There have been volumes written about psychology of the marketplace and
numerous articles, commentaries, newsletters, and books have addressed the
twin emotions of greed and fear and how they contribute to a herd instinct
or mentality amongst both lay and professional investors. I prefer to
collectively call these people “The Sheeple.” But it is simply human
nature to get caught up in the emotion of the moment and react without
thorough analysis and clear thinking. At various times in my long investing
career, I have found myself part of this unsavory crowd.
Greed and fear are the strongest motivators for Sheeple-style investors
driving both bull and bear markets and the so-called business cycle. You
will find this idea within most mainstream schools of economic thought
But in Austrian economic theory, the business cycle is a phenomenon
resulting from state and central bank attempts to fiat engineer the supply
and demand balance thru interest rate manipulation. Periods of monetary
expansion or inflationary “booms” are followed by periodic deflationary
recessions or depressions where mal-investments fail and free up capital
for new ventures. Government and central bank interference serve to prolong
the inevitable “busts” and to retard the inevitable recovery.
Right now, greed and fear are fierce combatants in the marketplace and we
are at a tipping point in the bear market economy.
From a low on March 9 to a high on June 11, the S&P 500 gained nearly 40%.
During this four month rally in the capital markets, “green shoot”
greed was the latest in spring fashion and there was increasing talk of a
quick economic recovery by many pundits.
But investor confidence is fragile and abject fear gripped the markets
again on Monday, Tuesday, and into Wednesday of this final week of June.
The S&P 500 gave back 8% of its impressive spring rally in just two trading
sessions.
Relatively minor news, actually opinion, was the catalyst that sent the
stock, currency, and commodities markets tumbling. On Monday, the World
Bank said that the global recession is worse than they previously forecast
in March and predicted a contraction in US GDP of 3% for the year and an
era of markedly slower world economic growth.
The Dow immediately lost 200 points, the dollar fell below 80 on the index,
oil dropped 3.5%, and gold lost $20, reaching a 30 day low of $914 and
quickly breaching support at $930.
Investors are trying very hard to be greedy but every little perturbation
in this Humpty-Dumpty economy brings back our number one nemesis,
fear.
In my opinion this four month episode is not the beginning of a bull market
rally. Call it a “dead cat bounce”, or a “sucker rally”, or
whatever you will, there are too many factors in our economy that are just
plain wrong.
Market volume is down, unemployment is up, state and local governments are
insolvent, Fed Ben is helicoptering dollars, Obama is bowing to petrol
kings, and Americans are buying their Big Macs with max’d out credit
cards. The list goes on and on, but I won’t.
But what you say about the recent strength in industrial commodities? Does
that not foreshadow increased demand and industrial output? I emphatically
say no: It is an artifact of speculation by hedge funds and continued
stockpiling by Chinamen who understand hard assets are a better bet than US
debt.
Don’t be fooled.
Greed, fear, and herd instinct amongst the Sheeple, whether lay or
professional, are especially important factors that fuel both big bull and
mama bear markets. This is undoubtedly a mama bear and as Yogi says, “It
ain’t over till it’s over.”
In retrospect, Greenspam didn’t get much right during his long tenure as
Fed Chairman. But his take on greed, he called it “irrational
exuberance”, was bang-on.
It is of utmost importance to control your emotions when investing. Quick
decisions are generally bad decisions when emotions are high and running
rampant. Greed and fear are not part of a viable investing philosophy.
Neither is gut instinct. Don’t let the herd sweep you into the stampede
and over a cliff.
Lest you think I ride a high horse, I plead guilty for following the herd
at times in my investing career. Hopefully both you and I have learned from
these expensive lessons.
A good stock investment must start with evaluation of the company’s
fundamentals. This is especially important in the riskier sectors of the
market. If you are reading this, it is likely that a portion of your
investment portfolio is dedicated to high risk venture capital stocks.
If you employ a conservative investing philosophy to the junior resource
sector, you can mitigate a portion of that risk (Mercenary Musing, May 26,
2008). I have written previously about the key ingredients to investing in
junior resource stocks: A company must have the right share structure, the
right people, and the right project to pique my Mercenary interest
(Mercenary Musing, December 15, 2008). I encourage you to read it and stay
out of the herd mentality for your own investing health.
Never forget that investing in the penny stocks is gambling. By taking a
fundamental, contrarian, and disciplined approach and doing detailed and
careful due diligence, you can skew the odds in your favor. We all like
gambling games where our odds of winning are higher than the average
Joe’s.
Just say no to greed and fear. Refuse to follow the Sheeple. Dare to be a
contrarian.
Buena suerte, Inversionistas!
Ciao for now,
Michael Mickey Fulp
Mercenary Geologist
A Monday Morning Musing from Mickey the Mercenary Geologist
March 23, 2009
****
The Mercenary Geologist Michael S. “Mickey” Fulp is a Certified
Professional Geologist with a B.Sc. Earth Sciences with honor from the
University of Tulsa, and M.Sc. Geology from the University of New Mexico.
Mickey has over 30 years experience as an exploration geologist searching
for economic deposits of base and precious metals, industrial minerals,
coal, uranium, and water in North and South America and China.
Mickey has worked for junior explorers, major mining companies, private
companies, and investors as a consulting economic geologist for the past 22
years, specializing in geological mapping, property evaluation, and
business development. In addition to Mickey’s professional credentials
and experience, he is high-altitude proficient, and is bilingual in English
and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in
Peru, Nevada, Chile, and British Columbia.
Mickey is well-known throughout the mining and exploration community due to
his ongoing work as an analyst for public and private companies, investment
funds, newsletter and website writers, private investors, and investment
brokers.
Contact: Mickey@MercenaryGeologist.com
Acknowledgements: I thank fellow geologists Tim Coughlin, Mike Hawkins,
Dave Cole, and Keith Laskowski for recent barroom discussions on geology,
exploration philosophy, geopolitics, adventure, success, and failure while
wandering the far corners of the Earth. Their contributions aided me
immensely in formulating and clarifying the ideas presented in this
Mercenary Musing. As always, thanks are due my editor, Jeff Stuart, for
improving my language and toning down my rants.
Disclaimer: I am a shareholder of Lydian International Ltd. I am not a
certified financial analyst, broker, or professional qualified to offer
investment advice. Nothing in a technical report, commentary, this website,
and other content constitutes or can be construed as investment advice or
an offer or solicitation to buy or sell stock. Information is obtained from
research of public documents and content available on the company’s
website, regulatory filings, various stock exchange websites, and stock
information services, through discussions with company representatives,
agents, other professionals and investors, and field visits. While the
information is believed to be accurate and reliable, it is not guaranteed
or implied to be so. The information may not be complete or correct; it is
provided in good faith but without any legal responsibility or obligation
to provide future updates. I accept no responsibility, or assume any
liability, whatsoever, for any direct, indirect or consequential loss
arising from the use of the information. The information contained in a
technical report, commentary, this website, and other content is subject to
change without notice, may become outdated, and will not be updated. A
technical report, commentary, this website, and other content reflect my
personal opinions and views and nothing more. All content of this website
is subject to international copyright protection and no part or portion of
this website, technical report, commentary, and other content may be
altered, reproduced, copied, emailed, faxed, or distributed in any form
without the express written consent of Michael S. (Mickey) Fulp, Mercenary
Geologist.
DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of GoldIRAS.com. Past performance of any investment is no guarantee of future performance. All investments have risk.
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