The most annoying thing about the market is the fact that it's like being in high school. The fads come and go, and if you don't roll with it, you are labeled "uncool". In the investment world, the most polite word might be "contrarian". It's not about doing things just to be contrary. It's about common sense and conviction going out of the window in the face of peer pressure. Once we graduate to the real world, the problem is that the cost of buying the "right" pair of jeans is nothing compared to flushing sizeable chunks of cash down the toilet by chasing performance, a.k.a. buying at the top when you can't stand to watch it go up anymore.
Take gold for instance. Four years ago, in December 2001, I was on air with Jonathan Hoenig when he co-hosted E*TRADE's The Trade radio show. What did we talk about as the big news for 2002? Gold.
My opinion at the time was not based on any of "The Great Reckoning" deflationary apocalypse stuff that Robert Prechter, James Davidson, Lord Rees-Mogg, Ravi Batra and the like have expounded for an eternity. It was not because I believe in going back to the gold standard. It wasn't because of some great crystal ball. I had no smoke, no mirrors, not even rudimentary rocket science.
It was a simple, quantitative fact. On a 52-week basis, gold began to outperforming the S&P 500 Index in 2000 after underperforming since 1995. By the time I spoke to Jonathan, the move was already nearly two years old, and therefore, we were simply discussing a fact - that gold was on the uptrend. For you discretionary pattern traders, it was the biggest H&S bottom in history! (Click on chart to enlarge.)
So forgive me if I am not excited about it at this point. It is old news. Very old news. For now, here is a question:
If gold has been going up for nearly six years and the masses are finally clueing in, is the price more likely to be closer to a near-term top or bottom? Contrast this with the broad stock indices. They have been going up for two and a half years ... and no one seems to think that it's a bargain.
P.S. I know the "$1,000 Gold" gurus are taking all the credit, but while the price is indeed up, their scenarios missed the mark by a galaxy or two, rendering their original hypothesis invalid. They should rightfully attribute their fortune to luck.
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