Is this investment stradegy insane?

Stradegy is fairly insane
However if it was strategy overall its not too bad.

I used to cherrypick coins an sell them immediately for the quick cash.
But past two months Ive changed my strategy around. Whenever I cherrypick coins now, i set them to the side so I can cash them out all at the same time.
Only going to liquidate if a business opportunity arises.
About 5 grand worth of coins wholesale, picked for $800
In addition I take as much work as possible, took a seasonal job to get another $100 per week. Ive also started to do side work such as video gane testing, anywhere from $20-125 per hour.
Keep your credit owed low, never know when your going to need it.
As long as you constantly work towards your end goal, youll be fine.

 

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[If you don't want to read a long rant on my approach to economics please don't waste your time reading this]



Thank you. I believe it is important to study all forms of economics, but reject the typical neo classical Keynesian as the sole form of economics. As far as equity/equality I support a more laissez faire/Austrian Economics approach. (To the extent that I may be transferring from UMD to George Mason). My interests are in behavioral and neuro-economics, and I am looking forward to doing in-depth work on irrational economics. I would just like to note that my economic idols are Herbert Simon, Daniel Kahneman, and Paul Krugman. I believe that Dan Airely is a joke, and was not impressed with Levitt’s Freakenomics. I am trying to approach all of this with a grain of salt but my instincts tell me that we wouldn't even be talking about Keynesian Economics if it weren't for WWII, and the Baby Boom.

I am brand spanking new to the realm of coins, and investing in metal. I am looking forward to reading “The Intelligent Investor," and learning about investing as a whole.

I would love to talk with anyone about economics via a PM. Sorry from drifting off of the subject of bullion investing, and coins.

 

Just wanted to level with you all. I almost forgot you guys are CT members. I mean your way cooler than any other forum I hangout on. You collect coins, and are knowledgeable in the metal markets, as well as investing. Furthermore, you most likely have much more life experience, and everything that I have learned is second hand knowledge. I just came to the self realization that this is not the House of Commons, and I do not have to try to prove intellectual superiority just because I am an aspiring economist. It is purely a defense mechanism from being enlisted in the Army. On that note I'm going to go see what all of this Black Friday craze is about.

~Jason

 

I am more interested in macroeconomics, so guys like Simon and Kahneman or behavioral economics don't interest me. I'm surprised you like Krugman. He's openly collectivist and just about as far opposite of Austrian views as one can get. I used to spend a lot of time on stock market investing techniques, but have taken that about as far as there is to go.

 

I like Kurgan’s work on international econ. I thought he gave an objective approach in his book “Depression Economics." I also respect his opinions on the detrimental effects of the Graham-Leech-Bliley act as well as the CRA. In speaking about bounded rationality vs. Rational Choice theory I tend to believe that we use both. Left brain thinkers tend to be more rational and will resort to simple heuristics less often. But regardless of what kind of thinker you are, I believe we switch to simple heuristics as a way of preserving energy. (Sorry off subject). I guess I don't view Economics as the political arena. It doesn't have to all be peanut butter and Jelly. So Kurgan is rather liberal, but as an economist I respect him.

 

Jason, this is a conundrum. Everyone believes they are above average, but they cannot be. While this proves the "average" investor has to have average intelligence, it is average intelligence that moves the market. You cannot be too far in front of what average investors are doing, or you can be in a world of hurt. Many people correctly predicted the end of the dot com era, but were wiped out. They were too early. The old saying is very true, the market can remain irrational longer than you can remain solvent. You want to be one step ahead, not three or four or you can be swimming too much upstream and get overwhelmed.

Also, while average investors are average, please do not get too cocky. I have met the Phd's on Wall Street, and other investment professionals, and you would be surprised by the cumulative IQ. I do not believe any person in the world can out IQ this group, but you do have a huge advantage since you aren't on Wall Street and can avoid their groupthink. Warren Buffet claims he would not have been successful if he was headquartered in NY, his biggest advantage is he is in Nebraska.

Hope this at least gave you something to ponder. If it were easy everyone would do it, right?

Chris

 

There is little else that can be suggested. There are very few I have seen post that are more level headed than cloudsweeper. Being of a similar age as you I can understand the angst of looking forward. My first opinion: avoid all 2x ETFs. whether bull or bear they will get you in trouble unless you are following them on a second by second basis on a bloomberg terminal. They are deigned as short term trades, not to be held for any length of time (by this I mean days). I would also suggest you diversify. Own a little of everything and change your allocations based upon your future prognosis. This way if you are wrong it doesn't wipe you out. Lastly, stop hanging out with other economists (slightly tongue in cheek). I find that most people associate with others who see things the way they do and this leads to group think. From my experience (undergraduate at USMA) economically inclined individuals tend to be the worst in this respect. They will ignore or twist facts counter to their argument long past the point of ridiculousness.

but, remember this advice is worth what you have paid for it DYODD

Ryan

EDIT: I just went back and read all the posts after cloudsweepers and realized I was beaten to the groupthink idea. hopefully this reinforces the point.

 

This sound quite promising for me, I am also looking to do something similar. Would love to hear about your progress.

 

This is sage advice. Whatever you do, you should not have all your eggs in one basket as the old saying goes. Most financial advisors recommend that you have no more than 10-20% of your net worth in precious metals. On this board, I suspect that many have more than that. After all this is a community of coin collectors and bullion investors.

The point is you should stay diversified, you should own some stocks, some bonds, some real estate, some precious metals and maintain a cash reserve large enough to get you through 6 months to a year. Some other good advice is to pay yourself first, ie set aside money from every paycheck that goes into investment accounts, savings accounts, paying down a mortgage ahead of schedule, precious metals etc. In this way you will start to accumulate wealth. You shouldn't even see this money it should be directly deposited into your investment accounts without giving you the opportunity to spend it.

Third, you should take the long term view when it comes to investing. By that I mean 20-30 years. All markets will fluctuate, the value of your investment goes up and down. By lengthening your time horizon, you increase your opportunity to be able to sell when a given asset or investment's value is high and thus realize a profit.

We are in a bull market for precious metals, nobody can predict with accuracy how long it will run or when the top will be. But for those who've been investing in PMs for a while, or have significant bullion holdings that they bought when silver was $10oz and gold was $400/oz now is a good time to sell in order to realize a profit.

On the other hand, in my opinion now is a great time to buy real-estate. Housing prices are down up to 60% from their peak five years ago in many markets. A 30 year fixed rate mortgage can be had for 4%, that's super cheap money, and a historically low rate. That rate is less than half what I paid on my first mortgage. Real estate much like precious metals acts as a hedge against inflation, and if you're not living in it, you can rent it out. Moreover, you get a significant tax advantage from your mortgage interest deductions and depreciation if you are renting the properties. All this really adds up in the long term. I'm not a big believer in the coming cataclysm, but in an economic doomsday scenario owning land and property will likely still have some value.

I know my little blurb has been more about personal finance than macro-economic trends, but I believe that by diversifying and following some of the advice I've provided, you focus on what you can control rather than what you cannot, and you and your family will be set up to weather the storm no matter what happens in the greater economy. Good luck.

 

Shorting metals is risky to me, but double shorting is double risky. The only market more bullish than metals right now is bonds. The difference is that the Federal Reserve buys all the bonds nobody wants. Diverisification is the most conservative way to go, but in my opinion metals are the safest place to be. As I've said many times they have no counter party risk which is what the $600+ trillion derivatives market is built upon. To think that it isn't intertwined with the bond market and the stock market is turning a blind eye IMO since the assets (truly debt) are all owned by many of the same institutions. They are highly leveraged with their assets to the point that any deflation would cripple them, and those highly leveraged assets often belong to their customers in the first place. Among all of these investment vehicles, metals are the only one that has value no matter what happens, no matter who stays in business, no matter who stays in power, no matter where the wind blows they have intrinsic value. No other investment can provide this, because they are all IOUs.

 

Thanks for leveling with me guys. I get a little diluted when I'm in a manic economical mood. Sometimes I go on the defensive when I feel like I have a great idea and it gets shot down, especially by such knowledgeable people. Thanks for the discussion.

 

To me sir, you have shown that you listen to advice given, and even if you disagree with it you do think about it. That shows that you are open to change and possibly admit you are wrong about something. This is not as common trait as it should be, and as long as you are willing to continue to always accept you may be wrong or need to change tactics as information changes I think you will be successful.

Best of luck.

Chris

 

I like Ron Paul as do many others but I can only imagine what would happen if he got elected and had an audit done on Ft. Knox and it was revealed some or most of the gold bars were actually filled with tungsten or it was found out that the gold reserves have all been depleted through the years by the corruption and are now stashed offshore out of reach. I assume this scenerio has already been discussed behind closed doors. Just my opinion.

 

double shorts are ok as a short term financial instrument, but flawed for use as a long term one. I forget what the term is, but if you're double short silver, and silver starts off at $30 at the beginning of the year, then goes up and down throughout the year, and ends up at $30 at the end of the year, your investment isn't break even, you've lost money. I forget what the term is, tracking error, compound error, something like that. Leveraged funds are good only if the the price action is consistently going in the direction you want it to. If it oscillates up and down, you'll lose money on the daily recalculation.

 

Good points, there. I have trouble with his absolutist positions. Audit the Fed, and that doing taxes honestly is irrelevant because of a dishonest currency; such attitudes are impractical. "Opting out" of the system, it is impossible for anyone to pick and choose what they support in an interconnected system.

In a sense the money system has always been corrupt; when the golden goose gets killed because someone wants to find out where the golden eggs are coming from you get left with grease, not more gold eggs. "Analysis is (or can be) the kiss of death".

 

I'm wondering what this has to do with economics.

For the investment value of it, risk aversion is a useless static. I'm assuming that you're under 25, since you're in school. Unless you're pursuing post-doc certificates, you're going to be young enough that you'll ALWAYS end up at the extremely high tolerance end of the spectrum.

Now, that said, the bigger problem is how financial advisors and financial analysts define risk. On the analyst end, risk is defined by downside beta tracking. On the advisor end, risk is defined by long-term buy and hold assumptions that history defines an average growth anticipation.

I end up on the analyst end of the spectrum. If you're looking at shorting gold and going long silver for the next two years, you're looking at a probable σ value of 38% risk on silver per year, and about 27% risk on gold per year. The question then becomes: How much leverage are you planning on using?

You said your plan is to use a ultra-short gold ETF. Assuming you don't have direct access to futures, I'll assume you're going to use one of the variations of GLL (ProShares UltraShort Gold). Tracking error is the largest risk with "ultra" anything, but this is especially so with the short end of the ledger. Because of the design of ultra-ETFs, σ variance of tracking can swing as large as 10%. This results in a potential 70% underperformance relative to the tracked index. Basically, you would capture all of the downside risk, but only around 30% of the upside risk. This is one reason why it makes more sense to "go long" on the contrary indexes rather than short on something.

If you expect gold to fall, that means you expect alternative investments to strengthen. Silver tracks gold. This is true in the long-run regardless of what silver bugs tell you. If you're long-silver/short-gold for the next two years, you're basically flipping a coin. If your reason for being short-gold is strengthening of the dollar (assuming gold is over-bought), then you should short gold. If your reason for being long-silver is weakening of the dollar (assuming silver is over-sold), then you should take a position in silver.

Personally, I'm short gold / hold silver (because I think gold is over-bought, but I think this is a very short-term occurrence, and not worth trying to time) and long platinum group metals. If someone offers to trade me platinum for all my gold/silver at spot, I'll accept immediately. That's basically what it means.

I would be short-gold at ratios above 75 and short-silver at ratios below 35. Between the two, I'm basically "hold" but will swap out of one into the other. Right now, I think the markets have over-valued PMs altogether, but PGMs are trending down, and over the winter will become HEAVILY over-sold.

The economics are based upon macro encompassing of regional micro demand trends of Asian and Indian sub-continent purchases. The recent drop in silver was precipitated by increases in petroleum prices. Given silver's tie to the solar industry and drop in solar demand, it's unlikely that silver can sustain a true rally. The current ratio is a fairly accurate tracker of silver/gold. If there is a significant change in the ratio, then I can see a long-A/short-B strategy, but in the current environment, it is unnecessary. Pick long or pick short. Picking both will get you, likely, slaughtered.

 

Read the quoted post, then read it again and again.

 

First of all, thank you. That was the most logical and well explained response I have had on this forum, or others regarding this question. I had to do some research on unlevered and levered returns on this one. I guess my only questions are as follows.

How is my strategy much different from yours, subtract the platinum. If I Ultra short gold, it will be short term, and if I buy silver it would be physical (to hold for a long time). I am not talking about a silver ETF. If you are shorting gold, you are assuming that gold will decrease in value temporarily, and do to the historical correlation between silver and gold that little brother would follow? I am not trying to be a smart ass, but if this is what you believe than it would influence me in adjusting strategy. I would short gold and wait for silver to follow gold prices before buying. If gold short is temporary, than I'm assuming that you speculate that gold will increase and silver will follow. If this is the case, than I would dump my Ultra short, and be content with holding my silver.

~Jason

 

Honestly, you are going to have more definitive odds if you just take your money and head to Las Vegas. There is no predicting what is going to happen with either of these metals in the short term or long. What happens, for example, if Greece leaves the Euro within the month? What happens to the $700T (yes trillion) in derivatives the global TBTF banks have created for themselves? Fallouts, from just today, that the Fed has secretly handed the TBTF banks over $7T. This list goes on and on. The mathematics behind all of this isn't pretty for investors. Any analysis that assumes that all is well and the status quo will remain stable is well... folly (I'm being polite).

About the only thing that you can count on is this isn't going to last and that it won't be solved by those who are responsible for fixing it. I don't see how any individual can time what is going to happen in the short term. I will add this. Gold and silver are on the rise because of the above. Individual investors, investment groups and sovereign nations are all stocking up on the stuff (latter is gold) and taking physical control as an "insurance" policy because they no longer have confidence in the system.

 

Wow - this is a great thread with a lot of insight! And Jason - I wish everyone on the internet had your open-minded, humble attitude!

My $.02 is as follows:

For me, [physical] PMs are not a 'bet' for or against anything, but more like insurance against a monetary collapse, with the added benefit that you get to keep the money you put into it (in other words - if you're 'wrong' and the dollar does NOT collapse, you're left with a pile of gold, silver, platinum, etc... not too bad). If you're 'right' and we print the $ into oblivion, then you're covered too. The amount of 'insurance' (how much PM you buy) determines how well you are covered if the unthinkable does happen. You could do 'ok' or you could become an oligarch in the new world order (for lack of a better term).

Again - I hope it DOESN'T happen... and if it doesn't... you're left with a pile of gold (or pick-your-favorite-PM).

As the case for a monetary collapse gains more and more support (common sense says something needs to happen eventually), I'm putting more and more of my $ into gold and silver (physical - not ETFs), but I still have most of my $ in stocks. However, I do NOT believe that 'over the long term, my stocks are guaranteed to go up...' This is a very common [ubiquitous?], tempting, but dangerous viewpoint. If you've read Taleb's 'Black Swan' it's like the turkey on day 1000 (or whatever day it was): for 999 days it got pampered and fed like crazy, so it was natural for the turkey to assume that day 1000 (the day before Thanksgiving) would be similar. Bad assumption. Anything can happen. In life, the stock market, the grocery store, anywhere... Past performance is not indicative of future results. Ever.

Critics of PM 'investment' often say things like 'the gold bugs have been saying that for years and look - there was no economic collapse! Pffft! C'mon!' But, just like insurance for your house, your car, your family, or whatever... when investing in PMs to cover yourself (and/or your family) in the event of an emergency (monetary meltdown in this case) I would rather be two years early than one day late.

Personally, I would avoid PMs as a derivative-type investment. There are too many other options (pun intended).