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Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Wednesday, August 29, 2007

Day to sell!

Geez I hate re-writing posts...I pressed the button to send this post at 9:30AM this morning, but you didn't get it because of a power failure in the Philippines. Fifteen years ago alot of countries were having power failures...its incredible that the Philippines still has them. Which means:

1. I need to get a diesel generator and battery to stay powered.
2. I need to write blogs offline

Anyway, the big news is, today is a good day to sell your stocks. Why?

Because the technical analysis of the chart below - the Dow Jones Industrial Average - is following a downtrend. I must however say that the evidence is not conclusive. On the negative side, we already have a sucession of lower 'highs' suggesting a downtrend. The big drop in the market on Weds was a clue that the market was staying in the downtrend. On the bullish side, overnight (their Weds) the Dow had a very strong rally (240 points), all the more impressive because it closed at a high. But it didnt break the psychologically important Weds high, so thats not good. So its difficult to read which way th market is going, but I can tell you that the next 2 days the Dow is going to move in one of 2 ways:

1. Upside: It could have a very solid rally tomorrow to break out of the downtrend. I would be looking for a 250 point move higher.

2. Downside: It could have a modest fall of 50-80 points on their Thurs, followed by a much bigger fall (confirming the downtrend) on Friday.


I personally look to the fundamentals to make that decision for me, and I see two sets of news in the short term which will drive the market:

1. Earnings: The positive side is that companies will be reporting some positive earnings.

2. Debt worries: The market will be concerned about the negative fall-out from the housing problems in the market. I can see a succession of bad news. For example, the failure of hedge funds, loan defaults, lower consumer confidence, lower retail sales, etc.

I also dont think the Fed will lower interest rates because of a fear of inflation, or if they do it will be just 0.25%. The reason I expect no increase is because they didnt do it when it counted most, so why would they do it later. The Fed never cared about asset prices on the upside, why are they going to care on the downside. Its not going to support the already falling housing market, it would support higher consumer prices (meaning inflation), so they are not going to lower rates...I
think.

So I believe the market is going down. The question is - will it make new lows, or just return to its previous low at 12,800 points. The media would have us believe that market PERs are reasonable, but there is going to be alot of downgrading to those revenue models given the evaporating consumer confidence, so at the very least there is reason for weakness. But I think it will take bad inflation figures or a financial failure to get the market to fall to around 11600-11800 level, or a recession, but a recession will take time to unfold. A financial collapse of a hedge fund will unravel the market. The Fed can boost the liquidity of the banking system, starving off a run on banks, but it cannot raise investor or consumer confidence without lowering interest rates...and I doubt that will happen.




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Investment Strategy

If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.

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