General principles

More general principles:

I figured I can write what I am doing, but sometimes it is helpful to lay out some foundational considerations so everyone understands the basic why. Hopefully, if this is the case, then one can see the how more clearly.
Hard Assets:
Most of the trading I have done recently has been in three area Gold, Oil and Silver. Just to get the visual on this, Gold is selling for 1405.00 and ounce. Silver is selling for 41.84 an ounce, and Oil is selling for WTI at 108.30 per barrel.
The first question might be asked…why these three?
I am not an expert in any one of these industries and in fact I have found those who call themselves “experts” to be unreliable. Some of the work for companies who’s job is to sell you their product. Some are just optimistic and are part of a circle of people who continue to affirm what they already believe. Some in the industry call this “drinking your own bath water“.
The reasons I choose these three is they are the most watched, tend to move the most and can be easily followed. I also have reasons why I think a direction one way or another is likely. In the end, that’s about all I really have to go by.
The third reason I choose these over company ownership (but I do own companies all the time), is that these materials don’t have a human element. If I own XYZ company, they have a president, and usually many levels of officers. They have products, and industries. Their product could be proven to have a fatal design flaw. Someone in the executive could be lying about the company. They could loose everything they have in a costly lawsuit. There are so many factors which come into play.
Materials, don’t have any of those items. There can be (and always are) external influencers that effect the price, but it’s not the company itself. This doesn’t take out all the risk, but it does limit some possible risks.
Do I actually have Gold, Oil and Silver sitting around the house?
No, not anymore then anyone else. Yet, I will trade 50 to 100 or more barrels of oil regularly. I trade Gold in 1/10 of an ounce bites (and usually trade 5-30k) every time. Silver I trade by the ounce, generally 100 to 400oz at a time. However, I have no interest in finding secure storage for chunks of gold and silver, of shipping barrels of oil. There are people who do, but since I am simply using this for income flow, I have no interest in the underlying asset. So, how do I do this?


Exchange Traded funds (ETF). These are trust units which mirror the value of the underlying asset. They are very cheap to own, and can be traded every week day like a stock. Most specifically, I trade the following codes.
GLD- an ETF for the price of Gold 1/10 oz
SLV - an ETF for the price of silver 1 oz.
USL - an ETF for US price of oil in ½ barrel units.

With respect to these holding you need some system to watch them. I have several. Some I pay for and some I do not. Just for the sake of argument, let’s use Yahoo. If you go to Yahoo.ca on the left side of the page you will find a tab that says “finance”. If you click on that you will enter a sub-site, which provides a lot of good information. If you have a yahoo e-mail account, they will even remember which holdings you tend to watch and will post those every time you log in.
http://ca.finance.yahoo.com/
It pays to get familiar with this site, of which ever site you choose. The tool I use most often with regards to this site is the charts. So, let’s find the chart for GLD.


Under “get quote” (if you are doing this the first time) type GLD, and you should get to a cover page for the Standard and poor’s ETF on Gold in 1/10 units.
http://ca.finance.yahoo.com/q?s=GLD
The chart I am referring to is on the right side of the page. I think mine shows a 1 day return on yesterday’s close. But I can set it to show what it’s been doing for today, 1 week, one month, three months, 6 months, etc. The first thing I am looking for is what direction the chart is going. I just want to know in the most general sense is this asset going up, down or no where. If you load a 1 year number (back up enough to see) you will see Gold is certainly going up. This won’t always be the case, but it is right now.
If a holding is going up we can but it and sell it (hopefully at a higher price). If it is going down (we can lock in a sell price and then sell the contract to people who have the gold and want to sell at a better deal…more advanced, let’s not worry about it for now.). If it’s going no where (flat), I want to look closely (day by day basis or even hour by hour). If it goes up and down a lot everyday then there is a possibility to get in and out in a single day (or a couple days). That would be my favourite situation, but to be honest it is tough to find. Yet, over this last year I have found times where that was the case in all three of my favourite indexes.
So, just looking at gold, I find it’s opened up for the day. My hope is never to buy things while they are high. I am trying to get a deal and then sell as it moves up. In my case, I wish I was in before the positive move, but life is like that. So, I look back over the chart and try to find a point where the price was down (a dip). Often times, a moving asset will hit those old lows and bounce. In fact, one of the thing I have noticed is that these three investments generally “miss” the old dip, but come close, so I set up my computer to buy if we get “close” to that old low. A purist would set the price AT the old level, but like I said my experience is I hate being close and missing the new dip. So, if I am looking to make a trade on Gold, I would say the bottom of the last dip was 141.61 which was hit on April 12. One week ago. To be honest, I am not confident it will hit that mark again, so I am putting a Buy in if the price of gold 144.50 (Price it was at late Friday). There is some flexibility, but if I had bought it on Friday I would have been up over $100 in the first hour of trading. I of course wasn’t, but that is what I am thinking as I am reading the charts. If I see Gold suddenly drop, I might cancel my order and see where it levels off. If it goes no where near my price, then I will have to look at the price again and see if I can make some money.
The principle is looking for a deal, and then taking a small move (I generally use $200) and then trying to look for the next entry point. At some point I might find that these three are not looking as well, and I will pick other items, but I don’t lose money when I have cash (in a general sense). I also try not to fall in love with my own ideas. If something doesn’t work and I am SURE it should…give it up. The market is always right. I am just looking at ways to move in and out and make some cash in the process.
Although I think I have said this before, but I am using Gold and Silver because I do not trust the world economies. I think the value of many world currencies is going down. Many people seem to think the same which is why we see Gold and silver moving up. People want these to protect against a devaluing dollar.


Oil, is going up (I think) because the mid-east is going crazy. As long as oil shipment doesn’t appear safe, it is expected that the price of oil will continue to go up. There is a point where people will simply quit using oil, but we have yet to see that. As long as I am telling my own conspiracy theories…I think large oil companies are helping create volatility in the oil market. I also see a target (sometime in the future of $200 or maybe even $300 a barrel for oil.
So what happened to my holdings as of the close last week?
As expected Silver sold. This made me a profit but in the option and in the selling of the silver. That was a win.
USL (oil) did not close about the strike point so the option expired worthless. This is a fancy way of saying I got someone to pay me to hold onto my own stock and wait for the price to move up. So, my holding (oil) went down and I still made money. (just so you know, oil is down further today, so I may put in a trade if I see the price level off). It is suddenly becoming a “good deal”, even better then when I bought it last). I will keep you posted.
I have one company CVX (Chevron) which I sold an option on. I chose this simply because I had too much money in cash. I made money on the option, but the stock itself is down from when I bought it, so I will hold onto it until it becomes profitable. If I get to about mid April (God forbid) and I am still holding this stock I will sell another option on it and use the same trick I did the month before.
So, it’s not pretty, but that is the way things rolled for me today.