The Primary Trend
The Primary Trend
There are deep, irresistible currents that carry prices upward or sink them down. We call it the Primary Trend. Even the best companies go down in price when the Primary Trend is working against them
Tuesday, September 24th, 2024
Bill Bonner, writing today from Youghal, Ireland
Last week, we introduced an unsettling idea:
What if we’re wrong?
Of course, having been married for the last half century or so... the question is not unfamiliar.
We get names wrong. Dates too. Places... historical events... verb conjugations... facts, figures... this, that and the other — all are likely to be mistaken. Fortunately, we are quickly corrected — even when we are right!
But what if stocks actually go up from here... to the moon? Won’t we feel like a moron? Won’t our wives, husbands, mistresses or boy-toys look for someone new... and our pets — those not yet eaten — run away from home... looking for owners who ‘went long’ in September 2024?
Anything could happen. Many people believe a big, new bull market is here, thanks to the Fed’s policy reversal last week. It’s ‘risk off,’ they say on Wall Street.
But does it matter? And here we reveal the real key to investment success: Don’t take the Big Loss.
This strategy is not just ‘defensive.’ Yes, of course, the Big Loss is devastating. You work hard. You save your money. Maybe your house goes up... or your stocks. The last thing you want is for those gains to evaporate and you have to start all over again.
You may say, avoiding the Big Loss is easy... just keep your money in cash or Treasury bonds. Or gold. Some people believe that ‘stocks always go up over the long run, so I’ll just stick with equities.’
But an ‘investor’ who kept his money in cash for the last hundred years, has been all-but wiped out. The value of cash is down 98%.
Treasury bonds would have done better — they pay interest! — but the effect of inflation overwhelmed the feeble yield. When the Fed began raising rates in January 2022, for example, the real yield on the 2-year Treasury was MINUS 6%.
Stocks? Investors were down for nearly thirty years after 1929. They were down for another thirty years after 1965 (inflation adjusted, of course). And now, measured in gold, they’ve lost more than half their value since the end of the 20th century... and still seem to be going down.
And gold? Hold ten ounces of gold for a hundred years and what do you have? Ten ounces of gold. Nothing more, nothing less. You can avoid the Big Loss with gold... but you can’t get the Big Gain.
The real reason for avoiding the Big Loss is not just to dodge these periods of financial terror. The secret is simple: you can’t win if you’re out of the game. And the only way to stay in the game, hoping to get dealt a winning hand, is to avoid the Big Loss.
Most stocks are losers; over 50% never make money for investors. The fortune-making gains come from just a handful of companies that make profits over a long period of time. Few people find them; fewer still have the patience to stick with them.
Meanwhile, there are deep, irresistible currents that carry prices upward... or sink them down. We call it the Primary Trend. Even the best companies go down in price when the Primary Trend is working against them.
And then there are all the surprises — taxes, war, bankruptcies, tech revolutions. Success comes from being in the right place... with the right investments. But you can’t know, for sure, where that is. And finding it is like finding the ‘right’ person to marry. All you can do is make sure you’re the person that the right person would want to marry. Likewise, you need to have your wealth intact when the right investments come along.
In the meantime, stay fit and cheerful. Gold is still our preferred bastion of financial protection. But even it is no guarantee of wealth when you need it. The gold price can go down for decades. (Though, unlike paper currencies, it never goes to zero.)
The real secret of investment success, we believe, is to favor gold when the risk of the Big Loss from other investments is high... as it is now... and then move back into equities when it is low.
Stay in the game. Get lucky.
Regards,
Bill Bonner
Market Note, by Tom Dyson
A brand new VLCC from a Korean shipyard costs $130m today... roughly the same as it cost in 2006. VLCC is Very Large Crude Carrier, the largest, most useful class of oil tanker on the seas, currently responsible for 70% of all crude ton-miles.
This chart shows the newbuild price of a VLCC going back 50 years, adjusted for inflation (light blue). As you can see, real, inflation-adjusted VLCC prices bottomed during covid but still are far below previous highs of the last 50 years...
I'll have more to say about this in my report for paying subscribers tomorrow, but in short, the bull market in crude tanker asset values has a long way to go... which is why we added four oil tanker stocks to our Official List this month...
I'm not certain history agrees with Bill.
My own family's history certainly does not.
What if we had never sold any stocks (that was my grandfather's method which has benefitted us greatly)?
The big one I see is my father's relatively small investment in Lam Research in the early 1990's would be worth $1.75 million today. But I found he sold out in the late 1990's for a substantial profit but not with the 100,000% gains we would see today.
I have owned Apple, Amazon, NVDA, Chipotle, Buffalo Wild Wings and many others that would be all worth in the 6 figures now but were sold too soon.
A quarter million worth of Lucent went to zero (the real big loss) and others too like Global Crossing, but the big winners more than made up for all losers.
This is my honest assessment of my last 40 years of investing. Of course, this has all been during the great bull market, but also encompassed the crash of 87, 2000's 75% loss for the NASDAQ and the Financial crisis of 2008.
It seems Bogle of Vanguard was correct when he said "Don't do something! Just stand there." At least, I have found that to be true for my life.
This might not quite belong here.
You can protect your financial security by blocking your Social Security Number. Nobody can open a new credit card or make a new loan or do anything where a SS number is required in your name if your number is blocked. You can block it over the internet or in person at a Social Security office .If you do it in person that number can only be unplugged in person at the same office where you plugged it. I found out about that because my number got compromised