Email from a reader
An email from a reader who became tired of a) Buying “high”, b) Not buying when a sector was the cheapest in many years or decades, and c) Taking profits on the first real bump up from generationally low levels in a cyclical sector:
I quite enjoyed your most recent video “How the recent past affects everyone”. I wanted to pass along a big mistake I made trading oil shares. To start off, I must tell you, I have never made a dime investing in oil companies and have lost a fair amount. I do like following the oil space and could not resist picking up some beaten down, once good performers. I purchased TSE listed ATH at $.84 in May 2019 and BTE at $2.18 May 2019. Around Sept. 2020, ATH was trading at $.11 and BTE was at $.36. I did not add to my holdings during this period(a huge mistake). I just felt that I had made another plunder in oil. Around the time oil went to -$35.00 a barrel I bought a fairly large position in CNQ. A very highly rated oil company for $10.50(paying a 10% plus dividend at the time). I held this stock for about 3 weeks and sold out with a quick 50% gain. I was just so sick of always losing money in oil that I slipped up(panicked) and sold at the very worst time. Oil stock sentiment at that time was worse than gold today. It had been slowly dropping for years. I did not sell the small caps at that point but eventually capitulated as to my long held memories of always losing money in the sector. When these stocks reached my purchase price, I relented. Looking at today’s prices, I left 300% on the table with the small caps and 540% plus steady dividend in the case of CNQ. I invested the money in the junior gold cap space. Luckily I was able to pick up some NFG around that time but the rest I bought have tanked since then. I keep thinking about how well I would have done if I had averaged down on those small caps. I understand how investors absolutely hate this gold market. There will be a lot of people who have or will react exactly as I did. We need the price of gold to slowly climb the wall of worry. The price of oil rebounded at least 3X over this time period, if you eliminate the flash crash day! We have to get the price of gold up, and well over $2000.00 for this total hatred of the space to abate. Sure the odd smaller companies will hit good results (ie. I-80 today). I am determined not to make this mistake again. I feel exactly as I did when holding my oil stocks. You feel there is no way possible that you will get out of this with your “skin still on”. It is going to take a large bump in the price of gold. I sure hope Gary Savage is correct. He has been very accurate in the past. This tax loss selling is really holding things back, come December 15th it will be mostly over in my country, Canada. A long rant. Hopefully it did not waste your time! Cheers!
I think this is a typical example of how the vast majority of us work in the markets:
- We tend to buy when it feels good and everyone is bullish on X in the near term (high)
- When the inevitable cycle down comes, and the value of buying goes up exponentially, we don’t buy because we don’t trust ourselves since we are sitting at a paper loss (and think we are always making mistakes)
- When you have a big paper loss, AND everyone think what you are already down on has a bleak future, it is incredibly hard to go against the grain and double. (You don’t trust yourself, common sense but trust the crowd)
- We are too quick to take profits from absolutely ridiculously cheap levels because we are still scarred from the time we bought high and any gains evaporated shortly thereafter
Other points:
- Buying cheap is the best offense and defense
- Buying cheap is not the same as buying low or buying at a bottom
- Something can be “low” but not cheap
- Unless you buy the exact bottom tick you will never buy THE bottom when you buy cheap
- What is a clear buy might still go down 50% before it actually bottoms (does not get any cheaper) and the only thing you can know for sure is that if it becomes cheaper after you bought it’s an even better buy (not a sell)
