Sunday, December 7, 2008

The Psychology Of A Bull

I spend a lot of time reading about current market events and different economist's ideas about where we are heading in the future. However, I probably spend just as much time studying the past.

After studying previous market cycles, what I find fascinating is investor's psychology throughout the scope of a bull market. For example, during the 1970's in the previous bull market for commodities gold was almost cut in half in 1976, from $185 to $100. Looking back now it was the buying opportunity of a lifetime, and the bull market continued upward to $850 in 1980.

During the 1980's there was perhaps the greatest stock market crash in history during October of 1987. The stock market crashed 508 points in a single day from 2200 down to 1700. Most investors were panicked beyond belief, and many were shaken out of the market. The investors that studied market cycles were ecstatic. If you knew that you were in a secular bull market for stocks and they were going much higher you cheered for major sell offs. People who bought in the next morning at 1700 were happy they did 13 years later when the DOW was touching over 12,700 in 2000.

That same year marked the end of the 20 year bull market for stocks and the beginning of the current bull market for commodities. We have recently seen a major correction in this commodities bull market that is very similar to the sell off in 1976 and the 1987 stock market crash. Some investors have been shaken off, and some are ecstatic.

When gold, oil, silver, agriculture, copper, and cotton fall in price, I do not get upset. It is wonderful. I love it when prices fall. People I know have recently made purchases in commodities and have watched the prices correct during this current period of deleveraging. They are upset and frustrated they are not moving higher. That makes no sense to me.

I own a ton of silver. Silver has fallen from $19.50 in mid July down to $9 at this writing. I'm not upset about it, I'm very happy. I was happy buying at $19.50. Now? I'm like a kid in a candy store. I'm leveraging my bets, buying mining companies and ETF's that will perform very well if the prices correct back upwards. I hope silver goes to $2, gold goes to $200, and oil goes to $5.

All that will matter when the bull market is over is how many ounces you own, how many oil company shares you own, and how many agriculture, mining, producer shares you own. If you can keep that mindset, then price corrections only allow you to make more money at the end.

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