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Monday, May 31, 2010


I think we would all agree that gold is and has been in a secular bull market for the last 10 years.

Even if it took you three years to recognize the bull and you bought at the very top of the third C-wave a simple buy and hold strategy would have you up over 200%.

Now here is the challenge. Look at your portfolio since 04, and be honest with yourself. Has your investing strategy produced at least a 200% gain in that period? Have you even made money in that period? Have you consistently lost money?

If you haven't made any money and have just been spinning your wheels, or even worse you've lost money (I suspect over 90% of retail traders are going to be in this category) Then ask yourself why do you continue doing something that time has proven not to work? Do you think the market is all of a sudden going to change and your flawed strategy is going to finally start producing big profits?

BTW of the 10% (I'm being generous) that have made money virtually none of them have even come close to 200%. Because traders absolutely must control risk and that necessarily means small positions size, anyone doing 15-20% a year is an exceptional trader. And it takes a 20% return for 6 years in a row to increase ones portfolio by 200% in 6 years.

That means one would have had to ride the entire bull, correctly spotted the bear market, correctly navigated one of the most volatile periods in stock market history and again spotted the end of the bear and rode the cyclical bull. That's asking a lot from anyone to spot and trade through all those different market conditions successfully. I can guarantee there were very very few people who did.

There are several reasons why people choose a trading strategy. First and foremost, although very few people will even admit it to themselves, the vast majority of retail traders are motivated by a gambling addiction. All in all not a very healthy way to make money.

Second, most traders are deathly afraid of draw downs.  They simply can not stand to see their account decline. Even if they rationally understand that their position is a winning position (as virtually all precious metal positions are at this time) they still require the market to do what they want when they want. If it doesn't adhere to their time schedule they are willing to take a loss instead of holding their position until the market decides to come around.

Third, most traders are under the delusion that they can in fact correctly navigate the future and in so doing immensely increase their profit above and beyond a simple buy and hold strategy. (I think most of you, if you  honestly accessed your success or failure over the last 6 years have by now come to the conclusion that the dream of vastly superior returns by trading is a chimera that will never materialize.)

So why do we continue to do something that doesn't work, over and over again?

Many traders are like the proverbial mouse in a maze who keeps running down the same path again an again never getting the prize.

Every once in a while though a mouse will come along who breaks the pattern and chooses a different path. That's the mouse that gets the cheese. 

If what you have been doing hasn't been working, then maybe its time to look for the cheese  down a different path.


  1. Anything is clear in the rear view.

    Showing a chart that has trended up over the last decade, then say if you bought at bottom and still hold now - well seems obvious.

    Buy CREE in January and still hold.... 400%

    Examples everywhere - trick is in the holding, not the vehicle.

  2. Gary_UK here.

    This blog is pro-Gold and anti pretty much everything else.

    It's easy to quote 90% this, and 10% that, without recourse to any data, just numbers plucked from the air.

    And yet one of Gary's good friends is Tim Knight from Slope of Hope, who is a very sharp trader. I'll bet he gets fed up with Gary telling him to give it all up and just buy a load of gold!

    I look forward to the inevitable years of deflation, which will bring an end to the gold bubble (yes, that's all it is, and it will burst, just like all the others).

  3. Gold isn't a bubble yet but it certainly will be at some point.

    All I'm saying is to take an honest look at what one is and has been doing. If it hasn't worked then ask yourself why you continue to do it?

    It really doesn't make any sense to rationalize something that just hasn't worked.

    If one has managed to trade and make money then they are one of the few people who have the discipline and startegy to make it work.

    If trading hasn't worked for one then try something else.

    I offer a very simply buy and hold strategy in a secular bull market as an alternative.

  4. Rear view investing here...give me something in the future...everything else here is ...rinse wash repeat...

  5. You do realize that no one can see the future right?

    Until someone invents a workable crystal ball all we can do is follow the big trends.

    The stock market has been in a secular bear market since 2000. Gold has been in a secular bull during that period.

    Until those big trends reverse buying stocks will always be dangerous because at some point the bear is going to return. Buying gold on the other hand is the safest choice as the secular trend will rescue any mistimed trades.

  6. No offense to Gary's friend, but Tim Knight is NOT a profitable trader. He gets clobbered for whole quarters at a time.

    If you feel Mr Knight is so profitable, as well as transparent, prove the success with a run-down of all the trades in his accounts for the last couple years. I can tell you now that his winners are far too small to pay for all his losers.

    Naturally, Tim doesn't have to show anybody his trades (actual trades made from his statements), as it's private information, but my observation is that he ALLUDES to transparency and chooses to represent himself in a way he refuses to confirm, but will never really cough up the numbers for more than a day or two if that.

    Heck, it'd be far easier to show people all your data after the fact, entries AND exits, each day week, month or year. It'd also shut up those who call him out.

    I'm not looking to start a fight about it with somebody that has a firm opinion, but no hard proof. Please spare me the "I know he did, I saw it" response, and think real hard whether you can confirm it or not. There is one REAL SIMPLE way to prove one's success in this endeavor.

  7. BP Getting hammered. Market looking shaky. Let's see if gold and silver can hold and maybe rise from all this mess.
    New month, new week and new day.


  8. I'll testify that the golden trading sequence is a chimera that won't materialize, as you so adeptly put it, but I'll also say that if you're willing to put in the 10,000 hours over years of losing money, you can gain enough discipline and expertise to know where edges are to exploit and how much is appropriate to bet on them, and in this manner you can trade with positive expectancy. Buying into a bull market is the simplest way to do so and I have to recommend it for anyone that does not have a dedication. Even if you love trading I'd say put the majority of your cash in mining shares or physical bullion and use the remaining 10% to play with options or to margin for futures trades.

  9. This is a great post, Gary. The start of successful trading (and success at anything else as well) is self-honesty, which most traders do not have. You can even tell be the reaction you got from some other posters that you pushed their buttons---usually vehement denial is a bad sign.

    People have a lot of things going on when the invest OR trade. Making money is only one of them. Learning what your other motives are and learning to work with them and compensate for the weaknesses they create, is the key to good trading. Not doing so is fantasy land and will bite you at some point.

    I have been trading and beating SPX returns for many years (though not gold returns during this bull, I must admit) so I have some idea what I am talking about. I am having a very good year this year (so far!) despite the weak market. Your readers should re-read your post slowly and then give a good hard look in the mirror. And if they decide trading is just "fun" even though they are making less money, then fine---but at least it's honest.


  10. Maybe you should broaden the scope and ask how many investors have made 200 % over the past ten years. Better even how many investor did make money at all in the past decade.

  11. new high in the dollar today. Looks like we need a weekly swing high to officially call a top to this cyclical move. under 85.60 or so should do it. Gary do you agree?

  12. Well we can't have a top until we at least see a weekly swing high. It does seem to be having a lot of trouble getting above 87.

  13. Buying on Weekness OR Selling of Strength not getting updated on wsj site...anyone any idea? why its happening..

  14. Speaking of lost in a maze. TK was going long last week because he felt sentiment had gotten too bearish. He even posted a chart showing an expected bounce to 1170 before rolling over.

    Now he's 100% short.

    Perfect example of a clueless trader unable to stay disciplined. Totally at the mercy of his emotions.

    You can't tell me this guy makes any money longer term.

  15. Central banks intervention is only to shake out the weak euro shorts...stox much lower and dawler higher...

    D G out...

  16. I really doubt central banks are at all concerned with currency traders. They have much bigger fish to fry.

  17. Anon,

    I agree. Slope of Hope is entertainment at best. I wouldn't trade based on TKs "reported" position since he can and will change "a 100% sure thing" for the opposite the next day.

    At least Gary admits that you can and probably will suffer draw-downs even in a bull market.

  18. TK is a clown! How can anyone boast about having 190 trading positions and claim to make money!!! His brokarge costs alone give him no chance. Also some advice to all. The real contrarian bull market out there is the dollar. Everyone still hates it. Watch where deflation takes it. That low last Nov was the start of the new unloved bull. Ask yourself, when we have the next deflationary blowout, where are gold miners heading and where do you think the dollars heading?

  19. anonymous "unloved bull":

    great points. People are still buying this inflation trade thing.
    So where do you see gold and miners? out of curiosity.
    Unrelated to these question, but
    I got some cash but can't pull the trigger and buy more bullion at current price. I'm not unduly worried about inflation at this stage which is probably why I'm reluctant to part with more cash...

  20. Wow, 190 positions? Whoever this person is, he knows nothing about money management.

  21. "Wow, 190 positions? Whoever this person is, he knows nothing about money management."

    Well, he obviously doesn't have too much of his capital tied up in any one trade. :)


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