Perfect timing method to always profit from precious metals... could it be that simple?

mrpaseo

lol, I wish we could count how many people look at this thread without posting...

Okay, so the bottom line is...

1) Buy something at any given price.

2) Decide profit margin. (Edited to add this in)

3) Hold item until price goes up and your profit margin is met.

4) Sell for a profit (Give Uncle Sam his cut).

Seems simple, what factors make this a flawed process?

Time (This is the most obvious): No one can determine the time it will take for your items to exceed what you paid and buffer in a profit worth your time. The longer you hold an item, the larger the "Opportunity" loss that you have where that money could have been spent elsewhere to earn a profit (Of which would have also been a gamble).

So how do we counter this flaw?

Not get into it: Precious Metals like any "Investment" is a gamble... Any one item is worth exactly and only what someone else is willing to pay for the item in the condition/QT that you have it.


Diversification (portion of your portfolio): Silver, Gold, Platinum, Mutual Funds, Real Estate (Not considered an investment to some), horse races, scratch tickets, lotto.... Not putting all your eggs in one basket will limit your exposure to your loss.

Educated Guess: Through experience (Real world or training), we get good at guessing what others will want. With the right amount of time dedicated to learning what you are dealing with, you may be able to limit your liability exposure.

Pre-Sale: Finding a buyer before you buy is always a good way to go. How can this be harnessed to turn a profit?

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Sorry about the ramblings above, just wanted to get some comments/opinions on what was said and if there is any additions that would be cool too.

My goal/process (Not in play yet). I have seen people with monster boxes full of older ASEs where they have random years in there with the cost per coin on the top in reflection to what they purchased the bullion for. I would love to adopt this practice and pick up a few rolls each year with the intention of selling them off over the next few years to further fuel future purchases.

With that, only sell at a profit. I would do this by only "investing" a set amount into precious metals (A certain percentage of my portfolio) and not betting the farm on any certain PM. I am hoping to start picking up a few rolls of ASEs starting in 2014 (Maybe three rolls a year) along side of any other PM that catches my fancy.

Thanks for reading.
Ray

cohodk

Seems simple, what factors make this a flawed process?

Time (This is the most obvious)

So how do we counter this flaw


Learn about TIME. I've written many times that TIME is the most misunderstood factor of investing. Most people opt of learning about time with a "long term horizon" or "time cures all ills" approach. Fortunately since 1933 we have only known inflation which has allowed assets to appreciate over long periods of time. Take out the tailwind of inflation and long term can become forever.

jmski52

The flaw in that reasoning is that you assume that the price will go up. That's the flaw. Don't confuse strategy with an assumption.

You can account for time; you can't account for flawed assumptions.

OPA

<< <i>The flaw in that reasoning is that you assume that the price will go up. That's the flaw. Don't confuse strategy with an assumption. >>



Not a flaw...since in most asset cases ... prices will or have gone up.... it's also known as the inflation factor.

jmski52

Making the assumption that prices will ALWAYS go up - is a fundamental mistake. A fundamental one.

derryb

Most people tend to continue holding waiting for a bigger gain. A common mistake when using your approach.

OPA

<< <i>Most people tend to continue holding waiting for a bigger gain. A common mistake when using your approach. >>



With your line of thought, I'd have to guess, that you have eliminated your self directed PM IRA? However, I doubt it.
PM's should be treated just like any asset. Buy low, sell high, however, you might have to continue to hold in order to sell for a profit. Nothing wrong with that line of thought.

jmski52

I never set up a self-directed precious metals IRA. It didn't make sense, too many intermediaries.

tincup

The problem is that it never goes the direction you think it will... or would like it to... at the appropriate time.

I remember some posts of those who strongly endorsed using the gold/silver ration to swap back and forth and thus keep increasing ones holdings like magic. Problem... works maybe for one or two times, they you find out you are on the wrong side and the ratio keeps going the wrong way.... so much for that theory.

derryb

<< <i>

<< <i>Most people tend to continue holding waiting for a bigger gain. A common mistake when using your approach. >>



With your line of thought, I'd have to guess, that you have eliminated your self directed PM IRA? However, I doubt it.
PM's should be treated just like any asset. Buy low, sell high, however, you might have to continue to hold in order to sell for a profit. Nothing wrong with that line of thought. >>


Wrong guess, have five self directed IRAs.

A self directed IRA that trades in PMs (I prefer ETFs) is the perfect trading vehicle for getting in and out of metals. My comment only points out a common mistake made by many - seeing a gain and not taking it in hopes it will go higher. With metals the gain can disappear in the overnight metals market and turn into a loss before equity trading begins the next morning. Great risk waiting for more gain overnight when trading equities concerning metals because of the fact that metals themselves trade when equity markets are closed.

jmski52, a self directed (you make the trades) IRA that trades in metals is not the same as a precious metals IRA. In the former you buy and sell whatever equities you want (including metal related products that have a trading symbol) when you want (during equity trading hours) with an online broker at low transaction fees. In the latter you have physical precious metals deposited directly into the IRA without taking possession of the metal and you pay storage fees. If your IRA is a Roth you pay no taxes on gains when they are withdrawn.

MGLICKER

In economics it is called opportunity cost.

Say you bought Gold at the highs of 1980 and sold 28 years or so later when the price was again topped. You would have found that the stuff you could buy with that cashed in money had doubled or tripled in price.

mrpaseo

<< <i>The flaw in that reasoning is that you assume that the price will go up. That's the flaw. Don't confuse strategy with an assumption.

You can account for time; you can't account for flawed assumptions. >>



Really? Assuming the world does not implode you do not expect at some point over the next.... thousand years or so that "Stuff" will go up in value?

mrpaseo

<< <i>Making the assumption that prices will ALWAYS go up - is a fundamental mistake. A fundamental one. >>



I know things go up and down in value, as I stated, hold until it goes up then sell... be it three weeks, 8 months or 10 years.... at some point stuff appreciates... that is the general consensus. What can you buy cheaper today that you could buy in 1950? (I'm not talking about technology that is uber expensive when introduced then less when mass produced).

mrpaseo

<< <i>Most people tend to continue holding waiting for a bigger gain. A common mistake when using your approach. >>



EXACTLY, this should be another flaw on the list. I have learned that it is good to chose a point that you want to sell... So when you purchase something for $100 and decide that you want to get $120 for it... Then sell when you can get that.

mrpaseo

<< <i>In economics it is called opportunity cost.

Say you bought Gold at the highs of 1980 and sold 28 years or so later when the price was again topped. You would have found that the stuff you could buy with that cashed in money had doubled or tripled in price. >>



Yes, opportunity cost, that's the point I was looking at. Holding something for a year is one thing, holding and building on it for 10 years hoping for a pay off is something else. As I said, the longer you hold onto it, the more "Opportunity cost" you are losing.

So since there is no way to determine what asset will pay off exponentially, how does one determine what amount of investment X to hold onto for what amount of time? I mean, I like the idea of having a "Stack" but to what percentage of my portfolio and for how long? What is the end?

I'll tell you, in my mind, I am not saving for me but for my Daughter. I know I need to live, and I do/am. But my goal with my investments is to eventually live off the pension and dividends earned on the investments then hand the principle balance off to my Daughter. This is why I don't really have a timeline (I mentioned a thousand years above but I was being facetious though the point of an unlimited timeline holds).

My though right now is about 7.5% of my portfolio to be in PMs (ASEs, Maples, with a side collection of oddities). With that in mind, I do not expect much over the years... I don't expect a large return, I don't expect to make a killing, what I expect is it to be there when I need it... Though like most any investment, what it will be worth at the time can not be determined until said time that it is needed...

What's driving this conversation is there is no way to know what to invest in for the future .... right? (I guess that's another question). So I was thinking about diversifying... this way when one "Investment" is down, hopefully another is up when I "Need" to exchange it for some fiat currency. And with that thought process what is a good amount (I know it is different with everyone) to put into PMs and what would be a good entry/exit strategy. Finally, the thought of opportunity cost came to mind but was quickly shunned by the fact that there is no way to know what the ideal "investment" is or will be... lol... which brings me full circle and to my goal of buying some PMs to sell over the years as profit opportunity arises.

Sorry about the large posts.

MGLICKER

Mr. P. Though I have never had the patience, cost averaging seems to be a good approach on long term investing. Say you have $1000 a year to put into Silver This year you could pick up about 42 Eagles for the grand. Say Silver is $10 a year from now (calm down folks, this is only an example...yeesh), you could pick up maybe 65 Eagles. over time you smooth out the average cost and benefit if the fed continues to print greenbacks at a rapid rate.

jmski52

Assuming the world does not implode you do not expect at some point over the next.... thousand years or so that "Stuff" will go up in value?

<<I have seen people with monster boxes full of older ASEs where they have random years in there with the cost per coin on the top in reflection to what they purchased the bullion for. I would love to adopt this practice and pick up a few rolls each year with the intention of selling them off over the next few years to further fuel future purchases.

With that, only sell at a profit.>>

This emphasizes my point. When you assume that the price will only go up, the plan falls apart the very first time that the price does not go up, because you are planning to sell some of the rolls when their value reaches a certain margin, and then to roll them over into additional purchases. Once the cycle is broken, the plan falls apart from lack of turnover (profit generation).

The other issue you mention, opportunity cost is a real term and it refers to the difference between the gain or loss from the investment vs. the rate of interest obtainable at current rates. You can't assume that you will incur an "opportunity loss" unless you have certainty that the other asset will incur a gain, and that certainty doesn't exist, except for the current interest rate obtainable through various forms of fixed income vehicles, such as a CD or an interest-bearing account.

If you decide to learn about "time", you will learn about discounting for time, and that's what I mean when I stated that you can account for time, but not for flawed assumptions.

RedTiger

It is that simple, if the price goes up in near a straight line, or on some time cycle, or some other fairly predictable and reliable indicator.

Let's look at two simplied examples. In example one, the person buys near the start of the bull market. He/she buys silver at $5 an ounce, sells for $6, is happy. Silver goes back to $5, person repeats sale at $6. This second time, however, silver doesn't go back down to $5, it keeps going up to $7. Where does the person get back on the train? At $7, at $6, at $5? If the person waits for $5 that price never comes again. Silver rockets to $20 and then past $40. If each trading bottom was so easy to call, we'd all double our money trading futures every month, but it rarely is that easy.

Okay, that's a relatively happy scenario. Say someone started the strategy with silver at $30 a couple of years ago just before the peak. The price goes up to $35, person sells. So far so good. Instead of going back down, silver keeps climbing. Person becomes impatient and buys at $40, sells at $45. Wow, this is easy. Okay silver backs down to $40, time to load up again. Unfortunately, the house of cards comes crashing down. Silver breaks $35 on the downside. Does the person sell now for break even on that bunch? Silver breaks $30, eating both profits from the up trades. Sell at $30 for no profit at all on the entire venture? Silver breaks $25 on the downside, now the person is in the red. Silver breaks $20? OUCH.

These are two simple examples. In the up market when does the person get back in. In a trending down market where does the person limit their loss, or double down, or do something else. Want to keep waiting? Remember the person loaded the boat at $40, at $18 that is a 60% loss. Again, major league ouch. If a person went all in at $40 that is a life changing kind of loss than an older person has slim odds of ever recovering from. Want to wait for $40 to break even? It might be a short wait, but it might be another 20 or 30 years. In the meantime, other investments have offered much better opportunities, while the silver person might still wait for break even for decades. I hope these two simple examples illustrate some of the issues. Trading and investing is always super easy in hindsight, not so easy in real time.

jmski52

Trading and investing is always super easy in hindsight, not so easy in real time.

Yep, easy after the fact. And opportunity cost is only known after the fact, so where does that leave you? Nothing is guaranteed.

And there is also that nagging old question of whether to diversify over various asset classes, or not. Do you try to allocate assets and then rebalance them periodically in order to keep from being overweighted in an asset class that has recently made significant gains?

Or do you let it ride, because that asset class simply has a lot going for it in terms of growth & opportunity? Why cut your potential profits short simply because you need to obsess over ratios?

These are always some of the questions.

ricko

Ray, you are looking for the perfect formula to riches.... it does not exist. There are, however, many ways to invest that will likely give you both short and long term profits based on history (which, of course, is not a reliable predictor of the future, but another tool to be used). Lots of advice here - good advice... however, it is still your decision and never an iron clad guarantee. Cheers, RickO

Baley

And there is also that nagging old question of whether to diversify over various asset classes, or not. Do you try to allocate assets and then rebalance them periodically in order to keep from being overweighted in an asset class that has recently made significant gains?

Or do you let it ride, because that asset class simply has a lot going for it in terms of growth & opportunity? Why cut your potential profits short simply because you need to obsess over ratios?

Because you have discipline

jmski52

Because you have discipline

Wouldn't discipline require that you follow the formula?

Baley

yup, it sure would and I sure do.

Baley

Say someone started the strategy with silver at $30 a couple of years ago just before the peak. The price goes up to $35, person sells. So far so good. Instead of going back down, silver keeps climbing. Person becomes impatient and buys at $40, sells at $45. Wow, this is easy. Okay silver backs down to $40, time to load up again. Unfortunately, the house of cards comes crashing down. Silver breaks $35 on the downside. Does the person sell now for break even on that bunch? Silver breaks $30, eating both profits from the up trades. Sell at $30 for no profit at all on the entire venture? Silver breaks $25 on the downside, now the person is in the red. Silver breaks $20? OUCH.


OUCH is right. At least the metal is pretty.

Is anyone minting a bullion coin featuring and Albatross?

TwoSides2aCoin

Don't buy at a time you can afford. Buy any time you can't afford to pass it up.