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| Friday, November 11, 2011
My Precious Metals Trading Strategy
I I should preface today's article with the statement that I'm not a trader. I rarely trade, and when I do, it's only when I have a very strong reason to believe that a short-term or intermediate-term move could be significantly profitable.
But I have made some "trades" within the larger context of my precious metals investment thesis.
Now, the premise underlying all of my trades is that precious metals will continue to outperform.
That's the reason I own physical gold and silver. If I didn't believe these two metals were going to outperform, I'd sell them, and moreover, I wouldn't engage in the trading strategy I'm about to reveal.
Now, before I get into the trades - I want you to know that I don't go short metals. I don't use commodity futures. I only go LONG metals - which means that I'm typically buying one metal instead of another.
Basically, these trades are just a way for me to decide which metal to buy now, and if I'm feeling so inclined, which metals to "trade" with either options on an ETF like the SPDR Gold Shares (NYSE: GLD).
The first trade is the easiest and it involves an indicator that I look at anytime I'm about to buy gold or silver.
It's the gold-silver ratio.
I've talked about this ratio many times. And I've heard some feedback from people who (correctly) point out that it's somewhat useless in the event that both gold and silver are overvalued.
But... my thesis, which has worked quite well for me, is that...
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What Every Analyst Could Learn From John Madden
Do you think about probabilities on each and every investment/trade you make? You should.
A football analyst can tell you the probability that a team scores after entering the red zone.
Baseball analysts will tell you with certainty the percentage of times that a catcher throws someone out at second base.
Why? Because these probabilities matter and they are easy to figure out. They simply look at the data that is presented to them.
So, why is it that when I read a research report from a financial analyst they can't just simply tell me the likelihood that a stock will meet their expected price targets?
Instead, the actual "pros" in the stock picking business give you a buy target - no probability that the target will actually get hit. That's amazing to me...
The analysis coming out of Wall Street's best has nothing to do with the actual likelihood of success! Wall Street analysts are little better than Vegas bookies.
I'm simply not interested in analyst estimates. And if you want to make money in the markets, I think you'd be best advised to ignore them. That's because a price-target is just a guess in my opinion. And I'm not interested in guesses.
I want to hear the that the statistical chance of the stock going to $19.00 is X%, the chance of the stock going to $19.00 in three months is Y% or a stock moving lower over the course of the next year is Z%.
Confused? Let me explain, because after I do you will never look at an analyst's price target the same...
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