Value Reflection


Here is why we need to use mathematically based value information, rather than economic news, to make investment decisions.

Come back with me in time.

Take advantage of my 50 years investing experience.

Gain lessons learned from my decisions.

And sometimes stupidity.

I was a gold and silver speculator in the 1970s and 1980s.

I made a lot of money.

Then I gave most of it back…

Stupid.

My profits came when gold and silver spiked in the late 1970s.

“This will go on forever”, I thought.

“Instability between the USA and the Soviet Union will push up the price of  gold.”

I thought.

Secretary Brezhnev died November, 10 1982.  A power struggle took place in the Kremlin.  Yuri Andropov became the new General Secretary.  US−Soviet relations deteriorated rapidly.   In March 1983, President Ronald Reagan dubbed the Soviet Union an “evil empire”.   September 1, 1983 the Soviets shot down of Korean Air Lines Flight 007  with 269 people including a sitting US congressman, Larry McDonald.

“Gold is really going to sky rocket now!”

I thought.

I bought!

This historical chart of gold’s price (that period is lined in red) shows how that went well.

gold

Gold’s price crashed.

I lost.

Let’s apply this lesson to yesterday’s wall Street Journal article “Gold Prices Fall to Seven-Week Low as Dollar Strengthens” (1)

The article says:  Gold prices fell to a nearly two-month low Monday, weighed down by a stronger dollar.

Gold for December delivery edged down 0.7% to $1,275.80 a troy ounce on the Comex division of the New York Mercantile Exchange—the most actively traded gold contract’s lowest close since Aug. 8. Prices have fallen in four of the last five sessions and in three consecutive weeks since hitting their highest level in more than a year, with concerns about interest-rate increases and a stronger dollar hurting the precious metal.

Investors have also largely shaken off recent geopolitical risks, weakening demand for gold and other haven assets that typically rise during times of political turbulence. Gold prices fell Monday even after voters in Catalonia backed independence from Spain in a referendum that was boycotted by opponents and marred by violence, and after President Donald Trump rejected dialogue with North Korea.

This could suggest that its time to sell gold.

My math based value assessment suggest the opposite.

It’s closer to the time to buy gold.

There are seven layers of tactics in the value based Purposeful investing (Pi) strategy.

Pi Tactic #1: Determine purpose and good value.

Pi Tactic #2: Diversify 70% to 80% of portfolio equally in good value developed markets.

Pi Tactic #3: Invest 20% to 30% equally in good value emerging markets.

Pi Tactic  #4:  Use trending algorithms to buy sell or hold these markets.

Pi Tactic  #5:  Add spice speculating with ideal conditions.

Pi Tactic  #6: Add spice speculating with leverage.

Pi Tactic  #7:  Add spice speculating with forex potential.

An “ideal condition” is a rare distortion of an economic fundamental that history has shown “almost always” reverses itself.  

The words “almost always” indicates that there is always risk, but our in depth analysis of gold’s price at Pi shows that based on inflation anytime gold drops below $1,225 the price is distorted, is a good value and is time to buy.

In other words we are at a price where its almost time to begin accumulating gold.

More of  yesterday’s Wall Street Journal news “U.S. Stocks Close at Records” (2)  suggest that US shares are really hot.  The article says: Dow industrials, S&P 500, Nasdaq Composite and Russell 2000 close at records together for the first time since July.  Major U.S. stock indexes advance.  Euro falls after Catalan vote. Spanish bonds, stocks under pressure.  U.S. stocks clinched new records Monday, as fresh economic data bolstered investors’ beliefs in a resilient economy.

Over past decades I have experienced how readers react when markets continually jump from high point to high, so I am issuing the following warning for the third time in a week.

No one knows when the super heated US stock market will begin its next bear trend.

What we do know is the value of the US market compared to its history and to other stock markets around the world.

The numbers below from Keppler Asset Management, another source of data we follow at Pi,  shows that the price-to-book of the MSCI US Share Index at 3.13 price-to-book is still well below the super inflated price to book of 4.23 in December 1999.

keppler

A bear will again descend on Wall Street.

The autumn and winter months ahead are a likely time.

Yet we cannot be sure.

We can still see profits and growth in US shares and we will… until we won’t.

All stock markets have risk and volatility, but that if you invest in the top ten good value markets, that have a price-to-book of just 1.43,  this is a much better deal than paying 3.13 price to book  for US shares that are their record high.

Take extra caution in your equity investments now.  The volatility quotient of the DJI is about 10%.

The trend is bullish so the trend won’t break until the DJI drops below 20,000.

That could happen in minutes tomorrow… or any day.

Remain alert.  Short-term trading algorithms can cause market trends to shift at astounding speed.

Prepare now what you will do if the markets panic.

Create a plan based on math based good value economic data.

Include watching the price of gold.

When the crash comes, stick to you plan.

Do not panic.

Turn on the auto pilot and normally add to your position.

Do not let feelings influence you too much.  Use logic and math instead.

Gary

(1) www.wsj.com: gold prices edge lower

(2) www.wsj.com: stock markets off to a strong start

 


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