Erik Wetterling, Founder and Editor of The Hedgeless Horseman website, joins me to discuss the key takeaways from his recent video; where he points out that when we know we are in a bull market, that it is always in hindsight, and by then big gains from rerating valuations have already been made.
We discuss the nuances and psychological emotional challenges around the seemingly simple primary task for investors of buying when sentiment and valuations are low, and then selling when sentiment and valuations are high. The discussion is tailored around investing in gold, silver, or copper resource stocks, but really could apply to positioning in any sector.
He points out that many investors will wait for many months of technical and fundamental data to show the bottom may be in, before even getting positioned themselves. As a result, they often end up top-ticking that move and buying a far higher price right in front of prices rolling over, as markets are cyclical, and they often have false rallies. Many investors hurt themselves by waiting and watching stocks going up high double digits and triple digits before finally gathering the emotional and psychological confidence to buy in, and then end up being the proverbial “bag holders” positioning near the end of a move.
Erik states that his value investing method of buying in multiple tranches when stocks and sectors are extremely oversold, undervalued, and cheap is not sexy or even complicated. However, buying during oversold bear market valuations over time builds a good cost basis to catch the majority of a positive rally; when the sentiment and pricing momentum inevitably shifts back to the upside once again.
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