first majestic silver

Mary’s Generational Rule For Astute Investors

June 5, 2016

Mary’s Rule

We propose a very simple rule for investors and fund managers as a starting point for profitable investments.   There is a misconception that only equity such as DOW will grow in time.  In fact from our cycle analysis presented earlier and below, one should consider using powerful alternative investment vehicles for different periods of time.  For the sake of remembering this approach, we call this rule:

Mary’s Rule = Mixing Assets (Tangible vs Intangible) and Reversing them every 20 Years

Broadly speaking, we use DOW Index to represent the intangible asset class and GOLD for tangible asset.

We first review our Fourier cycle analysis and method, and how this will lead to an investment rule for the magical 20-year cycles for alternative investments.  We then present the investment results by following Mary’s rule, as compared to not following.

The Advantage of Cycle Analysis

First, a word on our technical approach:

  • We first perform Fourier cycle analysis to determine the internal cycles of the alternate asset price profiles (DOW, gold, gold stocks).  We do not fix the internal cycles.  The internal cycles are generated as part of the Fourier transformation.  The deciphered cycles of a price series allow us to examine the behavior of an asset class in time.  For example, the nature of the current gold bull market resembles that of the 1980 bull market.
  • From the cycle perspective, it is not surprising to see that DOW and gold behaves differently from the big picture of cycle patterns.  One also finds that the correlation coefficient for DOW and gold is a negative number ( -0.88) over last 45 years since 1970.
  • The regularity of the major cycle patterns in DOW and gold can only point to the fundamental investor behavior in greed and fear. 
  • Based on the internal cycles determined from our analysis, we can make reasonable forecast of the prices of various asset classes into the future. Rigorous validity checks can be made on existing data. In general the validity of the forecast should be confined to 1/10 of the available time series.  Furthermore, updates need to be performed as more data coming in.
  • While we have applied our Fourier analysis to differently time series of data:  monthly, weekly and daily, sometimes, it is challenging to link the diverse time series in one consistent picture.  For example, the recent correction in daily gold prices does not negate the explosive nature of the monthly or weekly rise in gold price.  For this article we use mainly monthly data to get a big picture of the current DOW and gold markets.

Analysis on Gold

We have noted that the current gold rise is similar to the exploding gold market of 1980.  This is shown in the chart below.  Note particularly the peak labeled “C” in the chart.  The 3 major cycle patterns are generated internally from the Fourier analysis and drawn with different colors.  Our key observations are:

  1. The peak price “C” of the current phase of gold bull market will likely reach more than $8,000 by year 2020.  The current gold bull market started in 2000.  The corrections from 2012-2015 are normal and are now completed. 
  2. The blue vertical lines marked the 20-year generation in time span.  For instance, Region D is from 1980 to 2000, and Region E from 2000 to 2020.  The importance of the generational lines will be made clear in the next few charts.

Analysis on Gold Stocks

There are good historical data on gold stocks (HUI + BGMI).  The time series ranged from 1939 to 2016 (77 years).  This is shown in the chart below.  The labels for “regions” and “zones” are used to facilitate investment comparison in the next section.

  • The gold stock (HUI+BGMI) cycle patterns are similar to the gold patterns.  Clearly recent comments on the gloomy outlooks for gold and gold stocks are wrong from our analysis.  Indeed mining stocks will be one of the best performers in 2016 and well into 2020.

Below we have included the historical Homestake Mining (HM) price chart from 1890 to 2001, when the company was purchased by Barrick Gold.  The chart shows weekly data.  Note the rise of HM stocks during the Great Depression time period of 1930’s.  This price movement in Region A is in line with the Mary’s rule.

Analysis on DOW Index

The DOW equity demonstrate an opposite cycle pattern to those of gold and gold stocks in the rise and fall in price.  We are currently located in the latter part of Region E (Gold Zone).  There are 2 key observations:

  • The current Dow downturn in Region E will be similar to the pattern of late 1973-1980 marked Region C.  Because of globalization and synchronization of world markets, we suspect that the downward movement DOW this time will be much more severe than previous downturns. 
  • The Dow index rises rapidly in Regions B and D.  However these high price movements are associated with large volatility, as indicated by the percent price deviation from the 50-month moving average.  This volatility phenomenon hold for asset classes.  What is the lesson for investors?  The big returns come with higher risk.

Returns by Mary’s Rule

The following chart summarizes our analysis of the investment return by following Mary’s rule for a period from 1939 to 2020.  The chart also compared the returns from a buy-and-hold strategy with individual DOW only or gold stock only.  In all 3 cases, we started the portfolios with an initial investment of $100. 

Key Observations

  • The return from following Mary’s rule for 80 years from 1939 to 2020 is much higher than the returns from the individual Dow or gold stock investments.  The returns are shown in the following table.  The returns from alternately investing in DOW Index and gold stocks are 100 times higher than the buy-and-holds.

  • Even though this is a test case, it illustrates the power of selecting the right asset class for different 20-year periods under Mary’s rule.
  • Gold and related gold stocks have often been neglected in the management portfolio by fund managers.  The  above analysis tells us that to achieve high return for the remainder of 2016 and 2020, one needs to start with a large portion of gold and gold stocks.


We firmly believe that a good investment approach begins with a big picture of cycle analysis.  Incorporating a large portion of gold and gold stocks will be a wise move.  This applies to silver and silver stocks also.  We also believe a good forecasting tool will help greatly in portfolio management, in addition to risk and correlation tools.  The Mary’s rule discussed here is consistent with the traditional sector rotation and selection of stocks within a sector.  While 2016 will be an eventful year for investors, we are deeply encouraged by the words:

“At the proper time, we will reap a harvest if we do not give up”   Galatians 6:9

A word of caution:  We are not professional portfolio managers.  Investors will need to do their own research and consult many fine fund managers for personal investment advice.

F.T. Dao is a private investor and recently left the corporate world for technical analysis of stock markets.  He holds a PhD degree in physics and has done technical analysis of the market on the side for many years.  He welcomes constructive discussion and can be reached at:  [email protected]  , [email protected]

Goldschläger and Goldwasser are liqueurs containing pure gold flakes.
Gold IRA eBook

Gold Eagle twitter                Like Gold Eagle on Facebook