Q: We have had a significant up move in the gold mining shares since the middle of January. I remember your suggesting that for portfolio investors, dollar cost averaging into the shares was a sound strategy. Have you changed your view now?
A: No, it is a sound strategy still for anyone looking to acquire an exposure to that sector for reasons unrelated to this blog. I am not here trying to give investment advice. We are dealing here with speculation. How to make profits by applying economic law to market price changes.
Q: Why did you add the short list?
A: Short selling is clearly not investing. It is a pure speculation on the movement of price over time. It is much safer and easier then investing when seriously treated with good fact finding and logic. Value investing is harder than reverse value investing. Picking winners is harder than picking losers. It can add 5 to 10% to your annual return with little effort and insignificant risk. My clients and associates know that I have been active in that sector for decades. I was asked to add it to the material discussed here. It is just another way of looking at the same thing.
Q: Jesse Livermore was a famous short seller. He is half of the title to your book. Did he use economic law in trading the market?
A: Absolutely yes. That and personal discipline. He was not exclusively a short seller. He traded both sides of the market and understood that every trade has a long and short side to it. When you buy shares for dollars you are long shares and short dollars relative to shares. It is not possible to escape from this duality. It is inherent in the structure of the universe.
Q: What do you think about countries that outlaw short selling?
A: They do not then have a free market. They have a government obstructed market. They foolishly think they can control market conditions by passing a law. They do not understand that values are subjective and so cannot be legislated into or out of existence. The result is always a lower standard of living overall. But, I do not complain. Stupidity creates opportunity for smarter market players. And remember: if the government were truly efficient, none of us would have any freedom.
Q: What does all this have to do with the recent bounce in the gold shares?
A: It is market capitulation. First the specialist take out all of the bids going up and then all the offers going down. When that is finished, it will be safe to speculate on gold share call options from the long side.
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