Market and Meaning is our weekly update on market movements and their meaning for you as an investor. If you have questions or comments beyond what we discuss here, please leave them below or contact us directly. Also, don't forget to take advantage of our Education Center - a great resource for growing as an investor and getting your questions answered. To follow us more closely at Investor in the Family, be sure to subscribe by entering your info in the field to the right side of our website and follow us on Twitter, Facebook, Scutify, and even Pinterest.
The most notable events of the week were the fact that all major indexes jumped, mostly erasing the large drops we wrote of last week. This is the second time this year markets have experienced a notably drop drawing fears of beginning a larger correction, only to quickly experience a near or full recovery. In the end, markets are mostly flat for the year and people continue to talk of a "coming correction" that seems to just not want to come.
We have warned of a coming correction and still believe the chances are highly in favor of a correction of greater than 10% before the markets continue their rise into bubble territory. We have been taking a mostly cautious route by keeping 20-40% of our portfolio in cash, but are currently on the lower end of that scale. We took advantage of recent drops of close to 30% in our two favorite stocks, Glu Mobile (GLUU) and Amtech Systems (ASYS), and increased our holdings in each. In an idealized scenario, the typical stock portfolio would hold around 20-25 stocks each making up around 4-10% of the portfolio. When we find stocks that we believe have very strong potential and are not considered speculative picks, we give ourselves the freedom to break the 10% barrier. On the recent price drops, we increased our holdings of both GLUU and ASYS beyond the 10% threshold. When we do this, we take the risk of one of these investments not working out and really hurting our portfolio, but we also create the opportunity for significant gains. We expect both stocks to double from current levels and have deemed the risk to be worth it in this situation.
As we continue to keep our radar up regarding the threat of an overall market crash like we saw in 2001 and 2009, a few things to keep an eye on are IPOs and insider selling. The IPO market had been really hot, take Twitter (TWTR) for example, which doubled on its first day of trading. More recently, the Chinese version of Twitter, Weibo (WB) debuted lower than expected. Historically, a rapidly growing and hot IPO market, followed by a quickly fading IPO market is a sign of the stock market reaching a top and an important warning sign of a potential coming crash. The more sober IPOs of stocks like WB is not enough in itself to cause alarm, but is worthy of notice.
The same thinking goes for insider selling, which was up 18% in the first quarter of 2014 over the same time period last year. Insider selling can be a sign that people who are more knowledgeable about their companies are selling stocks instead of buying, a potential warning sign of things to come. Again, this is something to take note of, but not to be alarmed by...yet.
What does all of this mean for the investor? Nothing has happened in the last week to change our minds regarding the markets overall. Ukraine and Russia continue to be a major point of concern and we likewise continue to believe a market correction is very likely. All the same, we are still very invested in stocks and have been taking advantage of recent pullbacks to buy more. We continue to monitor the health of the markets closely and will continue to keep you fully updated on our personal thoughts and moves. Everything we share here is a direct reflection of what we are doing with our money, our talking is a reflection of our walking and we are in this together.
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Gold (GLD) closed at $1294.60/oz and Silver (SLV) at $19.65/oz. with both down notably for the week. It is notable that gold and silver both declined for the week even with the escalation of tension in Ukraine, something that would typically cause gold and silver to increase.
Also of note is a recent gold report regarding the Chinese gold market. In six years the Chinese demand for physical gold for investment has grown nearly six-fold. The investment demand for gold in China was 408 tonnes in 2013 versus 67 tonnes in the U.S. and 265 tonnes for all of Europe in 2013. Why does this matter? Right now the U.S. Dollar is the reserve currency of the world, but that title is beginning to show some cracks. Could China be building up their gold reserves to make a move toward having a gold-backed currency? Time will tell, but in a world where almost every major central bank is printing more and more money, devaluing their currency in the process, a move like this could change the world economic landscape in China's favor.
Our opinion on gold and silver is unchanged. As we have said for weeks, we are still looking for one more big drop, perhaps even gold declining to $1000 and silver as far as $16 before a longer term rally begins. We are waiting for these price drops before we buy anymore gold or silver. Our general time frame is May/June, but that is being held rather loosely. That said, if we did not own any physical gold or silver, we would consider the current prices to be a very good entry point for long-term investment. It is important to reiterate that we are talking about owning physical gold and silver coins and bars, not stocks or ETFs. For information on how to buy gold and silver, please see "How To Buy Gold And Silver."
Bitcoin is sitting at around $508.58, up nearly $100 from last weekend. We are officially buyers of Bitcoin when at or around $500 and especially when closer to $400. The Bitcoin price chart shows that prices are currently toward the bottom end of the price range. We intend to have Bitcoin make up approximately 1-2% of our overall portfolio of investment so when prices drop like they currently have we spend more "lottery money" on Bitcoin, buying some fractional amounts. If you have been considering buying Bitcoin, these are some of the lowest prices we have seen since the dramatic price jumps in December of last year. Caution and small amounts of money are prudent because however things unfold from here, we continue with our view that owning Bitcoin should be equated with buying a lottery ticket. If it becomes "established," it could skyrocket from here, but it could also fail to catch on and crash to $0. For information on how to buy Bitcoin as well as our views on investing in it, please see our article, "How To Buy Bitcoin."
Disclosure: I am long GLUU, ASYS.
Additional disclosure: We also own gold coins and bars as well as some Bitcoin.