The Primary Trend – Fat Tail Daily

Last week, we introduced an unsettling idea:

What if we’re wrong?

Of course, having been married for the last half century or so… the question is not unfamiliar.

We get names wrong. Dates too. Places… historical events… verb conjugations… facts, figures… this, that and the other — all are likely to be mistaken. Fortunately, we are quickly corrected — even when we are right!

But what if stocks actually go up from here… to the moon? Won’t we feel like a moron? Won’t our wives, husbands, mistresses or boy-toys look for someone new… and our pets — those not yet eaten — run away from home… looking for owners who ‘went long’ in September 2024?

Anything could happen. Many people believe a big, new bull market is here, thanks to the Fed’s policy reversal last week. It’s ‘risk off,’ they say on Wall Street.

But does it matter? And here we reveal the real key to investment success: Don’t take the Big Loss.

This strategy is not just ‘defensive.’ Yes, of course, the Big Loss is devastating. You work hard. You save your money. Maybe your house goes up… or your stocks. The last thing you want is for those gains to evaporate and you have to start all over again.

You may say, avoiding the Big Loss is easy… just keep your money in cash or Treasury bonds. Or gold. Some people believe that ‘stocks always go up over the long run, so I’ll just stick with equities.’

But an ‘investor’ who kept his money in cash for the last hundred years, has been all-but wiped out. The value of cash is down 98%.

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Treasury bonds would have done better — they pay interest! — but the effect of inflation overwhelmed the feeble yield. When the Fed began raising rates in January 2022, for example, the real yield on the 2-year Treasury was MINUS 6%.

Stocks? Investors were down for nearly 30 years after 1929. They were down for another 30 years after 1965 (inflation adjusted, of course). And now, measured in gold, they’ve lost more than half their value since the end of the 20th century…and still seem to be going down.

And gold? Hold 10 ounces of gold for a hundred years and what do you have? 10 ounces of gold. Nothing more, nothing less. You can avoid the Big Loss with gold…but you can’t get the Big Gain.

The real reason for avoiding the Big Loss is not just to dodge these periods of financial terror. The secret is simple: you can’t win if you’re out of the game. And the only way to stay in the game, hoping to get dealt a winning hand, is to avoid the Big Loss.

Most stocks are losers; over 50% never make money for investors. The fortune-making gains come from just a handful of companies that make profits over a long period of time. Few people find them; fewer still have the patience to stick with them.

Meanwhile, there are deep, irresistible currents that carry prices upward… or sink them down. We call it the Primary Trend. Even the best companies go down in price when the Primary Trend is working against them.

And then there are all the surprises — taxes, war, bankruptcies, tech revolutions. Success comes from being in the right place… with the right investments. But you can’t know, for sure, where that is. And finding it is like finding the ‘right’ person to marry. All you can do is make sure you’re the person that the right person would want to marry. Likewise, you need to have your wealth intact when the right investments come along.

In the meantime, stay fit and cheerful. Gold is still our preferred bastion of financial protection. But even it is no guarantee of wealth when you need it. The gold price can go down for decades. (Though, unlike paper currencies, it never goes to zero.)

Regards,

Bill Bonner,
For Fat Tail Daily

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.