Thursday, 12 January 2012

Identity crisis at Gold ETF Investor

The first comment to appear on this blog has caused an identity crisis! It's not the first identity crisis here, but it's the worst so far.

I thought I was being matter-of-fact about my approach here but I can't really justify much of it to Jeanne D’Arc who provided some much needed constructive criticism. I'm still attempting to put together a coherent response.

The key observations were: “You're not behaving like an investor at all. You're speculating. Worse, you're gambling. You keep trying to pick the short-term direction of the market, and probability says you can only be right 50% of the time. Sod's Law says it'll be less than 50%.”

And yes, that’s what it looks like, but it didn’t feel like that at the time! I’ll try and explain myself.

The advice:

1. "Do your research and try to identify a market which you think is in a bull phase. Gold appears to be one such market (it certainly has been for 11 years). Then invest in it. And sit."

2. "Once you've made your play, don't sweat the day-to-day up and downs. You're an investor! If you're confident that it's a bull market, then you should be confident to wait for your return in one, two or three years, or whatever."

3. On the question of buying back in Jeanne said: “your only question should be: will gold be higher in one year's time? If it's no, then think about shorting the market. If it's yes, then buy (on a down day!) and sit it out. This advice goes for anything - gold, oil, bank shares, bonds, whatever.”

But I haven't bought back in and I don't know if gold will be higher or lower in a year! So what am I doing looking at gold as an investment?

I hope that the time I'm taking to answer this won't turn out to be an attempt to rationalise my way around these genuine issues. The problem is that I don't think my case is totally straight forward but that's probably what everyone thinks.

I'm finding this recent post by FOFOA helpful: The Studebaker Effect

It starts off with these gentle encouraging words:

"I never want anyone to invest in anything based merely on a recommendation. I want them to understand the reasons for the purchase themselves. Peace of mind can only come from within, and that's what understanding can provide."

I don't have that peace of mind yet.

"Have you noticed how many people think they are traders and investors these days? And with all the options to invest in and trade out there, who can blame them? But in reality they are not traders or investors. They are doctors, lawyers, businessmen… and savers. What we call investing today is more like speculating. So why do we "save" the way we do today, by speculating on things we know so little about?"

"A saver is different from an investor or a trader/speculator....


Today the system is in transition, so you can throw your ideas about these differences out the window. There is no safe medium for simple preservation of purchasing power when the entire system shifts from the old normal to the new normal. When systems implode, the safest place to be pays off big time!"

I'm hoping to work out where I stand on these things too. Meanwhile the gold price moves up and I don't own any.


  1. I'm honoured that you based a post around my humble comment..! :-)

    I hope you're able to resolve some of these internal issues soon. They are things that every speculator and investor go through all the time - so don't feel bad about it.

    But one final thing I'd add is that it seems like you're looking for guarantees. No, of course you don't know if gold will be higher or lower in one year's time. And anyone who claims to know is either a liar or a fool. What I'm getting at is that, in the absence of guarantees, your only hope is to opt for a market which has a high degree of certainty of moving in one direction or the other over the long term and act accordingly. If you're not able to sit comfortably based upon this decision, then you're probably best sitting out of the game.

    If you do decide to get back into gold, then for pity's sake please don't do it on a green day like today. Buy on red days, sell on green days. It sounds obvious, but novice traders almost always seem to do the opposite. And lose lots of money in the process.

    And, of course, keep checking the Screwtape Files for balanced views ;-)

  2. Great, thanks again for this, I appreciate it a lot. I'm definitely aiming to get back into gold at some point. I still own some gold miner shares via a fund but I'm actually more interested in the metal which is something I need to explain to myself.