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Wednesday, February 4, 2009

Mind Shift Revisited - Play for next 2 years

I'll repeat myself for "context". From Sept 2006 to Oct 2008, almost 100% of my investments where "shorts". Around then is when I turned to resources to start looking at plays, my friend John coached me to join the GDX/Oil bandwagon. I joined GDX "In force" when it was 17-19. Oil I do think for next 2-10 year is a great play, but frankly, I don't have the patience to sit on oil for a decade "hoping" for a payoff. It could come next week, all is needed is instability and/or dollar collapse. And of course "food" is the other resource play (RJA).

Unfortunately for me, I jumped in a little early and too heavy for the "Obama rally" that hasn't materialized. The markets are set to break up or down any day now. I lean towards up, just for the simple thought that the market went from DOW 13k to 7.5K in a couple of months, then "recovered to 9K", now we are back to 7.5-8k range.

Some of the plays that I am in are too risky, and after giving it some long thought, I'm going to start dumping all positions except gold miners. I'll also keep an eye on SRS as a buy if it gets REAL cheap, and DECK if that stock climbs back to 70 range, and keep a small position in oil plays.

Why? Couple of reasons, I consider myself "lucky" in the last 2 years to have made the return I did, and I have heard of too many people who "give it all back" to the market. I don't want to be one of those people.

Gary of the Smart Money Tracker in one of his PAID service (go and pay for it!, worth every penny) emails said "remember when shorting, the most one can make is 100%. Bears are at a mathematical disadvantage when it comes to investing. When there isn’t a bull market to be had then by all means we should consider shorting. However if there is a bull market, and especially if there is a strong one, then one is just shooting themselves in the foot by trying to play the short side of the market. Shorting takes excellent timing and let’s face it, probably a certain amount of luck. "
The next is by timing the market. Again, with this one, you are back to competing with the pro’s. I have to wonder how many people would want to take the field and face the Pittsburgh Steeler front line. That’s basically what you are doing if you think you are going to be able to time your way to riches in the market. Maybe 1% of investors can do this and again it’s probably only going to happen with a good bit of luck and a liberal amount of excessive risk taking. Not exactly the recipe for long term success. That’s probably why only 1% will ever get rich this way. (I’m probably being generous when I say 1 %.)"

That sentiment is accurate, and I really shouldn't be stupid enough to think I'll be the "one guy" who gets it right.

Now that the financial problems are recognized outside of the blogsphere, the market moves are much less certain. The attempts to prevent world financial collapse is going to be more extreme market moves over the next few years. I don't want to get caught on the wrong side.

If I short or go long, either a rocket short rally or doomsday collapse could detroy all my savings if caught in "too deep".

And here is the key thing. I KNOW with every fiber of my being ,just like I did years ago that the market would collapse, that gold/gold miners will hit a high note never seen before.

And if I "know" this, why the heck should I risk any money on plays I have less conviction on?
I'm not sure what this will do to my blogging, I may become some crazed gold bug, ranting that the only thing that defines wealth is if you have Flavor Flav teeth and a gun to pop a cap in someones arse if they try to take it.

I really doubt it. :) I never liked the idea of "gold" as a play, for the simple sake that everything has relative value, and gold, as a "utility" really isn't that great. Food is. Oil is, need it for war, collecting food, etc. Gold? Eh Jewelry? Some niche manufacturing?

But what Gold does have in its corner is some odd-god like reverence by man-kind as the play of all plays since the pharaohs that gold has "value". And if the next two years gets worse, it's only logical that paranoid lunatics and insolvent governments will turn to gold as an instrument for stability. Also governments are determined to devalue their own currency, which should help gold.

Also, as a very long term play, frankly, I should need to spend maybe 1-5 hours a week on stocks. I am about to have my first child in April, and from what I hear, kids soak up every last minute of your time. So I may as well position myself so I can "earn" money in the market and have time to have a normal job, be a husband, be a father, and eventually dabble in looking into buying bankrupt houses pennies on the dollar.

I wanted to share my own direction change, since, my discussion on investing may start to get into a rut or one track mind, gold plays either miners or if gold gets cheap enough, buying gold itself.

I still have some pretty risky plays, I am still hoping for a rally where I can eventually sell those positions and buying miners (hopefully they go down a little). As for oil, I'll keep my toe into it, but I'll be hard pressed to go into it with force. My main secondary play will be food, right now RJA, but I may expand into other items.

As for my gold miner plays, as an income stream, I may start selling puts in GDX or gold miners monthly instead of buying the miners. If I am wrong, I'll end up owning the stock anyway. If I am right, pocket the cash and repeat. So in effect, I will get "paid" to buy the miners when I'm wrong.

My transition won't happen over-night, although every fiber of my being wants to dump everything and move over today. :) I'll add slowly over time.
As for other blog reading, I can't stress enough how important it is to read Mish's blog, out of all blogs. Mish has always done a great job, but this year he has pulled no stops and deserves some sort of journalism award.

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