Calming The Nerves

In the midst of a list of points about gold, centered around a "massive" reverse head-and-shoulders pattern that was completed in September of '09, Stewart Thomson works in some advice that will calm nerves if followed. In his words,

5. Theme “numero uno” for me continues to be: Hold the amount of gold you can be comfortable with should price either decline to $700 or rise to $1400. If you bail on current holdings if gold moved towards $700 or started buying crazily as it rallied towards $1400, you likely are positioned very very badly, here and now. Your gold holdings become a crapshoot, rather than an ultra solid investment in the world’s lowest risk market.

6. If gold were to leap $50 in the next second, you should have an overall feeling of comfort regarding your core positioning, and the same should be true should it receive a $50 spanking. How you feel has a lot to do with how you act. Really work hard at getting your holdings into your “comfort zone”. You can then “let that gold flying fish” get away if price spurts suddenly, and if it tanks suddenly you don’t wonder about hitting the sell button. It takes more work and patience than many think to get to that “sweet spot” but it’s a CRITICAL task if you want to do not just well in the market, but have a balanced life....

It's good advice, particularly for those caught in the neither-fish-nor-fowl trap. A trader's attitude is appropriate for traders, who trade frequently and are often content with small clips. An experienced trader often keeps a capital cushion as a backstop against nasty surprises.

On the other hand, an investor (or long-term speculator) is in for a long pull that's centered around a certain event taking place. It's often hoped for advance discounting, but an investor doesn't count on that. An experienced investor has two reactions to a price drop after buying in: first, rechecking the fundamentals; second, if they're still okay, executing another leg in or regretting the bigger bargain. Yes, averaging down is not taboo in investor circles provided that the fundamentals are paid attention to. Nor is selling at a loss if the fundamentals unexpectedly deteriorate.

Value investors are typically bad timers on a short-term basis. They also don't care, as they tend to win in the end.

The trouble with gold is that it's exciting, and its fundamentals are more diffuse than the ones for a regular industrial stock. Excitement leads to a trader's attitude amongst people who really should take an investor's attitude. I know myself; it's hard to shake off.