Why are Markets behaving Irrational?

Dear PGM-Capital Blog readers,
After a very bad and dramatic Q3-2011, the selling has continued on the first day of the fourth quarter. Most investors are asking themselves what is going on in the markets, do we have it all wrong, shall we sell everything and go into cash? Or will history prove that this was an unique buying opportunity?

The S&P-500 fell yesterday below its technical important support level of 1120 points to close at 1,099.23, which can be considered a very bearish sign. On the other hand investors flee into US-Treasuries and sent the rate of the 10 year-note, yesterday October 3rd 2011, to a new 52 weeks low of 1.75%.

Gold and Silver went up yesterday, but today both are in the red, so the big question is. why are investors selling real money “Gold” and are investors willing to lent money to a country which is deep into debt for a period of 10 years against an interest rate of 1.75%.

The answer is simple, capital markets due to greed and fear can behave in the short term very irrational, but in the longer terms markets will always reflect the underlying fundamental of a security.

“Warren Buffett” the most successful investor of our time, provided us with some famous quotes and wisdom for us to become a good value investor and to excel in the long term in the global capital markets.

Here below will provide you with some of his famous quotes which might be applicable in the current market environment.

  • Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway.
  • Be greedy when others are fearful and be fearful, when others are greedy.
  • A public-opinion poll is no substitute for thought.
  • Time is the friend of the wonderful company, the enemy of the mediocre.
  • Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
  • If a business does well, the stock eventually follows.
  • In the business world, the rear view mirror is always clearer than the windshield.
  • Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
  • Price is what you pay. Value is what you get.
  • Risk comes from not knowing what you’re doing.
  • Only when the tide goes out do you discover who’s been swimming naked.

The very famous dutch quote “After Rain comes Sunshine” can also be added to the above.

We as a fundamental value Investor and contrarian, we are holding up to our globally diversified portfolio which for 50% consists of Hard-Assets like Gold, Silver, Platinum, Palladium, Rare-Earth and the stocks of their producers.

As a contrarian we are greedy when others are fearful and are fearful when others are greedy subsequent we are currently buying and adding more hard assets, precious metal rare-earth and the stock of their producers to our own portfolio and those of our clients.

The current financial/credit crisis is a money related problem and we believe that politicians and central bankers will bail-out these failed institution and countries with printed money, which will lead to commodity based hyperinflation.

We believe that the smart money will flee into Gold and Silver, which has proven themselves as Real-Money for over thousands of years. Just to showcase our point, we compare the 1-year performance of the Dow Jones and the Gold price:

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities as well as the stocks of their producers can be very volatile and that sharp corrections might happen in the short term.

Yours sincerely

Eric Panneflek




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