SAD STORIES

SAD STORIES

I have recently received sad stories from “investors” (I prefer to think of them as gamblers) about uranium stock purchases that have declined by anywhere from 60% to 90%. These are not new events, they happen all the time to gamblers who DO NOT follow the technical market discipline.

Many years ago I had advised my subscribers to initially buy Bre-X at a post split price of $0.31 and later recommended they sell at $23.00 purely based upon charts and indicators. It was surprising how many did not take the sell advice and later were crying the blues (one subscriber lost something like $65 Million on the stock but he apparently knew the President of the company and held on). In another case I recommended my subscribers sell Nortel at the post reverse split price of $1000 (it’s now at $0.12, you do the math) purely based upon the charts and indicators (mentioned in the Globe & Mail newspaper at the time).

Now, I myself have not been immune to stupidity such as that. In my young and stupid days I made a killing on my first “investment”. Back in the mid-1960’s starting with $5,000 I was at $35,000 by the end of my first year. Boy, I thought, why isn’t everyone a millionaire? The next year I found out why. By the end of another year I was down to a portfolio of ZERO, using sophisticated options which I knew little about. I didn’t do it all alone, I had the advice of “experts”, several of them. There were a lot of lessons learned along the way, one of them was the introduction to technical analysis and the opening of the sky to shine the light on what I was doing wrong.

Back to the present. I do not consider myself part of the mainstream investment industry community. My training and experience has all been outside of the mainstream. I think the mainstream does a great disservice to their clients by emphasizing “quality” and the “buy and hold” long term strategy and RARELY providing the sell recommendations that would save investors their portfolios during rough times. How often have you heard the advice to “ride out the storm”? There is the other end of the spectrum where the mainstream may recommend the “dogs” and may even emphasize their risk but once again, never provide the exit strategy that would save the investor’s capital in the event of an error or reversal of trend. Then, of course, there is the investor (gambler) themselves who refuse to sell when they should because they may show a loss on the deal, only to see much bigger losses further down the road.

Technical analysis IS NOT perfect. As a pure market technician (I know nothing about a companies business, earnings, sales or anything like that) the only thing I can promise investors is that if you use the technical discipline for your buy and sell strategy then there will be times when YOU WILL LOSE CAPITAL.

Get used to it.

What the technical discipline does do is limit your loss so you have the capital to invest later most likely at a much lower price. During times when you may be wrong in following the technical discipline and a stock may turn around on you, well, you still have the capital on hand to get back in if you so wish. Any small potential loss of profit can be looked at as an insurance premium. But if you do not follow the technical discipline you then find yourself in the situation that so many have found themselves in, down 60% to 90% and wondering what to do next.

As I mentioned above, I had many sad and stupid adventures in my younger days. Most of them lead to lessons learned. Maybe I will present some of these adventures from time to time along with the lessons learned.