Sell tech stocks. Buy gold miners.
This simple formula is our moneymaking advice for this year.
Not that we have any new insight into technology… nor any way of knowing what is ahead for gold or for the companies that dig it out of the ground.
Not at all. Our advice is based on ignorance, not knowledge. Not knowing what is ahead, we revert to an old rule: Buy low. Sell high.
Open any newspaper to its financial pages and you will have your answer: Amazon. LinkedIn. Twitter. Zillow. Nest. Facebook. Google.
Choose almost any internet-related company, and you will find a good short-sale candidate. Amazon traded at a P/E over 1,000 the last time we looked. LinkedIn trading at about 800 times earnings.
As for most of the internet companies, there is no need to look. You will find plenty of “P” but no “E” to divide into it. Many of these companies do not make money; they lose it.
Will they survive the year without crashing?
Beware the Bear
We don’t know. But beware a bear market. When the market turns south the companies that led it up will lead it down. Those that rose the highest will sink the lowest.
Last year, companies that mined the worldwide web soared… but those that got their hands dirty slumped badly. Gold went down about 30%. The gold mining sector was cut in half.
As might have been expected, this produced an anticipation of further losses. Almost every account published at the end of the year told us that gold was destined to go down further.
“Little hope of glitter for gold in 2014,” said the Financial Times on December 28.
“Rebound unlikely,” continued the report.
“Gold bulls lose faith in metal’s reputation as a store of value,” opined the paper’s Gregory Meyer on January 4.
“Very, very few analysts are bullish gold,” said Michael McGlone, US director of research for ETF Securities.
“The deck is pretty much stacked against gold next year,” added Michael Klapwijk at Precious Metals Insights in Hong Kong. He predicted an average price of $1,170 for 2014. Then, the metal traded at $1,200. Now, it trades around the $1,240 mark.
So far this year gold has defied the pundits. So have gold-mining stocks. After putting in what appear to be bottoms, gold and gold miners are now moving up again.
If anyone knows what 2014 will bring, he doesn’t work here at the Diary.
Instead, we poor, ignorant humans must stick to the basic principle of sound investing: When something is expensive, we sell it. When it is cheap, we buy it.
That is all ye know in life and all ye need to know.
Watch This Key Support Level for Tech Stocks
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
The valuation “spread” between gold miners and tech stocks is certainly extreme.
But we don’t see any imminent signs of a collapse in the technology sector… at least from a technical perspective.
As you can see from the chart below, of the Technology SPDR ETF (NYSE:XLK) plotted against its 200-day moving average, the uptrend for tech stocks is (so far, at least) intact.
As I’ve written about before, investors use moving averages to identify the direction of price trends. They also use them to determine support and resistance levels for prices.
The 200-day MA gives you picture of long-term price momentum. Many investors see it as a “line in the sand” between a bull and a bear market.
Right now, XLK is trading above its 200-day MA. Over the past five years it has broken below this support level five times (marked by the red arrows on the chart). But on each occasion it has soon reversed and continued to trade bullishly.
A sustained break below its 200-day MA could spell trouble for the tech sector.
We’ll be keeping an eye on support at $32 for XLK…