E Bulls, Bears, And The Fox - Outsmarting The Crowd - And Gold's Only Just Started

When metal prices were in free-fall and buying mining stocks was considered suicide from 2012-2015, this author realized some things. Many investors, for one, don’t understand cycles. Second, they only care for immediate and short term profits, never positioning themselves for when the cycle changes. And third, they can’t see two steps in front of them, and this is the most important competitive edge one can have.

I. Market cycles and human emotions are as prevalent today as they were in the:

1990’s dotcom bust

Late 1980’s Japanese bust

1930’s Great Depression

1870’s rail road bust

1820 South American sovereign bonds/mining bust

Early 1700’s Mississippi Scheme and South Sea Scheme

and Tulip Mania bust in the 1600’s

The list surely goes on. Before every bust, there was a boom – and as Ludwig Von Mises masterfully wrote, the longer the boom, the harsher the bust. Coincidence that the Roaring 20’s preceded the Great Depression? No.

Thus, market psychology and understanding booms and busts is critical, if not necessary, to help forecast.

II. Secondly, the herd of investors don’t invest for when the cycles reverse. Thanks to the academics in finance who write linear models and theories instead of actually working for profits or losses, many people follow their advice. One can’t blame the laymen for this – ever tried studying econometrics? They ignorantly “buy and hold” as they’re told. What happens when an individual invests in his 401K (which the company puts into some mutual or hedge fund) for years, and just as he retires, the 401k and his private portfolio are both down significantly from a market crash? And little does he know, his 401k and the ‘SP500 ETF’ he was told to buy both contain the same exact stocks (Apple, Microsoft, Cisco, IBM, so forth). His financial adviser told him he was “spreading the risk”. Adding insult to injury, he was paying management fees on both funds.