One is the Loneliest Number – No Place For Waffling Wimps

The Entry Points

We should all admire individuals or money managers who step up to the plate and buy, when everybody is throwing around wild claims of “crashes” and “plunges”. Whether they are right or they are wrong, I totally respect their courage. One firm who is courageous (and correct), and recently stepped up to the plate, is Philadelphia Financial Management of  San Francisco. In the midst of the “crash” in Canadian real estate, the management firm bought Home Capital Group (HCG). Here is a chart of HCG with an arrow showing when they did a Bloomberg interview talking about their purchase. There was certainly ending action into those lows, but it takes courage and experience to buy into that situation. Good job! And they were quite alone into those lows.

Loneliness can be a big factor in markets and it can certainly work against us, but it can also work for us. My partner Stevie recently wrote a great post about this topic, but today’s post will look at things a bit differently. Yes, loneliness can certainly be a problem, and can lead to boredom, and it can eventually spiral into doing boredom trades. Every boredom trade has been a loser for me, and I was a total loser for allowing myself to get there. But those same feelings of loneliness can also work in our favor. How? When a market is at a major bottom, everybody is wildly bearish, yet we’re looking to buy, it is a given that we will feel like we are on a remote island – but that should then be used in our favor. By themselves, those feelings of loneliness are not a reason to buy, but it is a very helpful tool. Constantly monitoring our own psychology is just as important as monitoring the psychology of the weak hands. And also always working “hand in hand” with the weak hands is 99.99% of the media. That whole group is always wrong at the big turning points. So learn to use these psychological/sentiment tools – they’re free, very effective, and just as important as a chart. As an aside, the wildly popular moving averages on people’s charts are 100% useless at a major bottom, or on any time frame actually. In fact they’re useless just about always.

At gold’s secular bottom in December 2015 (December 17th), everybody was bearish, and they could not find one good reason to buy gold. The Fed was raising interest rates, all of the useless moving averages were pointing down, everybody in the media was bearish, all of the bloggers were bearish, most of the incompetent and exorbitantly high-priced strategists (HPS) were bearish  while the other HPS were waffling with their ifs/maybes, the gold permabears were ecstatic, and the gold permabulls had given up. But on 12/9/15, I thought it was finally time to buy gold. Why? For starters the technical reasons, which have been discussed numerous times – these include the selling climaxes, signs of strength, effort vs. result and other technical factors. Also, the weak hands were selling/shorting like wild hyenas. Plus all of the reasons already cited. And I was lonely, but the strong hands had my back.