New to the board - Greetings and thoughts

[Focu$ed]

Hello,

I've been reading the boards here voraciously for the last few days. I wasn't going to post because I have some views and opinions that are unconventional based on mainstream thought here, but you all seem like a kind, tolerant, welcoming bunch, so . . . .

DH (45) and I (50) aren't so much into ER as FI. I have sort of the ideal job, in that I work at home, or from anywhere I have a phone and a high speed internet connection, and most of my bosses live in other states. If they need me, they send me an email or IM. DH buys and sells antiques and collectibles, so he is self-employed, works from home, and makes his own schedule. I don't foresee him ever completely retiring, as the business is fun and challenging. As we collect and hoard things ourselves, going on buying calls and to auctions ranks as part work, part play. That said, we would like to become non-dependent on the business income, which would take a lot of pressure off him and give us more free time together. I might want to retire in 5 years, maybe 10, depending on whether my job stays as pleasant as it is currently.

The non-conventional part comes into our saving and investing style. Currently, a larger part than we would like of DH's income goes to living expenses. Our expenses, compared to many peoples' are modest, however, but the more income we can free up, the faster we can grow our savings. In his business it is not unusual to buy items and resell with a 25% profit, and sometimes several hundred percent profit. Turning items over quickly, and buying something else to resell creates volocity of money benefits, and creates very high returns. It is possible to grow profits exponentially (as long as you don't need to live on the profits and can reinvest them). As we pare back expenses and channel more income into reinvesting the gains, it should be a great step toward FI goals.

Part two is the more non-conventional. We have become greatly interested in economics, currencies, inter-market dynamics, etc., and through avid reading and discussion, we identified early on what we believed was the start of the commodities bull market. Market trends run in cycles, and the commodities cycle, particularly the precious metals, appeared to be at the bottom in about 1999 - 2000. These cycles typically run for at least 20 years, so getting in early was a great thing, and we firmly believe we have at least 10 - 15 more years to go before commodities and the precious metals peak. Rather than diversify, we focused our spare money completely on what we identified to be the emerging bull market to get the most mileage out of the meager funds we had to work with. Gold, copper, silver etc. have all more than doubled since we started.

When I changed jobs and got access to my 401K money, I put it all into precious metals. (I know what you are thinking. I know the lecture I'll get for this). I truly believe that as long as we are early in the bull market, there is no better place to be. When everyone and his brother is buying gold stocks as they did CISCO, we will be selling. We are years from that. Phase one of the bull market is complete derision and disbelief; the mainstream financial media scorns the idea of "X" being in a bull market. We have been in that phase now for 5 years at least, and now the big banks and the analysts on the financial shows are starting to recognize that gold and silver are likely to go higher from here, and it is wise to take a least a small position in them. Therefore, this marks the start of phase 2. When the public is falling over itself to buy every new gold stock, it will be phase 3. I do not advocate that anyone else put large percentages of their money into gold mutual funds or ETFs, but a small part could be a huge help to people struggling to make decent returns. The precious metals are extremely volatile so people need to make a long-term commitment, but every stock I own has doubled or tripled since last May when we came out of the last, lengthy correction. The money I have invested in these stocks over the last few years is growing exponentially.

I believe that the dollar has rallied, and now peaked, and that it is going lower. I don't forsee great gains in coming years for the stock market. Any gains may only keep pace with inflation. If anything, the indexes are likely to decline, as I don't see our economy being very healthy. It has steamed along since the dot.com boom based almost exclusively on debt-based consumer spending from zero percent interest car loans to multiple refinances and home equity loans in real estate.

After reading these boards for days, I carry a great feeling of concern for people who have worked and saved SO hard, and are now dependent on investments that will protect their life savings, and offer high enough returns for them to live on for perhaps decades. I see commodities in general, and the precious metals in particular, to be a lifeline to that end. Even a modest position in something that increases 50% or 150% per year should be a boost to the overall portfolio. OK, I'll get off my soapbox now. As I said, I know our approach to investing is not conventional, but it has worked very well for us.

Best wishes and greetings to everyone here. Your stories and successes are a great inspiration!

[poboy]

Hello and welcome. I suspect you will find this board entertaining and helpful. I think of it as a committee(I always think about the camel and the committee). Whatever options we select for our dollars probably runs through the alphabet and I imagine my investments would be similar/different than others, or out in left field. No blasting from me cause we do what we feel is best for us. My wife and I went to antique auctions for several years until we acquired the items we wanted for the house. My wife knows antiques, I do not. I always knew to stop bidding when she would give me the "look". It was an enjoyable experience and we got to know quite a few dealers. I bet your precious metals are doing better than the lucent and healthsouth I am sitting on.

[sparkee]

While I (partly) agree about the commodity thing (have read Jim Rogers' Hot Commodities and other books on the subject, and understand the theory behind it), I'd be hesitant to commit ALL or MOST of my precious retirement funds to any one area.

If you guess right, great. If not . . .

Personally, I have a good chunk in commodities, precious metals, including the oil area and alternative fuels (read either of Stephen Leeb's two most recent books), but I also have plenty in more "traditional" assets, exposure to foreign stocks, and also a good chunk in cash (well, a short-term treasury fund, but cash nevertheless).

I feel that the next 10-20 years will be extremely challenging, investment-wise. As do a few others on this board, I feel we (as a nation) have gotten into debt way over our heads, especially when you consider the (not usually counted) liabilities in SS and medicare as all of us Baby Boomers retire. The proverbial chickens will sooner or later come home to roost.

However, I don't think you will be able to "stand pat" with any one theory or approach and do well. I want to be both well-diversified AND pay attention enough to get out of the way of any freight trains.

A couple things to think about:

If we have a real economic melt-down (not a depression, just the deep depression we've been avoiding with Fed easy-money policies, deficit spending supporting the economy, etc.), what will happen to general commodity prices? Copper? Steel? Oil? If the economy goes down seriously, so will the use (i.e. demand) for those products and the price with it.

Second, these kind of commodity bull markets often have BIG pullbacks. If you see your portfolio go down 20% or 30% in short order, will you hang on? Or will you bail? Will you still have confidence that the long term bull is in order? Or, if you hang on, how will you know that it's NOT like the tech bubble of the '90s?

Big positions in single areas make for MUCH more nervousness as markets go up and down.

I understand the desire to be HUGELY in the area where you feel the markets will make the most money, but you have to know that you have the knowledge to understand when it's a correction and when it's something more serious, to avoid getting whipsawed. You have to sleep at night. You have to be careful that you're investing, not gambling.

I do subscribe to Richard Russell's Dow Theory Letters and find his daily letters very interesting--he's been writing about the markets continuously since 1957 or so--and has mostly been right on with major calls. However, one of the best things he says (and most often) is to remind his readers that in tough times and tough markets, he who loses least wins. And sometimes the way to lose least is to be reasonably diversified.

So I'd be hesitant to commit all or most of my money to just one area, even if I'm pretty confident I'm right. And I know I'm no Jim Rogers! If you read his book and get a sense of how much time he's spent studying the commodity markets and the depth of his experience with them, I'd be hesitant to decide that I can do what he does. I'll happily follow some of his ideas (and I, too, have made money with them), but I'm not prepared to believe that I know enough to throw most of my money in one box and leave it alone.

Best wishes,

Richard

[Nords]

Welcome to the board, Focu$.

Hey, if you're LBYM and you have good prospects for continued employment, then take your risks when you can stand them. Nothing wrong with that. The rewards for guessing right are fantastic, and the penalties for guessing wrong... just means that you'll be working longer.

Eventually you'll want to figure out an investment allocation for a retirement portfolio that doesn't depend on either paychecks or market timing. That's when most investors stop being focu$ed and become diver$ified...

[Focu$ed]

Quote:

Originally Posted by sparkee A couple things to think about: If we have a real economic melt-down (not a depression, just the deep depression we've been avoiding with Fed easy-money policies, deficit spending supporting the economy, etc.), what will happen to general commodity prices? Copper? Steel? Oil? If the economy goes down seriously, so will the use (i.e. demand) for those products and the price with it. Second, these kind of commodity bull markets often have BIG pullbacks. If you see your portfolio go down 20% or 30% in short order, will you hang on? Or will you bail? Will you still have confidence that the long term bull is in order? Or, if you hang on, how will you know that it's NOT like the tech bubble of the '90s? Big positions in single areas make for MUCH more nervousness as markets go up and down. I understand the desire to be HUGELY in the area where you feel the markets will make the most money, but you have to know that you have the knowledge to understand when it's a correction and when it's something more serious, to avoid getting whipsawed. You have to sleep at night. You have to be careful that you're investing, not gambling.

You make many excellent points, all of which I have thought about over the course of the last six years. If we have a recession in the US, I don't believe it will have a great effect on general commodity prices, as most of the commodity demand is currently coming from Asia, principally China, (but other emerging countries as well.) If we have a stock market crash, I think everything will sell off, at least temporarily, but commodities, particularly the precious metals would be first to recover. I have read Jim Rogers book. He prefers lead over gold and has more interest in base metals than the precious metals. I think he is missing the point that gold is money - has been for over 5000 years, although in the arogance of recent generations, we have temporarily ignored that in favor of fiat money which is based on little more than a government's ability to tax, and the confidence of the citizens who use it.

For anyone who has studied monetary history, going back through various cultures and civilizations, all fiat currencies have eventually been devalued to near worthlessness. But, I digress . . . I think energy will continue to well, I think alternative energy is going to be huge, and I think all commodities are going much higher, but my primary focus is on gold and silver. At first, the increase in gold price was basically a mirror image of the correseponding drop in the US dollar, but now in the last year or so gold is going up in ALL curriences. All curriencies are fiat money. None are backed by gold anymore and all are being devalued whether unintentionally or by design.

I am not frightened out by corrections. A correction of 20 to 30% is a normal ocurrence in gold and silver stocks. Many of my stocks go up, or down, by 5 -10% in a day! After having run up a large gain, a pull back of 50% or more of the advance is not uncommon in any equity, so when the advance has been large to start with, the pull back is bound to be significant. Corrections are brutal. I have been through a few, the worst of which ended last May after lasting about a year and a half. I had stocks double and triple prior to that correction, too, and some of them gave back large amounts of my gains. The operative word being gains, not principle. Virtually all of them are making new highs now. New money that I put in near the bottom of the the correction declined about 15- 20% before rebounding and doubling and tripling. Yes, it takes nerves of steel. That's why I wouldn't tell anyone else to put more than 5 or 10% into precious metals.

I see a difference between this bull market and the tech bull. Some of the tech stocks/dot.coms were very legitimate. Others had no real business plan, and no real chance of survival. People bought them anyway because they were going up. I remember the debate over whether or not we were in a bubble. It was painfully obvious to me near the end that it was a bubble. Everybody and his brother was in the market, buying on margin, using house Refi money, whatever. There was no more money left to come in and keep the bubble inflated, so of course it had to crash. Stock prices were going up on ever decreasing volume. Smart money was quietly exiting.

I see the energy bull market as based on ongoing fundamentals. Emerging countries increased need for energy is not going away. I see the precious metals bull also based on fundamentals. Debt based currencies are continuing to be inflated and debased. There is no cure for this in sight, and other countries are becoming increasingly resistant to accepting dollars, printed at an alarming rate, for their goods (especially for valuable oil).

We will have more corrections. Big scary corrections. Bull markets do their best to throw as many off the bull as possible. But I know the signs of "the top" and I don't expect to see it for several years. The topping process is slow, and it always goes on much longer than you think possible, (like our current energizer-bunny housing market). I will be keeping my eyes out for "the next big thing" as we get nearer the end of the bull, and I do expect that I will be diver$ifying, as the other poster suggested, along the way, but it is too soon for me to start the diversification yet.

[sparkee]

It sounds like you've thought carefully through your positions. I have to say, I agree generally with your ideas, although I haven't gone as far in my portfolio.

Not so sure that Asia (or "Chindia" as Stephen Leeb likes to call it) will keep up its demand for commodities if demand in the West drops greatly, since much of what they sell, they sell to us.

I think one of the interesting debates is whether inflation or deflation lies in our future (or stagflaton, or alternating periods of both). Leeb has interesting things to say about this (in The Oil Factor) and you can find much on Mike Shedlock's blog (he believes we're headed for deflation, which might be OK for precious metals, but not so good for other commodities): http://globaleconomicanalysis.blogspot.com/. He runs a board on Motley Fool, but that costs and you can see most of what he's thinking about on the blog. I don't necessarily agree with him, but look back at his blogs on deflation for perspective.

Your position on fiat currencies and the dollar in particular I also have sympathy with, but I'm wary of predicting how soon any collapse might come (or if there'll ever be a collapse, but just a gradual readjustment. It's partly for that reason that I think diversification into PM is a good idea.

Good luck,

Richard

[Mountain_Mike]

You make some good points.... precious metals have been "money" for many thousands of years, and are not likely to reach $0 value anytime soon.

In 2000 I took note of the relatively low price for gold and silver, and took a position in them. Gold at below $300 and silver below $5 are bargains. One thing that really struck me was the all time high disparity between the price of gold and silver; at the time it was around 60:1. This told me that (if 5000 years of history mean anything) silver was in the best position to move, in relation to gold. So, for a couple years I purchased $200 a month or so of silver, and some gold for good measure.

Now, however, I am reluctant to pay over $500 for gold, and whatever silver is going for.

[Focu$ed]

Quote:

Originally Posted by Mountain_Mike You make some good points.... precious metals have been "money" for many thousands of years, and are not likely to reach $0 value anytime soon. In 2000 I took note of the relatively low price for gold and silver, and took a position in them.* *Gold at below $300 and silver below $5 are bargains.* One thing that really struck me was the all time high disparity between the price of gold and silver; at the time it was around 60:1.* This told me that (if 5000 years of history mean anything) silver was in the best position to move, in relation to gold.* So, for a couple years I purchased $200 a month or so of silver, and some gold for good measure.* * Now, however, I am reluctant to pay over $500 for gold, and whatever silver is going for.

I know the feeling well. Silver just blew through $12.00 today. Gold is about to cross $600. Historically, the silver gold ratio has been about 16:1 so you were right that silver is undervalued and has a lot of catching up to do even now. I bet you are very happy that you accumulated the metals when they were rock bottom cheap. Even if you don't add more at current prices, I would not be anxious to sell. More and more people are talking about gold surpassing the 1980 high of $850.00 in the next year or two. Silver will probably reach $14 or $15.00 this year on its way to reaching the previous high of $50.00. We experience the same feeling of amazement to pay $12.00 an ounce for what was $7.00 not very long ago, but when silver is $20.00, think how cheap that $12.00/oz purchase will seem. The metals prices were so depressed, for so long, that it became uneconomical to produce any but the most assessible, easily mined ores. Lots of mines closed altogether. It takes up to 7 years to get a mine permitted and into production, so the increase in demand has no easy solution, which is another factor sending prices higher. Both gold and silver have made more modest gains than the industrial metals, so while the prices seem high, they really aren't so high at all. I found these stats earlier today:

Metal 5y low Cur. Spot % Chg.
Cu $0.60 $2.5412 323.5%
Zn $0.33 $1.2314 273.2%
Ni $2.00 $7.1215 256.1%
Ag $4.01 $11.63 190.0%
Au $252 $585 132.3%

Copper, zinc and nickle are way ahead of gold and silver. I realize they have different functions, since the others are more industrial metals, but increased investment demand, as an alternative to dollars and other fiat currencies, is likely to make gold and silver catch up and surpass the industrial metals' gains. Many of the miners obtain certain base metals as a bi-product which they use as a "credit" to lower the cash cost of mining gold and silver, so the fact that the base metals are still making new highs is great.

[greg]

Hi Focu$ed:

I agree with you about many of the things you have said. And I think being nimble in these times is incredibly important, especially given the tumbles, bubbles, and pops that may occur. But . . . unless you're Jesse Livermore, I believe some sort of diversity is in order. Even though he was a great trader, he died broke (if I remember correctly).

It sounds like you're very focused on making money but also both you and your spouse are working nearly full time. This automatically leaves half your attention on daily life. To my mind, this means some sort of planned structure may be needed for your investments. Picking a financial plan that can be left at least partially on automatic for periods of time might be wise. This balanced with the rest of your busy lives might bring you some feelings of safetly as you approach the later years of life. I like some sort of diversity that can be regularly rebalanced in a formulaic fashion. Of course, I have a decent proportion set aside as "hormone" money too--the get rich fast and easy portion of my portfolio. I suspect I like gold and silver more than you, but it still needs to be balanced out and kept in proportion.

During these bubble times, I don't see much product right now that is really an investment. Much is just gambling. But some diversity helps create balance--to my mind. I would rather be a solid generalist that can hone in on the important parts of the market than a gold specialist that can''t clearly see the forest.

I wish you the best.

--Greg

[Robert the Red]

Quote:

Historically, the silver gold ratio has been about 16:1 so you were right that silver is undervalued and has a lot of catching up to do even now

It is important to realize that the widespread copper mining that started in the late 19th century produced as a byproduct a lot of silver, since silver and copper are chemically similar and are very often deposited in ore bodies by the same geological processes.* As a result, there is a lot more silver available now relative to the gold supply than was true for most of history.* This, IMHO, is why the gold/silver price ratio is so much higher now than was true for so long.* And will remain so for the same reason for the indefinite future -- the supply side of the silver equation has changed dramatically.

[Focu$ed]

Quote:

Originally Posted by Apocalypse . . .um . . .SOON Hi Focu$ed: I agree with you about many of the things you have said.* And I think being nimble in these times is incredibly important, especially given the tumbles, bubbles, and pops* that may occur.* But . . . unless you're Jesse Livermore, I believe some sort of diversity is in order.* Even though he was a great trader, he died broke (if I remember correctly).* It sounds like you're very focused on making money but also both you and your spouse are working nearly full time.* This automatically leaves half your attention on daily life.* To my mind, this means some sort of planned structure may be needed for your investments.*

I appreciate your thoughts and agree that diversity will ultimately be the way to go. *I am very grateful that those who have responded have been very kind and relatively supportive, since I realize that this "no guts no glory" method of investing is not typically adviseable. *This is not something that works for long term investing, but I may only need two or three more years of this bull market, then I can adopt a more balanced approach. I have a home office, and am in front of my computer most of the day, and I have streaming stock quotes running on another monitor next to me. I don't do much actual trading, but I am aware of the hourly and daily movement of all my positions. DH is more the "physical metal" collector/expert whereas the stocks are my arena. He has been a coin collector since he was a kid and since he goes to 4 or 5 auctions many weeks, his efforts as the physical metals investor/trader is no particular effort. It's part of his normal business activities. So, this works for us with no undue effort for either of us.

If someone with little money correctly identified the tech boom early on, and committed even a modest amount of funds, then let them ride, they had the potential to make a great deal of money. Many people did. But a lot of people got in early, than took a profit and got out. Others got onboard late and missed most of the run. I see this bull market as a great chance to invest in an asset class that has great fundamentals and is really just beginning to gain momentum. Putting in 10% of my modest investment funds isn't going to get us the mileage I am looking for, although it is possible to make very impressive money with a small position, if the last run in the 80s is any indication. When something is in a bull market, you have to try pretty hard to screw it up, really. That's why so many people did well with their investments in the 90s and thought they were investing geniuses. Bull markets bail you out, because even if your timing is off, or a couple of your picks are relative duds, the market continues higher and smoothes over your errors. I don't know what the next bull market after commodities and the precious metals will be, but whatever it is, I will be too old by then to "live dangerously" so it probably won't matter. At the moment, two of my stocks pay dividends. In the previous run, many people found that the dividends near the end of the bull market were more than they had originally paid for the stocks. That may not happen this time, but it sure would be nice.

[Focu$ed]

Quote:

Originally Posted by Robert the Red It is important to realize that the widespread copper mining that started in the late 19th century produced as a byproduct a lot of silver, since silver and copper are chemically similar and are very often deposited in ore bodies by the same geological processes.* As a result, there is a lot more silver available now relative to the gold supply than was true for most of history.* This, IMHO, is why the gold/silver price ratio is so much higher now than was true for so long.* And will remain so for the same reason for the indefinite future -- the supply side of the silver equation has changed dramatically.

It is my understanding that copper is in currently in an undersupply situation, and above ground stores of silver have been largely depleted. The US government once had a large stockpile of silver. This was depleted a couple years ago. China was previously exporting silver, but have now shifted to importing silver. Silver has been in a supply deficit for a number of years, and this is starting to come to light recently. The silver ETF currently in the works is going to take a very large amount of existing COMEX supply off the market. That is part of the reason silver has gone from $7.00 last fall to $12.00 today.

[Edgar]

Hello Focu$ed:

At first I thought I was listening to one of those buy gold and silver commercials......

I know you heard it before but don't put all your eggs in one basket. I'm old enough to remember the 70's when gold was going through the roof.....couldn't go down....guess what...same as the internet bubble.

The only other thing that I would caution you on is the state of the economy. Unemployment is now at its lowest in years and the Federal reserve bank has raised rates 15 times in a row in order to slow down economic growth!!! those scholars the intepret all the data are more worried about an overheating econmomy and inflation than a flat economy.

The S&P 500 is up 63% since 3/03 and has record earnings. The PE is only 16.1. This is solid returns and doesn't signify a weak economy.

You need to do what you are comfortable with but I just wanted to put some facts out there for other folks to consider. I prefer to diversify.

Good luck to you with your retirement plans. It sounds as though you have a good plan...other than asset diversification IMHO.

Edgar

[old woman]

I know you heard it before but don't put all your eggs in one basket. I'm old enough to remember the 70's when gold was going through the roof.....couldn't go down....guess what...same as the internet bubble.

I remember a man I knew in 1984 that had a car trunk with gold in it. He was making his fortune buying gold at 850 an ounce or something. I bet he felt bad when it fell like a rock.
I did buy a one ounce silver coin but it is pretty with an eagle on it I paid about 7.50 for it about 20 years ago. So if it is worth $12 now can I get that for it some place easy or do I have to sell it wholesale or on eBay?

[Focu$ed]

Quote:

Originally Posted by old woman I did buy a one ounce silver coin but it is pretty with an eagle on it I paid about 7.50 for it about 20 years ago. So if it is worth $12 now can I get that for it some place easy or do I have to sell it wholesale or on eBay?

I am not sure if you have a "proof" or a regular strike uncirculated Eagle. If it is a regular strike a coin dealer should pay "spot silver" for it and will sell it for $2 - $4 over spot. If it is a proof coin, it is worth more. The value would depend on the year, but $30-50 perhaps. eBay works too if you don't have a coin dealer near you.