Why "Buy High, Sell Higher" Is a Good Strategy for Most Mining Investors
A great strategy to achieve good returns in mining is to buy equities close to a bottom while they are out of favor and hold them until they become popular. That’s easy to say but incredibly difficult to do, and most investors are not inclined to “catch a falling knife” while the sector is still in a bear market. Instead, most investors either intentionally or unintentionally wait until a bull market starts and an uptrend is confirmed before they buy.
Some deep value investors scoff at this as irrational behavior. After all, why would you abstain from buying something while it’s on sale and instead wait until the sale ends to buy that same thing? While that argument makes sense and you may lose some returns by waiting for the bull market to start before you buy, it misses a very important point: Most people are social creatures and want confirmation from others, making it practically impossible to buy during a bear market.
I believe most people are just not wired to be deep value contrarians who can go against the crowd and endure the non-stop negativity and pessimism that comes with buying equities during a bear market. It requires a very specific temperament to be able to buy a stock, see it go down 10, 20, or even 50 percent, and disagree with everyone who’s telling you how bad the stock's prospects are.
Ultimately, what’s important is to find a strategy that works for you. If you are a deep value contrarian who has no problem going against the crowd with strong conviction, then that’s great. But if you are not, and you attempt to follow that strategy, I think you’re more likely to sell your stocks at an inopportune time than to have the ability to hold them until the bull market starts in earnest.
Instead, a perfectly legitimate strategy that suits most people is to buy high and then sell higher. Mining stocks typically go through cycles and if you buy higher lows (pullbacks) in a bull market, you still have a large crowd cheering for the bull market to continue. Therefore, if you need positive reinforcement from others to hold equities through a bull market, this strategy might be a better fit, as long as you are disciplined and manage your downside risk well.
With that said, when mining equities are in a bull market, they can become short-term overbought and have violent pullbacks. Therefore, it’s important to have a solid strategy for when to buy and when to take profits. There is a tendency to FOMO into these equities when they are overbought and sell when they’re oversold. Buying when these equities are overbought is fine if you do so early in a bull market and have a long-term view, but it might be difficult for some, falling again into the “catch a falling knife” trap.
This is where technical analysis can be an incredibly important tool to help time entries by buying pullbacks in a bull market and reducing downside risk. We believe we are still in the early stages of a bull market, and there are still opportunities to buy solid equities while they are cheap, especially during a pullback. If you are an investor who needs to have positive reinforcement from others, and that’s perfectly fine, then now might be a great time to educate yourself on mining equities, how to value them, and how to buy them effectively by leveraging technical analysis.
Seasoned gold and silver investing veterans John Feneck and Don Durrett are hosting an event on Monday, June 17, about technical analysis. We are really excited about this event and can’t wait to learn their methods to time entries and exits with technical analysis. If you’re interested, please read more about the event here!
Update: Due to unforeseen circumstances, the event on Technical Analysis has been postponed until a later date. Please stay tuned by subscribing to our email list!
Disclaimer: This article is for informational purposes only and does not constitute investing advice. Please consult with a qualified financial advisor before making any investment decisions.
