Editor’s Note: Emma Walsh here, managing editor of the Diary. This weekend’s guest edition comes from Tom Dyson.
As regular Diary readers know, for the last couple years, Tom has traveled the world with his ex-wife Kate and their three kids. Right now, they’re on a roadtrip across the U.S. His Postcards From the Fringe newsletter, all about their travels and his big-picture market insights, is one of our most popular e-letters.
Before they left on their travels, Tom and Kate sold everything and put their entire life savings into gold. And with gold hitting a new high earlier this week, you’d expect Tom to be very happy with that decision right now.
But with everyone from barbers to mechanics now buying precious metals – often a sign of a correction ahead – Tom wonders if it might be time to get out… or if he should hold his nerve…
Gold hit a new all-time high earlier this week.
“Two interesting things happened to me today,” writes someone I follow on Twitter.
“Got a haircut. Barber told me to buy gold. Said the Fed is printing too much money.
“Got a tire fixed. Owner of the shop told me to buy silver. Said the Fed is printing too much.”
He didn’t say it, but the implication he’s making is that everyone – even barbers and mechanics – have already bought gold and silver. When there’s no one left to buy, the price must fall…
And with that, I’m starting to feel a growing impulse from my lizard brain.
“Take your profits,” it whispers. “A correction is coming.”
The First Time I Found Gold
I first found gold in 2002.
I was 26 years old. I was working at Citigroup, which was, at the time, the largest bank in the world.
The world was in turmoil. The bubble in technology stocks had popped two years before… the World Trade Center had just been attacked… Enron had gone bankrupt… and the U.S. was preparing for war in Iraq…
It was an anxious time.
Meanwhile, I’d found Bill Bonner’s daily e-letter. I tumbled down a rabbit hole, reading about hard money, Austrian economics, dollar debasement, and gold.
I found a whole community of people talking about unconventional investment ideas… and making dire predictions about the future of American finance…
Gold had been in a bear market for 22 years at that point. It was trading at its lowest price in 26 years.
If ever there was an unpopular, ignored investment that no one was paying attention to, it was gold in 2002.
And yet, Bill was recommending selling stocks and buying gold. He called it the “Trade of the Decade”…
How I Missed (Most of) the Trade of the Decade
I was utterly convinced by Bill’s (and others’) arguments about getting out of stocks and buying gold. Gold seemed like it had to rise. And I felt like even if I was wrong, I probably wouldn’t lose much money.
So I took all my money and bought gold. First, I bought a portfolio of gold stocks. Then, I opened a trading account and bought highly leveraged gold derivatives.
And finally, I was so excited about the idea, I approached my friends and family and asked them to give me money so I could buy gold for them, too. I ended up with 11 investors.
Over the next nine years, gold rose from $300 an ounce to $1,900 an ounce… a move of over 500%.
Unfortunately, our little gold pool didn’t go along for the ride. When the market started making new multi-year highs, I heard the same whispers I’m hearing now…
“Gold is going to correct,” said the voices. “You’ll lose the profits you’ve made. Better cash out now while you can still show a gain.”
I lost my nerve. I sold everything and returned everyone’s money.
Then I watched in horror for the next six years as gold continued rising… while I sat on the sidelines and missed out on hundreds of thousands of dollars in profit for me and my investors.
One of my all-time favorite books on speculation is the biography of Jesse Livermore. (It’s called Reminiscences of a Stock Operator by Edwin Lefèvre.)
Jesse Livermore was basically a fearless gambler who had a knack for making (and then losing) huge fortunes in the stock market. His biography documents his approach to speculation.
One piece of advice he repeatedly emphasizes in his anecdotes is “sit still when you’re right.”
“It never was my thinking that made the big money for me. It was always my sitting,” he says.
“Got that? My sitting tight!… Men who can both be right and sit tight are uncommon. I found it’s one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.”
With my first foray into gold, I made the classic amateur mistake of not “sitting still.”
I let my lizard brain – and the seduction of a possible correction (which never came) – talk me out of my position…
I made the exact same mistake with bitcoin when I sold at $300. (I’d bought when it was under $10.) My friend and mentor Porter Stansberry – founder of Stansberry Research – now calls me “the guy who left $50 million on the table.”
I Won’t Make That Amateur Mistake Again
I can already feel the same seduction – that gold is overbought, and a correction is coming – beginning to nag me today.
This time, I’m going to ignore the whispers. I know they’re trying to make me do the wrong thing.
As I like to say, I’m going down with the ship this time.
P.S. My minimum target for gold is $10,000 an ounce. I think we’ll see that over the next five to 10 years. What’s the best way to play it? I explain in this video…
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