An Illustration of the Mass Mindset in Action
"It's not the bulls and bears you need to avoid -- it's the bum steers." - Chuck Hillis
1 = stock is going no where, it's pure junk let me look at something else.
2 = lucky break, it's going to definitely crash.
3 = what it's still going up earnings are not so good people are definitely getting carried away its going to pull back and crash.
4 = ahh see I knew it was going to crash, thank God I did not buy. (Mistake the mass mindset misses the main point here. Yes it pulled back, but look where the pull back ended miles away from its first break out. A losers mind can only see the picture for what it is not, by replacing it with a picture from his or her imagination. Since they live in a losing sphere they focus on the negative aspects but not on the positive aspects).
5 = what happened here this stock was supposed to crash how the hell did it get here. Perhaps I should have bought I could have made a lot of money; this looks like a sure thing. So only halfway through stage 5 will the mass mindset decide its safe to venture out. Now this person finally musters the courage to buy. Vow it actually went up, great I making money.
6 = this stock is going to go to the moon let me tell all my friends about it; it looks like a sure thing.
7 = what happened it pulled back ahh I am not going to fall for this like I fell for it last time (look at number 4). Time to buy more, buy on the dip that's it.
8 = I knew it, its going up and I made more money, wish I had bought more. Next time I will invest more on the pull back. (Notice the loser's mindset does not bother to take time to notice that the stock did not put in a new high. All that matters is that it went up).
9 = it's going down again, time to really load up I don't want to lose this opportunity. Earnings are great so it must be a good time to buy some more.
10 = first dose of bad news and the stock takes a big hit, okay this is just temporary its going to go back up. (Blind faith huge mistake, one of the main ingredients of a losing mindset). Let me buy more and average down.
11 = maybe I should sell now things don't look good, but you know what let me just hold for a bit longer maybe things will change. Yeah things have to change look how fast this stock went up and it has pulled back so much. The worst is over it has to go up.
12 = this stock is dead I have to get out, its not going anywhere (this is when the stocks start to bottom. The secret programmed desire to lose syndrome has completed its mission. Trader is in state of extreme distress and shell-shocked). I am never going to look at this stock again I knew it was garbage why did I ever buy it in the first place.
13 = Slow base formations and the possible start of new up trend and the worst part is that this trader is out.
Take a close look at the above picture; the masses will react in the same way when it comes to this commodities bull market. They will dump when they should be buying and then they will try to buy when they should be selling. Nothing in this world comes easy for it did it was not worth it in the first place. So make sure you're positioned well to take advantage of the coming spectacular bull market. So far we have just barely begun the first run.
This is not to be confused with the concept of buying and holding. Every now and then its prudent to take some profits of the table and invest this money when there (gold, silver, oil, etc) is a pull back. However one should always maintain a core position as long as the long-term trend is up. That's exactly what we did; we took profits in November-December 2003 on ½ our positions and are waiting for an opportune moment to add to them again. When we wrote an article suggesting that individuals take some profits on their gold and silver positions, we were attacked on the basis that we were trying to promote a sell off. We specifically stated that one should not sell their core positions but only take some money of the table, but everyone seemed to miss the last part of our statement. If you look closely for the most of 2004 Gold stocks did not really do anything and in most cases actually lost money. However this type of behaviour is quite normal. First you have a massive move up, then sideways to down and then a final quick pull back to flush out all the weak hands. Now just when everyone should be studying the charts to look for new entry points, the weak hands will start to unload their core positions and this will indeed be a fatal mistake.
"It is what we think we know already that often prevents us from learning." - Claude Bernard 1813-1878, French Physiologist