(Please Note: this is taken from a more lengthy post that is not fully relevent today. The original post was made on march 11, 2010. This post was moved to the new website on 09 29 2011)
If you follow me on twitter [twitter.com/Slyvnr] you know that I post a lot of news headlines on Greece and the difficulties that they are having financially. The reason being is that this is a major driving force in Gold movements. Gold has continued to strengthen in most foreign currencies (foreign to the U.S. since I am U.S. based) and has been stubborn around $1,100 USD. Most of this is due to the uneasiness and fears being generated by the meltdown in Greece. The more "Fear, Uncertainty and Death" (FUD) in the world the more volatility in the metals market. As the FUD factor increases due to Fear (inflation, deflation, job loss, high unemployment) or market Uncertainties (collapse of a sovereign nation, collapse of a major currency, credit crisis) or Death (terrorism, plagues, food shortages, natural disasters) the higher the flight to safe havens (Gold, Silver, Commodities, High Rated Bonds). We also see the exact opposite when the FUD factor decreases we see a flight away from the safe havens and more towards the "Gamblers Vehicles" stocks, options, CDS, etc (things that might have some value somewhere but technically give the owner no real value).
I would like to touch on the "Gamblers Vehicles" for a moment. I call stocks, options and other securitized investments as Gamblers Vehicles because they do not represent any tangible ownership. Most of these items give you the right to a portion of the earnings should the owners and controllers deem it alright to be paid out. But otherwise, you are not the person at the front of the line to gain anything under any circumstances from the ownership. If the company has record profits, the owners and controllers could decided to payout huge salary bonuses to the "employees" who made it possible. As a Stock owner your left out, unless you are one of the selected classes of "employees" eligible for the bonus. If the company goes bankrupt, as a stockholder you have no right to any assets. Therefore, because you only hold a "virtual" ownership of assets, I believe these types of investments are nothing more than another method to gamble. You could just as easily go to Las Vegas and have the same potential for return on investment.
Now with that said, do not get me wrong. I "trade" stocks. I "invest" in companies/commdoities also. The difference being "trading" stocks = "gambling". I am looking at technical indicators and placing bets on what direction I believe the stock is going to move either through direct ownership of stocks or through proxies of call and put options. Sometimes, I believe the stock is going to move up and therefore I buy the stock and after I have seen a decent appreciation will sell it and take my "winnings". Other times, I might sell Call Options against the stock if I think it is going to top out and start falling again. This option gives me the opportunity to take out some of my initial bet (option premium paid to me when I sell the option) and lower my cost basis. If the stock goes up, I get the stock called away from me at a profit (still have winnings) or if it goes down, I can sell more options and take more money off the bet, er trade. There are a lot of sophisticated methods to "gamble" in the markets.
Now, what do I mean by "I invest in companies/commodities also". In this instance I either hire someone who has a lot of expertise in "gambling the markets" and can typically pull out winnings from the market (Mutual Funds predominantly for someone in my socio-economic class) or I buy actual ownership in the companies through Corp. Bonds or physical ownership of the commodities (gold, silver, bullets, whatever).
However you look at it and whatever your circumstances, I strongly recommend that you fully understand what you are doing, why you are doing it the way you are, who you have doing it for you and what your expectations are from doing it. Have goals set as well as exits planned if things go wrong.
Take care and hope you have a successful gambling, er investing run.
Standard Disclaimer applies.
Mother
