Silver is the Investment N-word, III – Your Mom Did What?

Last week my girl’s mom sent me into a tailspin of disappointment that I haven’t felt since my girl miscarried. Here is the email her mom sent me, absent real names to protect me from being sued by the guilty:

IRONX Investor Update
From: Lisa
  .

Sean –

There are a lot of negative numbers. What is this? Can you help me?     .

———————————–

Dear Investor –

Just an encouraging note to put things in perspective from the first of the year until last Friday.  While the S&P 500 index is off (-9.59%) year-to-date, Ironclad Managed Risk Fund (IRONX) is only off (-0.77) for the same period and has 34% less risk (standard derivation) than the S&P 500.  Most all of our clients are up year-to-date due to the fact that they also have a fixed-income component in their portfolio invested in U.S. Treasuries.  IRONX from inception (10/14/10) is up +4.31%, while the S&P 500 is off (-2.70%) for the same period.

While the article below talks about “Bipolar Investing” we have used a very rational thought process to protect your account(s) in down markets.  While no one can predict what the market will do, we can prepare for periods like this using our “Ironclad” strategy and let the market’s volatility work for us.

Please let us know  if we can answer any questions or be of service in any way.

Best regards,
Karl and Kris

Please pass this along to interested friends and associates using the “Forward Email” link below  or “Safe Unsubscribe” to stop further mailings.

Bipolar Investing

It seems that virtually everybody agrees that during the last few weeks, the investment markets have been ruled more by emotions than logic. But as we watch the markets rise and fall like giant ocean swells,
it’s fair to ask: how, exactly, does this happen?

Reuters offers some insight. It describes a “bipolar market” made up of traders and policymakers who are constantly trying to guess how daily events might affect other market participants, rather than buying based on what they perceive to be the actual value of the company shares. Some are using high-frequency trading algorithms that react to headlines and overall market trading patterns, which exaggerate every trend on the upside and downside. The article points to a study by the Tabb Group, a financial markets research firm, indicating that during the week of August 8, high-frequency trading firms and strategies accounted for 65% of the daily trading volume in the U.S.

The problem for the rest of us is that there is no good market forecast that will predict what might start these twitchy programs buying or selling. Meanwhile, the media has become a virtual echo-chamber; instead of a mature discussion of the economic fundamentals, you hear breathless reports of what is happening now, which reinforces each current trend even further.

A number of economists in the article say that they expect this volatility to continue until the unlikely day that traders give up their algorithms designed to respond to headlines, and the news organizations decide to emphasize fact over frenzy. They worry that this experience, so close to the market panic of 2008, could change investor behavior for the worse, either driving more individual investors into the herd to buy high and sell low in a panic, or to avoid the markets altogether and lose out on the higher returns that are generally associated with stock investing. Either behavior would endanger their ability to fund their retirement. It would also mean they would lose the chance to take advantage of stock bargains every time the twitchy programs decide to dump everything.

Because of this emotion, the stock market is the only part of our economy where people flock into the store to buy when prices are going up, and rush for the exits whenever prices go down. Here’s a prediction: a few years down the road, a lot of investors will look back at their participation in the herd mentality and wish they could have had the fortitude to buy when everybody else was selling.

A recent report by the Reuters news service, entitled “The Madness of Wall Street”

After splitting my knuckles, white, on an Everlast heavy bag, red, for twenty minutes, I grabbed my girl for a sparring session.

[SEAN]: Your mom did what?

[SHANNON]: Calm down!

[SEAN]: What the f&ck happened? Your mom had a plan. We spent hours and days on that plan.

[SHANNON]: Last summer someone from my mom’s church said that gold was in a bubble. You know how my mom and dad were scorched by the tail end of the housing bubble when they bought a 1,000 square foot, two bedroom, one bathroom house on a quarter acre in 2007 for $170,000 in St. Petersburg, Florida, now worth $70,000. So just the mention of a bubble scared her away from the plan.

[SEAN]: But we went over bubbles with her on the phone. There is virtually no general and no institutional participation in buying precious metals. The mainstream media is in no way advocating precious metals. The Federal Government isn’t implicitly advocating precious metals with enticing IRS Tax filing deductions. The Wall Street villain banksters will never advocate precious metals because they can’t get a fee on something that can be bought at a local coin shop.

[SHANNON]: My mom is simple.

[SEAN]: What can be any simpler than going to the local coin shop and getting some coins?

[SHANNON]: The guy at the church made it as seem simple as a signature. Price shopping was too intimidating.

[SEAN]: Yes, there were variables in the plan. I gave her phone numbers to shop around. It’s always prudent and beneficial to have choices. I also offered to walk her through the transactions. Get the prices and call me. My coin dealers are no pressure guys. So let me take a guess here and say this high flying religious holy-holy f&ck from the church is involved with this worthless fund.

[SHANNON]: Yes.

[SEAN]: There isn’t anything more disgusting than “someone at church told me.” The piece of s#!t should be crucified for penny stripping your mom’s inheritance, her sole means of support.

[SHANNON]: I know you’re pissed. Get over it and just let my mom know what the hell that investor update meant and give her some pointers.

[SEAN]: I’m not going to hold back.

[SHANNON]: Of course. How else do you serve knowledge?

RE: IRONX Investor Update
From: Sean Edward C. (voxOnox)
                 .

Hi Lisa –

I hope all is well.

I spent some time talking with Shannon the other night about the “investor update” email you received and she said you most likely needed a clarification on what exactly was said and meant by the “IRONX investor update” you received and she said that any additional insight and observations would nice.

For starters, if the “investor update” was phrased in plain honest language, it would have read as follows:

————————————————-

Dear Lisa:

The experts generally refer to your investment fund, “Ironclad Managed Risk Fund,” by its ticker symbol, “IRONX,” and since I am one of those experts I will refer to your investment as IRONX herein.Your investment IRONX just took a noise dive off a cliff.

 

 

The dive down looks mighty terrifying, right?

Actually no, it wasn’t that bad.

Yes, your investment was temporarily bloodied and bruised, but relatively speaking, IRONX is looking mighty handsome compared to a good performance benchmark, the S&P 500 index (ticker symbol SPX).

The following chart compares IRONX (your investment) with SPX (a good performance benchmark) and assumes an initial invest of $100 on the inception date of IRONX fund:

So although IRONX went from a net 7.5% gain as of August 1st, and fell to a net 3.8% loss just one short week later, the fund has recovered most of this loss as of the date of this email (August 22, 2011).

As for tomorrow, who knows? You might be up. You might be down. Investing is as bipolar as sitting in front of a Las Vegas slot machine. No one can predict when the ever elusive three cherries will show up. Just remain ironclad in your investment seat and let the machine work its magic, even when three cherry bombs keep showing up.

The stock market has been slaughtered since the debt ceiling debacle in early August, so overall, you are truly fortunate to be slightly ahead from October, 2010.

Hopefully this was encouraging. If not, please read the linked article filled with uppity financial gobbledygook meant to confuse and patronize you into remaining silent as we experts whack our lucky little dimpled white balls around the gulf course.

Ready to knock a few strokes off that old handicap, wish me luck,

Karl and Kris

————————————————-

That was the straight talk version of the investment update from THEIR perspective.

The following are my observations regarding the update:

————————————————-

Observation #1 – Limited Hangout:

My first mentor at my first Accounting job wrote down the following quote on the back of his business card before he gave it to me. It read:

  • “There are three kinds of lies: lies, damned lies, and statistics.” – Mark Twain, 1907

After I read the quote, my mentor said, “Those words must absolutely be considered before reviewing any financial or accounting data. Essentially, there is NO greater way to deceive someone than to present a case using numbers and statistics. Use your own standards to verify.”

  • “The first one to plead his cause seems right, Until his neighbor comes and examines him.” – Proverbs 18:17

The main statistical argument that the investor update provided was the comparison of IRONX to SPX, so this is where my critical focus is centered.

When dealing with ANY performance benchmark, I do NOT use the SPX. I instead use a fund that is diversified in foreign currencies, bonds, stocks, and precious metals; I use a performance benchmark that recognizes only true diversification of wealth can be benefitted by and protected from any and all economic conditions. I am referring to the Permanent Portfolio (ticker symbol PRPFX).

As you can see, PRPFX never nose dived, in fact it retained a substantial portion of its year-to-date gains when the debt ceiling financial market volcano erupted.

Furthermore, again assuming an initial investment of $100, let’s compare SPX to PRPFX over the last ten years:

The SPX lost 12.43% of its value since January, 2001. And considering the loss in purchasing power of the dollar (inflation) over the last decade, the SPX is down at least 50% since 2001. On the other hand, the PRPFX has almost tripled in value over the same period of time, also outpacing the government’s calculation of inflation, which is the Consumer Price Index. So the PRPFX both grew in value and maintained its purchasing power over the last decade, and for that matter, since its inception in 1982.

The investor update set out to prove a single point, “Ours (IRONX) is better than theirs (SPX). Stay with ours.”

Yes IRONX beats the SPX, but the SPX has been a loser for 10 plus years. Keeping your money under the mattress beat the SPX, so it’s a poor benchmark, to say the least.

However, the IRONX doesn’t beat the PRPFX or Gold or Silver.

Observation #2 – Just born yesterday:

The inception date of IRONX, October 14, 2010, concerns me. Without any long-term historical data proving gains and/or losses over a long period of time, the recent performance of IRONX could just be dumb luck.

Observation #3 – Risk Assessment:

The investor update made this statement, “[IRONX] has 34% less risk (standard derivation) than the S&P 500.”

This statement asserts, defines and limits risk in terms of price fluctuation/volatility and ignores all other risks.

ALL paper financial assets (bonds, stocks, currency, insurance) are contracts between two parties. ALL contracts have the inherent risk that one or both parties will fail to deliver. This risk is what lawyers call “counterparty risk.” I simply call it what it is, “default risk.”

In 2008, the world was witnessed to how real and how highly probable default risk is concerning ALL paper financial assets and the institutions that create them (the banks). Both Bear Stearns and Lehman Brothers, two Wall Street giants, collapsed into nothing, zero value. The rest of Wall Street would be at or near zero value if our federal government didn’t intervene by mortgaging away our future to bailout the “too big too fail.”

Counterparty risk or Default risk is real and should always be considered thoughtfully when evaluating investment and financial decisions.

By the way, gold and silver have no default risk. If you hold the metal in your hand, then you own them. Period.

Observation #4 – Ironclad strategy

The investment update claims, “No one can predict what the market will do.” Then continued to reveal their strategy is simply to sit tight because the madness of twitchy investors is nothing more than a temporary phase that will soon pass. No worries.

On the contrary, my foundational investment strategy begins and ends by paraphrasing Richard Maybury’s connection of investments to politics: The quality of an investment is based on the quality of the economy; the quality of the economy is based on the quality of the law; and the quality of the law is based on the quality of the politician. So if you want to know the quality of an investment, you need to understand the quality of your politician(s).

So based on the ever expanding and ever evolving political corruption, incompetence, treason, bribery, dishonesty, warmongering, volatility and debt explosion at all levels of the United States Government, I can only conclude that this savagely repressive investment environment seen since July, 2007, and especially escalating over the last month, is just the camel’s nose under the tent and is not a time to sit back and relax, but is instead time to brace for the impact of a starved, rampaging camel.

I stay away from ALL paper financial assets (bonds, stocks, currency, insurance) including the U.S. dollar because the quality of our politicians is terrorizing and because of the high probability of massive default risk here and abroad. So the accumulation of my savings is stored in money. Real money. The original 5,000 year old money. Gold and silver.

In the end, I reach the same conclusion as the investor update, but for different reasons. No worries because …

  • “When you are aware, you can prepare.” – Chris Duane

And I too sit tight because I know my savings is no where near the Wall Street casino racket.

Observation #5 – Are you investing or are you gambling?

If you don’t understand what you are investing in, then you are essentially pooling your savings into a lottery ticket; you are gambling.

Make sure you know what this IRONX fund is and if it meets your goals.

I’d also review Rules #11 and #12 of Harry Browne’s “Fail Safe Investing”

Observation #6 – Third Opinion:

Discernment, discernment, discernment.

  • “The first one to plead his cause seems right, Until his neighbor comes and examines him.” – Proverbs 18:17

It is always a good idea to reevaluate your investment strategy at least once a year. Right now would be a good time. Obviously you have some concern and that’s why you sent the email to Shannon. And my response is NOT investment advice or guidance; I provided that last summer. This email is just my perspective on investment strategy to trigger your own questions. So I would present this email and the investor update to someone you trust and determine if diversification beyond IRONX is needed.

If you determine diversification is needed or might be needed, I would also suggest reading this article and viewing the following video on our economy, gold and silver… which will put into perspective the big picture, the why.

————————————————-

Godspeed (Silver is the Investment N-word and I scream it everyday at everyone),

Sean

 

 

Taking only 10% of her inheritance, the following was the plan:


 

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6 comments to Silver is the Investment N-word, III – Your Mom Did What?

  • MPB

    Another Great Work Vox! – and I can empathize with your frustrations, but equally applaud your ongoing efforts! This post sadly reminds me, all too much, of interactions with my “former” church -(of which I resigned my membership in disgust this year for reasons much WORSE than eluded to in this post) and my total failure to help my elderly father save what is left of his paper assets. Not that I haven’t given it a 1000% effort to try – ongoing for almost three years now! Again, a very close echo of your work / post. All I have to add is “You can lead a horse to water, you can’t make them drink.” And no, I don’t know the origin of that quote – don’t care, it’s appropriate. Keep Stacking!

  • Good article! Amazing how Christians know nothing about gold and silver when they are all through the bible. Keep trying to wake people up though!

  • 515050

    As long as one knows what he’s doing, numismatic assets (in gold and silver) are still better than paper. Just glanced the St. Gaudens MS63 in one of your charts. But make sure its not the confiscatable type (1933). Ask Langbord. Because the American government ‘confiscates’ these things, i.e. steals under the color and semblance of authority.

    Who would want to be on the Paper Gate Bridge? Or say something like “Time is Paper”? Or follow the “Paper Rule”. The standard has always been ‘Gold’ and ‘Golden’. Or Silver.

    Anyway, its time to kill the Goose that laid the Paper Egg.

  • Sean Collins

    MPB, I have changed the quote you used to “You can lead a horse to water, you can’t make them think.”

  • C.H. Gruyere

    You mean:

    “You can lead a man to the truth, but you can’t make him think”?

  • ewkeane

    alas, most folks cant do trend analysis.
    that is a shame as not only can it show you which commodity markets advancing, it can also show you which are steady (and which are in decline).
    this is what i learned from charts;
    since 2001, after mid september, silver price has risen above long term trend, a 10 year consolidation after a bull run. ( it wasnt a bubble, the price didnt get lower than than the lowest price (.25 cents) in history. When the daily price equals the 200dma, the price rises sharply 5 times out of 6. when it goes lower than the average, it quickly recovers and moves higher.
    the price rise seems to follow indicators like poor wall street performance and money troubles (long term declines in international value).
    playing markets from day to day to catch pennys on dips is for jobbers and speculators. real investors wont jump out unless their position is threatened by a long term bear trend. I would not sell unless it seems my position is on the end of an esclator trend. I would trade for paper until the trend reverses, and get back in at a lower buy in point, or look to buy into a thing that has better value appreciation over time.
    be your own broker and banker, and pay no fees.

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