take much more micromanagement, and I don’t like staring at a computer screen all day and drawing trendlines without knowing the bigger picture. That’s not investing to me. The big picture thinkers make all the money.

At $1400, the mainstream media will herald the end of the gold bull market while I make objective arguments about why a correction of this magnitude is no big deal. I guarantee you a vast majority of people will be scared to buy. Bottoms are formed when the smart money accumulates in stealth mode. At the same time the smart money is adding, the average person gets bored because there’s no volatility. Of course this is exactly when a rocket launch move comes. Markets are funny like that.

People mistakenly believe reading lots of investment books automatically makes you a good investor. Years of experience have taught me this is not the case. Not everyone lives with their eyes open. Not everyone absorbs what they see. Not everyone can synthesize information equally well. The good investors get burned once and learn; the great ones learn from the mistakes of others. The average investor gets burned over and over again and places the blame on outside forces (bad economy, politics, manipulated markets). They will never learn.

By now you should have a feel for the rhythms of the gold market. If you got too bullish at a top or too bearish at a bottom, fix your mistakes. Be more even-tempered. The current volatiliy is child’s play compared to what’s coming, and if you expect to do well in the years ahead, you must change your investing temperament. Even if you didn’t see this correction coming, brush it off and prepare for the rally, because some time in 2012, it will be time to back up the truck in gold and take a vacation.

Gold’s Future Will Be Questioned is a post from: Expected Returns

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