Yogi Berra said it best: déjà vu all over again.
It seems the longer I’m in the financial services industry, now approaching 40 years, the more I see history repeat itself.
I’m also an economist, an author, and a talk show host, but I digress.
I want to discuss a very important topic that might save you a lot of money.
It’s a very simple concept that states your first loss as a trade or an investment is usually your cheapest loss.
I first learned this axiom many years ago when I was just out of college, teaching school. In addition to working with young minds, I also owned a chain of pizza shops and a wholesale retail produce company.
Throughout the Finger Lakes region in New York, I had produce stands set-up in strategic locations.
Keep in mind; this was well before everyone sold their garden extras. My advisor was an old crusty farmer who helped buy, sell, and display my produce.
In other words, he did just about everything.
One day, he told me it was time to reduce all my tomato prices by 50%, as he could smell and feel they were ready to turn rotten.
He strongly stated some revenue was better than no revenue. I, of course, felt and smelled the tomatoes, and countermanded his orders. Why should I not make my expected profit?
It seemed to me that nothing was different from the day before. The old farmer just smiled, shook his head, and walked away.
Of course, within 24-hours, the entire $4,000 crop had rotted and been lost, with no return on my investment.
Not a lot of money today, but in 1969, it was a fortune and I was totally devastated.
How did he see the signs, and I didn’t?
How could it have gone bad in such a short period of time?
I didn’t really have an answer, but I definitely learned from my mistake.
Many years later, I watched as client after client refused to sell their Corning stock as it plummeted from $330 (three-to-one split to $110), all the way to below $2 per share.
Everyone kept saying “I’ll sell it when it gets back to $110” or, “I’ll sell it when it gets back to $50 or $60” or “I’ll sell it when it gets back to $25 or $30.”
If you’re lucky, parabolic moves in the financial markets usually have one or two retracements, and escaping during that retracement period is more chance than anything else.
As gold and silver have now shown their true colors, I’m sure there will be many who will say “I’ll wait until it gets back to $________” (fill in the blank) in order to sell.
This statement has been echoed through the ages and only reinforces that given the incredible velocity of lower gold and silver prices; it once again will prove to be a fool’s lament.
Take it from me, whether its precious metals, stocks, or tomatoes of yesteryear, the first loss is always the cheapest.
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