$$$-Think
Many gold enthusiasts are planning to sell precious metals and mining stocks for dollar profit. Recently, a flurry of questions has been posed about selling, even though POG has yet to be sustained above $300. The questions must arise because stock prices have already yielded "considerable" gains for some. When the price of gold starts to move dramatically these concerns will become acute.
One of the questions asked was about floor trader/market maker stock pricing and spreads between bid/asked. This is symptomatic of what can be called "$$$ thinking." Another category of questions being asked is based in the example: "What can/should we do with our profits (dollar assumed)?" Again, $$$-thinking.
We are all condition to keep score using $$$. It's hard to think any other way; that's all any of us has ever known. Tracking personal gains is going to become more difficult, not less so, as POG rises. Imagine the $$$ value of your PM stocks when POG is at $2000 an ounce. Can you? Can you feel it? What's the score? Are you winning? Will you still have stocks to sell? What about your bullion? Time to sell that, too?
Here's more "good" $$$-thinking.
Before we liquidate even a portion of our PM stock portfolio, one must have a good reason to convert to dollars. Some are already talking about the next "opportunity"; maybe you have already found it. Some have suggested moving to oil or another commodity. Personally, I don't think there will ever be another opportunity like gold, not in my lifetime.
Some expect that gold will soar far above the price where it reaches supply/demand equilibrium. Speculative excess may create a POG of $6000 an ounce before it reaches equilibrium at $4000. Few of us really have faith in this prediction and that's the first problem in $$$-thinking. It is easier to believe that at some point gold will be 50% higher than its eventual stabilization price. Because a pull back of this magnitude can easily be imagined, it demands and requires constant attention to capture $$$ profit at the peek. If we wait for equilibrium, profit taking becomes moot and $$$-thinking returns to asset allocation modeling. But, how will we even know that POG has stabilized? Will we ever really believe it has? I think not.
As the price of gold begins to climb there will be more emotional pressure to sell than we've experienced in the occasional spike and pullback of the past 10 years. Much more! Emotions alone will cause many who use $$$-thinking to exit early in the game, long before the shinny yellow reaches its zenith.
Think about it this way! Imagine Durban (choose your personal favorite) stock at $269 per share, you have 50,000 shares and POG has just reached $1000 per ounce. In a week, like last week, your stock goes down $50 a share and closes the day at $219. On that day you would have lost 2.5 million dollars of $$$ profit. Think about "How are you going to tell your spouse."(smile) Do you believe that losing 2 million dollars will feel the same as last week's loss? I doubt it.
Given a much higher price value of our stock portfolios the profit game will have changed. Then a few days of volatility, percentage wise, like we've had recently and I promise, many will be selling shares. We'll say, "I'm taking some profits off the table". It'll won't be until the second time we decide to sell a few shares that we realize, on every share they sold the last time, we lost $200/share by selling too soon. "I'll take it," we'll say, adding, "I'll be smiling all the way to the bank." That's $$$-thinking!
We're profit taking just for the dollars. But now the pressure is really mounting. We'll also have to do more $$$-thinking to deal with:
- What will the effect of inflation be on those dollars?
- How safe will my dollars be once they're in the bank?
- How about capital gains tax?
- Will there be a wealth tax?
- If we die, Uncle Sam will get half the proceeds and will forced a sale of your equities to pay inheritance tax. We can't die, can we?
The point I'm trying to make is that $$$-thinking creates difficult decisions filled with uncertainty. Our plan will have to be completed long before the parameters are in place to allow it to be rational. But, selling for dollar profit is fraught with uncertainty and creates circular logic that is indeterminant.
Compounding the planning process are other obstacles, some defined and others yet to come into consciousness. But, we can be sure that before gold reaches even $1000 per ounce the emotional content of our lives will be many times higher than it is today. Fear of selling, fear of not selling will dwarf the strongest feelings we've ever felt heretofore. The internal turmoil created will make suspect even our best rational thoughts.
Try making a plan today. Quantify what you will do and why. Decide today the circumstances that will trigger your decision to liquidate and for what purpose. You'll need a detailed set of criteria if you are to continue using $$$-thinking for dollar profits. Impossible, I say, at least it's beyond my capability.
An important aspect of $$$-thinking is that it demands a strategy to deal with the emotional stress it creates. Such a strategy will be necessary to protect your health! It is well established that the emotions of greed and fear have killed more than bullets. These emotions often prove fatal to their owner. e.g. the emotions will have you; you won't have them. Make a plan for this, too!
These are the bare facts about $$$-thinking. I'm suggesting that we need to adjust the base units ($$$) of rational thought. $$$-thinking is just as bankrupt as the FRN, because it too, is based on fiat units. We all know about fiat, it's not real money. It's bogus currency and means that $$$-thinking is bogus, too. Selling precious metals and mining stocks for dollar profit is trading real money for "funny" money.
We need an alternative to $$$-Think! We need it now!
Respectfully submitted for peer review - Your critique is solicited.
Carl Elkins, PhD
torus@ipdi.com
March 12, 2002
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