-- Posted Thursday, 2 October 2003 | Digg This Article
Well, the scandal over the New York Stock Exchange continues to burn daily & will not seem to go away.
NYSE’s lead director resigns over Grasso pay, Others expected to QUIT, too
…an expected exodus of scandal-tarred board members in coming weeks.
Thor Valdmanis, USA Today, 9-26-2003
What is the crux of this story? That someone evidently performed such a satisfactory service that his employers were willing to pay him 188 million dollars. And what kind of superior job can a person perform that will net him close to 200 million bucks? This is probably the biggest recurring question rolling over & over in most folks minds.
And how about the mutual fund industries making special late night deals for their best clients?
Mutual fund scrutiny expands, By Christine Dugas, USA TODAY, 10-1-2003
The government investigation into mutual fund wrongdoing expanded to Alliance Capital Management on Tuesday, and the fallout from the scandal began to spread to retirement plans. … It is unclear how far the scandal will spread.
Yes, there seems to be no end to these scandals.
If there really is just one message that comes through all of this it is the fact that the wheels will always be greased for the high rollers but the average man or woman on the street is very much on their own.
And is the economy really improving for the average working man? Remember how I have written over the years how “structurally” our world is changing & not necessarily for the better? Read the following:
…jobs in the dust, By Sue Kirchhoff and Barbara Hagenbaugh, USA TODAY, 10-1-2003
“This is a different situation, and it has all the characteristics of a significant, structural change in the labor market,” says Allen Sinai, chief global economist at Primark Decision Economics. “We will see fewer non-farm, payroll jobs created per dollar of GDP (gross domestic product) than at any time in our history.”
Along with scandal we are witnessing the deterioration of the labor market resulting in more jobs disappearing. These are the reasons for gold slowly growing in strength.
Let me share an email I received last week.
…have been an investment professional for over 13 years. … Most people will do some research to get into an investment, but rarely if ever will they have a strategy to get out.
M. C.
Let’s talk about these high roller types a moment to understand their life styles. Because of their power & connections these guys can make educated & calculated guesses how long to hold & when it is time to sell. But do you think the little investor on the street is going to be privy to this kind of information?
Look at Martha Stewart. When you are big enough someone is always willing to grant you favors with info as to when it is the right time to sell. But what about the average investor on the street? How does he or she know when to sell?
Well, I suppose you can pay a money manager to tell you when the most appropriate time is to sell but can you really even trust this info & risk ending up holding onto an investment a little too long & thereby incurring losses you were not anticipating?
Where am I going with this?
The bottom line is that the average investor can never really know with absolute certainty how long to hold on to a burning match before the flame reaches the fingers & burns.
So what is an ordinary investor to do to protect his gains & limit his losses?
I came to a conclusion recently that it is probably the wisest & most practical decision for an investor to have a policy & strategy where by he or she automatically sells half of an investment after it appreciates 100% & effectively doubles in value. We have talked many times about making money & I have always written that someone should be willing to take a “measured” risk. To me there is no greater method to partake in a “measured” risk than to go ahead & sell half an investment after watching it double in value.
There are many folks jumping on this gold band wagon that do not understand about corrections or reversals. Nothing ever goes up totally in a straight line. What is wrong with a strategy that seeks to preserve the initial invested capital & in the process procuring funds for another investment that may be just over the horizon?
It is total greed & foolishness to attempt to hold onto an investment all the way to the top & to never consider selling a portion to lock in profits. I know I am boring you with a repetitive message but I feel that a selling strategy is important yet never on the agenda of most investors today.
Are you familiar with the movie Gone with The Wind? I have read both the book & watched the movie numerous times. Both are classics. My favorite scene in the movie is when Scarlet is in the field trying to grow sweet potatoes. This is after the war has ended & left the South in desolation & everyone is in poverty & hungry. Scarlet is hungry & desperately attempting to grow her garden so that she may eat & live.
In the movie in a moment of fury & desperation & hope she reaches up to the sky & declares before the clouds that she will never be hungry nor poor again. This was a dark valley in her life but one that filled her with the desperate hope to eventually do better & to never again descend into the pit of nothingness.
Why do I preach conservatism & a solid selling strategy when investing? Let me share another story, but one which is true & based on a real persons very real losses.
I recently read a biography of a very successful Hollywood entertainer & performer. This individual made literally multiple millions & she consequently lost all her multiple millions due to poor management & poor investment decisions. Let me share an excerpt from her book right after she discovered she was bankrupt & would be having to move out of her 7,000,000 dollar Beverly Hills home (& these are 1970 dollars).
“I felt that coldly bland feeling that comes with turning your back on a whole way of life, knowing it’s gone & still not believing it.” DR & DPC, 1989
These were the spoken words of someone who just lost a millionaires life style & found that they were flat broke & could not even get a mortgage on a little house in the suburbs. This is why we preach conservatism because of the fact that every day investors are going bankrupt all across our nation simply because they did not practice what I call “measured” risk & simple prudence. You can be successful, make a lot of money & practice common sense so you keep what you acquire & not lose it over to the bank & a bankruptcy court.
And let me share another quote from this book & this is a statement made after this individual finally succeeded in paying off her millions in debt after 10 long years.
“And it was mine, all mine, this house with no mortgage.” DR & DPC, 1989
This woman who once lived in a 7 million estate & lost it took 10 years to pay off the banks & get out of debt. Now she was finally able to purchase another home and that home was a modest 2 bedroom fixer upper in a modest neighborhood, but she was determined after the hell she went through to make sure she could afford & pay off this new home.
It is never a sin to practice old fashioned conservatism.
This is why a selling strategy is so very important. Our objective in investing in gold stocks is “not to go for broke.” You can make money & preserve your original capital if you are willing to exercise discipline & responsibility in your investing habits.
It is a fact that more money has been lost in gold stocks than has ever been made. This is why we have become committed to preaching the advice to sell half a stock issue after it doubles. This way you can never lose & you will always come out a winner. Your capital will be secured & available for additional investments & the sum that is the equivalent of your original investment now remains the sum you have left in the stock issue to take advantage of any further stock gains.
This is a conservative strategy & one in which if practiced you cannot lose.
Read the following:
Most investors in the mining industry are experiencing their first foray into this market. I am confident that their legion will swell as the secular Bull Markets in these & all gold & silver investments unfolds. To their credit, most are seeking a way of leveraging their gold investments. Unfortunately, to their detriment, they do not fully understand the great risks involved in their quest to maximize their gold investment profits. Dr. Richard S. Appel, 9-15-2003
I like this guy as he is a straight shooter & Dr. Appel tells it like it is. And again what is his message? Let’s read on!
To put it bluntly, exploration companies are fraught with risk! Numerous problems can arise for these small enterprises, even if they are ultimately successful & actually make a mine. Dr. Richard S. Appel, 9-15-2003
I think what the good doctor is advising us is to exercise extreme caution when investing in precious metals stocks.
…we recognize that many fortunes will be made. These can only accrue to those who follow sound rules in selecting the companies in which they invest. Dr. Richard S. Appel, 9-15-2003
OK. Now we are hitting the meat & potatoes!!!
Let’s read this last part again & go over it.
…we recognize that many fortunes will be made. These can only accrue to those who follow sound rules…
What the good doctor is telling us is that we must have a plan & a strategy in our buying & selling. And the fact remains that while most investors don’t have a problem buying they have not one clue as to when to sell. For the professional investor who already has his millions in the bank he probably already has learned a good exist & selling strategy that works for him, but what about the small investor who is still attempting to make his first pile?
You have got to have a selling strategy!!!
“You can’t go through life insulating yourself from danger. Everything is dangerous. Living is dangerous. Eventually, everybody dies of it. “Malcolm Forbes, 1988
I like the above comment as it illustrates the element of risk in everything we do. But while we cannot insulate our lives from danger we can proceed through life & our investment decisions with a strategy & a plan.
And if you have not devised a more elaborate plan at the minimum you should sell half a stock after it doubles so that you protect your original capital & limit any future losses. Quit worrying & thinking about how much money you might make if you kept it all in one stock and never sold and attempt to ride the wave all the way to the top.
And what is another reason for selling a portion of our profit?
“Dinner aboard the Virginian. The Kluges lay on another fine spread: slices of beef rolled around horseradish cream on fried toast, caviar atop blue cheese, a dripping Brie en croute, fresh cakes, and a beautiful split of icy-cold German desert wine.” MF, More Than I Dreamed, 1989
Yes, it takes money & cold hard cash to enjoy a few of life’s simple luxuries.
We only have to look at the last bull market that ended in the spring of 2000 to count the individuals who never had a strategy to sell & consequently lost a lot of money. It never hurts to devise a plan for obtaining your original capital back.
And what does the great Warren Buffet have to say about investment & risk?
“…real investment risk comes from not knowing what you are doing, says Warren Buffet.” Bill Bonner, Daily Reckoning, 9-29-2003
Investors who do not have any kind of prearranged selling plan & selling strategy are in my opinion flying blind into the wind. And generally those folks who never know when to sell end up holding on to an investment all the way to the top & then all the way back down to the bottom.
Let’s listen to the rules of Kenny Troutt, a billionaire who grew up dirt poor growing up in a housing project & who represents an excellent rags to riches story.
“I try as much as I can to take the emotional part out of the equation,”…”If you get hung up on emotions & you don’t have a business plan, you will lose. And once you start losing money, it just takes the fun out of it.” Josephine Lee, Forbes, 10-6-2003
And because Kenny has taken the emotional element out of investing & stuck with a plan he sometimes feels the following concerning his wealth:
Says Troutt, “Sometimes I just have to pinch myself.”
We would like to see gold investors some day pinching themselves one day to make certain that their success is real & not just a dream.
But remember that if “…you don’t have a business plan, you will lose.”
Oh, by the way Kenny Troutt made his fortune during the Tech Bull Market & he is rich today because he knew WHEN to sell!!!
Let’s listen to what the great Malcomb Forbes had to say about making money.
“I am an ardent discipline of the school of thought that postulates you must spend money to make money. How you get it in the first place, so that you can make it multiply, is indeed a sort of chicken-and-egg situation.” Malcomb Forbes
What we just read is very important so let’s read this again:
“…How you get it in the first place, so that you can make it multiply, is indeed a sort of chicken-and-egg situation.”
And here is our answer to the chicken and the egg question. As the investment doubles take out half that sum & invest it in another investment. This is called the principal of MULTIPLICATION!!!
“…so that you can make it multiply…”
And let’s read an encouraging quote about where gold may be heading!
Martin Murenbeeld:
“It’s very likely we could hit $500 an ounce sometime next year…”
Jon Warner, USAGOLD.COM, 9-24-2003
A good point to make for those who are bothered at selling half an investment after it doubles is to consider this selling process as an opportunity to procure capital to invest in further opportunities. As gold strengthens there will continue to be new gold & silver companies coming on the horizon.
The price of Gold will continue to rise as the risk of holding paper denominated assets becomes harder & harder to ignore. Bill Buckler, 9-12-2003
Follow a conservative approach that aims at protecting capital & spreading risk.
“Nothing confirms freedom like a buck in the bank.” Malcomb Forbes, 1988
At Gold Letter we are working toward creating a family of 1,000,000 plus investors with the common goal to make real money in gold & silver stocks. Join the Gold Letter family today and let’s work together helping one another to acquire that “buck” in the bank.
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