How do you catch a falling safe? As a physics student, I was
taught that the simplest solution is usually the right one, and I
have a simple answer to this question. I'll tell you in a moment,
but it's so obvious that it may seem worthless, even though the
opposite is true, and critically important during times of
extreme market volatility.
Consider the old saying: You can't judge a book by its cover.
"Everyone" knows this truth, but people judge books by their
covers every day. This is important for investors, because while
"everyone" knows something is true, they don't always act
accordingly. The fact that so many people will follow the herd
rather than think for themselves is what creates opportunities
for independent thinkers to make a lot of money.
Given that investors in many market sectors are suffering
shock from recent volatility and feeling as though they've been
trying to catch a falling safe, it's a good time to share my
simple but almost universally neglected solution:
If you try, you're almost certain to get flattened. What you
do instead is stand by and let it smash while everyone else runs
away -- then be first to pick up the cash.
Understand that the reality behind the metaphorical question
is really about timing the market. What investors mean when they
say they feel like they tried to catch a falling safe is that
they bought while prices were still falling and got creamed,
realizing painful losses. So, when someone asks how to catch a
falling safe or knife without getting hurt, what they are really
asking is how to time a market bottom -- even though "everyone"
knows that's impossible.
Or they should. Remember what the pros say:
"I can't recall ever once having seen the name of a market
timer on Forbes' annual list of the richest people in the world.
If it were truly possible to predict corrections, you'd think
somebody would have made billions by doing it."
-- Peter Lynch
"If I have noticed anything over these 60 years on Wall
Street, it is that people do not succeed in forecasting what's
going to happen to the stock market."
-- Benjamin Graham
This is why we at Casey Research do not use 12-month price
targets and the like. Such numbers, no matter how thick the
research reports backing them, are just guesses. Educated
guesses, one hopes, but so full of assumptions, they remain
guesses -- as often wrong and as frequently revised as government
GDP stats. Instead, we look for trends and then build positions
to ride them out, both averaging down and taking profits along
the way to mitigate risk.
Back to the falling safe. You stand by (that is, hold cash) so
as not to get squashed, and watch the safe smash (i.e., wait for
moments of market capitulation). The crash tosses bags of money,
gold bars, stock certtificates and other assets every which way.
You are prepared to act when others are too afraid or too
illiquid, setting you up to buy low and sell high.
: Don't worry about timing the bottom; just focus on buying great
companies while they are deeply undervalued because no one else
wants them, thus making volatility your best friend.
To apply this in real life, look for an essential sector that
has been beaten up beyond reason, buy the best of the best
companies, and wait for the rebound. This is not market timing
but making use of predictable market psychology: overreaction.
There is still risk in doing so, but far more upside than
You could do this when energy is down to prices that threaten
supply, or when agriculture is off so much that farmers and
ranchers decide to become dot-com entrepreneurs. People won't
stop eating, or needing energy, so these sectors are good bets
when they near their cyclical lows.
At the moment, the most beat-up essential sector is mining.
Unless everyone on earth is willing to go back to living in the
Stone Age, demand for all metals can only grow over time,
fluctuations aside. But right now, as you can see in the chart
below, mining stocks are on sale as though our world no longer
needed copper or iron, or as though global markets have become so
safe, no one needs the safe haven of gold.
This chart tracks the 20 largest publicly traded mining
companies in the world over the last 10 years. You can see how
share prices soared above book value with rising mineral prices
up until the crash of 2008, recovered somewhat, but now the
market has turned bearish, dropping share prices below book value
for the first time in 10 years.
Now that's not surprising, given that miners are getting
squeezed between rising costs and falling commodity prices at
present; some companies deserve the discount. But the market has
clearly overreacted, tossing out the good with the bad. The safe
has smashed, and few people can see the jewels among the rubble
For example, a gold producer we recommended recently is
delivering growth to the bottom line even as gold prices have
declined. How? The company has the only legal mill in an area of
many rich gold veins operated by small miners whose illegal mills
were shut down by the government. This allows our company to pick
from the highest-grade suppliers, paying less when gold drops and
making a hefty profit almost regardless of the
. The company is poised to double production, but has not been
immune to the market crash, dropping from $1.64 earlier this year
to about $1.15 when we recommended it. (It's now back up over
$1.50 but may go on sale again with the next market
Taking advantage of volatility when few others have the
courage to do so -- picking up the pieces when the safe smashes
-- is exactly how we make the spectacular gains we are famous
The current downturn in precious metals holds the potential
for spectacular gains... but only for those who have the
fortitude to buy when nearly everyone else is running away. It's
also crucial to know which junior miners are best positioned to
succeed... and that's where Casey Research excels. Our team
travels around the world, checking out promising prospects from
rock-kicking to talking politics with the locals and elected
officials, so that we have as complete a picture as possible of
the variables that impact a mine's prospects.
Put our worldwide boots-on-the-ground analysis to work
, with a risk-free test drive of
Casey International Speculator.
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