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« Kinross Gold: Up 50% Since Our Summer BUY, Now Correction Expected | Main | Gold and Gold Stocks: The Correction Begins »
Thursday
Oct252007

Trading: Explanatory Notes

Team,

Thanks of your comments they are very much appreciated. We take the view that if everyone in the room is in agreement then there is usually only one person thinking.

To recap: all through the summer we have said buy and hold and definitely do not sell during the summer doldrums. We pointed out that after Labour Day things would really heat up and they did. Now we have a situation where we believe gold and gold stocks are overbought.

When we see an overbought situation we have a choice either to sit through it in the knowledge that any pullback will be short lived or take some profits off the table in anticipation of being able to re-enter the market at cheaper levels. In this instance we decided to do the latter. We went from being up to our ears in precious metals stocks to only being up to our armpits in them. We maintain a large core position but we now have some cash to re-invest should this pull back materialise. If we are wrong then we will have to bite the bullet and buy back in at higher prices.

This strategy will not suit everyone; one size does not fit all. Your personnel circumstances, aversion to risk, assessment of the market, etc are different to ours. Our small group of investors are comfortable with what has been achieved so far and not one of them has withdrawn any of their funds. To be fair though they do sweat a little when we take profits off the table in what appears to them to be a roaring bull market. Make no mistake about it we are also roaring bulls but our strategy includes the ability to trade the ups and downs as and when they come along. Conventional wisdom and some of today’s eminent analysts will tell you that you should have between 5% and 15% of your investments in the precious metals sector which is sensible advice, however it is not for us. We have adopted an aggressive approach to investment whereby all of our investment cash is in precious metals (gold, silver and uranium) and we do not own one stock in any other sector of the market.

During the last gold bull market of the late 70’s and early 80’s some of my colleagues lost money. They bought when the bull was roaring and laughed all the way to the top and held on all the way down the other side and eventually cashed out with a loss.

Sooner or later we will have to consider and decide on what our exit strategy will be, when gold hits a certain number, when the HUI hits a certain number, when there are twenty dollars to one yen, when your cab driver tips a gold stock, etc. Anyone can buy stocks however it will be those who get the exit strategy right that will come out of this of this wealthier and those who get it wrong could well lose money.

Have a good one.

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