Gold and my personal story as an investor, an introduction to The Adaptive Investor
I have decided to start this website because I think a huge buying opportunity is coming along in the gold market. I want to show that it is possible to determine significant turning points in the gold market (and even predict them months in advance) by using a combination of fundamental, technical, and sentiment analysis.
Why would you have any confidence in my analysis?
Take a look at the next chart:
The chart shows the 8 big buying & selling opportunities of the last 3 years. It were ideal moments to increase or decrease your risk allocation to gold in order to optimize your returns.
In a series of several articles, I’ll analyze these 8 moments and explain how I identified these turning points in real time.
I’ll do this with the original charts I used in my analysis at that particular moment in time.
Two types of investors will read this website. For certain advanced investors, the statement that market timing is possible will be nothing special. I think however that a lot of starting investors will be very skeptical about this statement. Aren’t we all told by our investment advisors that market timing is impossible? This is an opinion I understand very well, a few years ago I would completely agree with it. However, below you can read why I have changed my mind over the years.
My personal investment history regarding gold
I started to invest in the gold sector in 2014 by buying an etf linked to the HUI index (a gold mining index). I did this because I thought, based on fundamental reasons, that the gold price would increase significantly the coming years. My initial investment history was strongly influenced by the ideas of Warren Buffett. Even though I knew Buffett wasn’t a strong believer in gold, when I looked at the valuations of the gold mining shares, I saw that these were extremely undervalued.
For me, the gold mines were a real ‘value play’. I bought undervalued companies at the then prevailing gold price and I thought the gold price would even increase in the coming years, it looked like an ideal situation.
Since my initial investment philosophy was strongly influenced by the ideas of Buffett, I saw myself as a long term investor. Looking at your portfolio every day was stupid and when you looked and you saw you were at a loss, it was the ideal time to buy some more. This is exactly what I did between 2014 and the end of 2015.
Then came 2016 and the gold price increased 30% in the first 6 months. The HUI-index increased 150%.
I had a very nice profit and sold my position very close to the top.
Important to notice is that it was pure luck I sold at the top. I didn’t follow my investments every day, every week, or even every month. I was a follower of the investment style of Buffett and I wouldn’t let myself be influenced by the short term movements by looking at them every day.
In the second half of 2016, the gold price started to decline and found a bottom in December of that year.
In the meantime, I had decided to do my next investment in individual gold miners, and not in a gold mining index, to increase my returns.
At the beginning of 2017, the gold price together with the gold mining shares, started to increase sharply. I was following the market much more frequently now and I was convinced that the next big move in gold was starting.
This time I invested my money in individual gold mining shares. A month later I had a loss of 30%...
It didn’t take long before I knew what was going on. I saw the price of gold and the mining shares increasing sharply and I was convinced of much higher prices in the coming years. I didn’t want to miss the beginning of this move so I bought as fast as I could.
Warren Buffett: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
I realized that I had been guided by my emotions, I had quickly bought in for fear of missing the big move. Where Buffett was always a contrarian investor, this time I let my emotions guide me. Within a month I was severely punished.
I knew that something had to change with my investment strategy. I had to learn how it was possible to time the market.
The idea I had in my head, which I learned from investors like Warren Buffett and Peter Lynch, that it is futile to try to time the market, had to be erased.
Luckily I had read the book ‘The new market wizards: Conversations with America’s top traders’ by Jack Schwager, not long before. Before I read this book I was a pure fundamental value investor with a strong belief in gold (I had read a lot of macroeconomic and financial history books).
Thanks to Schwager’s book, I learned that there were a lot of people that had a completely different view on the markets. The following passage, where the author of the book interviews an anonymous trader who had made hundreds of millions for his business, had a huge impact on me.
Jack Schwager: “I still don’t understand your trading method. How could you make these huge sums of money by just watching the screen?”
Anonymous trader: “There was no system to it. It was nothing more than, ‘I think the market is going up, so I’m going to buy.’ It’s gone up enough, so I’m going to sell’. It was completely impulsive. I didn’t sit down and formulate any trading plan. I don’t know where the intuition comes from, and there are times when it goes away.”
I also read about Jesse Livermore and was very impressed by the fact that some people were able to read a market. This went completely against everything I had learned over many years about investing.
Livermore: “Perhaps this was the ‘inner mind’ working, distilling the patterns and formations that I had seen thousands of times before, and sending subconscious signals to my brain, unconsciously registering repeated patterns stored in my memory bank that were then subliminally remembered and awakened. Whatever it was, I have learned over the years through many market experiences, to respect these instincts.”
I remembered an interview I watched with Mark Hart on RealVision. With his investment vehicle, Corriente Partners, he achieved annualized returns of 45%(!) between 2001 and 2007. Although he was a stock investor who got his views from his big picture macro framework, he still used technical to time the market.
I also knew that other investment giants like Stanley Druckenmiller didn’t only use fundamental analysis but also technical analysis to time the market.
My personal negative experience and my knowledge about the investment style of other investors, forced me to adapt to become the new investor I wanted to be. Not longer did I want to be the long term value investor. I realized that when I would be able to time the market, or at least be able to control my emotions, my returns would increase a lot.
The goal of this website is thus two part.
For the novice skeptical investor, I want to show that market timing is perfectly possible. I also want to point out to them the importance of the big picture. Knowing which markets will do well in the coming 10 years can have an enormous impact on your portfolio.
For the advanced investor, I want to be a good source of information on market timing and big picture ideas. Throughout the years I have followed a lot of “experts” and “guru’s”. People who are very confident in their predictions about what the market are going to do. Unfortunately, I haven’t seen a lot of them who are right on a consistent basis. That is also the reason why I shared with you my biggest loss in the markets, a loss of 30% in one-month time. I don’t want you to think that I pretend to be some sort of a clairvoyant. I have made a lot of mistakes throughout the years and I think it would be a shame if you made the same mistakes as me.
Now that I have embarrassed myself with my biggest blunder, I can conclude by praising myself.
After years of analyzing several traders and analysts, I realized that most of them don’t know anything more than I do. We all look at the same data, the trick is in knowing how to interpret this data correctly. Hopefully I can offer some added value in this.