Protect Your Portfolio With Gold & A Stop Loss

This article was originally written in October 2004 for Fearless Wealth’s Newsletter.
Wal-mart didn’t make very many people happy this week. Well, maybe it made some people happy, but only those who walked into its stores and bought things they don’t need with money they don’t have to impress people they don’t like.

Wait a second. That kind of sounds like the American dream, doesn’t it? In addition to the American consumer, I guess the short sellers of Wal-mart might be happy too. Its stock has been down 9% over the last five days. Nine percent on a stock that has a market cap of $240 billion (yes, that’s a “b”) is a lot of disappearing money.

If life was as simple as one stock going up or down, it wouldn’t seem so complicated, would it? But what if you added to the news that one of the stewards of the mutual fund industry was bilking its own clients and acting egregiously? That was Putnam’s wrong doings. In case you didn’t hear, they’ve been cheating at the mutual fund game at the expense of their clients. That’s you and me.

They got caught red-handed illegally trading their own accounts. So what’s going to happen? They’ll probably have to start some sort of orphans and widows fund that they will manage themselves while pretending they actually care about their clients.

The Putnam issue is a much bigger deal than Wal-mart underwhelming its investors. When a steward like Putnam cheats (and I’m sure they are not the only ones doing it) it kind of makes you wonder what else is going on behind the curtain. There’s lots of ugliness hiding out, but it will be revealed soon after this new bubble we’re in pops.

So where am I going with all of this? It’s kind of scary out there right now … in the markets, that is. I can’t believe that we have already created a new bubble less than four years after we popped the last big one.

I thought it would at least take my fellow Americans another ten years or so to another bubble.

So, just for the record, we are in a equity bull market, according to my indicators. My indicator is made up of two questions: Where is the long-term market trending and where is the short-term market trending? The short-term market is up. And the long-term market is up. Two “ups” equal a bull market, in my book.

Be part of the trend and let your profits grow.  Here comes tech stock bubble Part II. If you missed out on Bubble One, here’s your second chance.

When things get scary, really scary like wars, dollar destruction, historical amounts of debt, entire countries living beyond their means, Japan at a record level of debt, Germany at a record level of debt, France at a record level of debt, a US tech stock bubble [Part II], some Austrian body builder running the fifth largest economy in the world, and the steward of industries being found guilty of fraud, I wonder if it’s time to make sure that your money is protected.

Glad you asked!

The reasons above are just some of why I think God’s Currency is the place to be. But even if the facts above were not so, I would still suggest you own gold, for one simple reason. The trend of gold is up, and has been for over two years. Now add to that fact all the points in the above paragraph and you have a pretty sound argument to own the stuff.

Gold has been out of favor for 20 years or so. Not bad, eh? As I’ve said before, I look to the price charts for my answers. I follow the trends and simply jump on when the trend swings to a ‘Buy’, and get off when it stops moving up. The trend on this relic investment is all green. Both the short-term trend and the long-term trend are screaming “Buy me, Buy me.” The trend is never, ever, ever wrong.

Since we are in weird, uncomfortable times I suggest you take a good hard look at your current plan. Find out how much gold you have in your portfolio. Zero is not an acceptable answer. One of the best strategies in investing—it’s actually the best strategy—is to allocate your money to different assets so you can lower, or better manage, your risk. This is what gold is for.

You can never eliminate risk from a portfolio but you can manage it. It’s kind of like stress. Stress may never leave your life but you can learn how to manage the damn thing. Gold helps to manage and lower your overall risk, especially in these weird uncomfortable days we are living in. Gold is the warm blanket that will keep your money cozy.

I don’t know where the markets are going, and I’m not saying the markets can’t go up for the next 18 months, but what I am saying is that we are in scary times and scary times mean ‘Stop Losses’ and ‘Proven Investment Plans’. If you don’t have either of these, this is where you should start, after buying some of God’s Currency.

Lessons:

  1. The markets are really moving. Make sure your portfolio has a safety net (also known as Stop Loss).
  2. The trend tells you everything you need to know about a sector, stock, commodity or anything else that can be charted. UP is good, DOWN is bad (unless you are shorting).
  3. You might have to take it on yourself to get gold into your portfolio. Do it now. You will be glad 48 months from now.

To grow your net worth one month at a time,
RC’s Signature

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