Once upon a time, there lived a girl who longed to become the “smart money”. Flush with confidence from the success of her recent silver purchase (imperfect though it was), the girl decided to increase her position and take a rather meaningful stake in the shiny metal.

Silver had climbed over $1.50 during the previous month (November 2009), and like most investors, the girl didn’t want to miss the boat. She was convinced that silver was an excellent buy, planned on holding it for awhile (~2 years, depending on world events), and so decided to hurry and “go all in” before the boat left without her.

On December 1, 2009, our girl purchased multiple U.S. Mint Sealed Cases containing 500 silver eagles each. The spot price of silver that day when she locked it in was $19.10 (it had climbed almost a dollar in the last day alone…she had better hurry to get in before it was too late!).

Spot Silver 12-01-2009

Spot Silver 12/01/2009

You can probably guess what happened next…yep, the very next day, the silver price began to tank. And tank. And tank. In fact, it dropped like a rock all the way down to $17.00 by the end of December, and down even further to $16 and change by the end of January!

Our poor heroine was bereft. She knew that silver was an extremely volatile market (after all, she had been watching it for the past year), but she still fell prey to the most classic “dumb money” mistake in the book! She was a sheeple! She rushed in with the herd so as not to “miss the boat”! (Note: there is always another boat.)

Silver dropped as low as $15 and change in February before finally beginning to rise. FINALLY. But our poor heroine suffered for six long months before silver ever touched her entry price of $19.10 again (and even that was rather brief….it plunged again and didn’t solidly “stay” above $19.10 until September of 2010.)

Fortunately, our fairy tale has a happy ending… Silver closed 2010 at a price of $30.91. (Hooray!) And today it sits at $34 as I write this (yes, I’m sure you’ve deduced by now that our “heroine” is yours truly). Fortunately, our heroine learned a lot from this saga and was able to sell some of said silver at $47 earlier this year for a nice profit, so we can conclude our fairy tale with a “happily ever after” ending (at least for now).

So what can we learn from this fairy tale? What is the moral of our story?

  1. ALWAYS check the technical charts before making a purchase. Whether you are a “technical” guy or a “fundamental” gal, in today’s world of “tech funds” and “quant funds” and HFT (High-Frequency Trading), it is suicidal to not look at the charts before you purchase an investment. Had Kung Fu Girl simply LOOKED AT THE DAMN CHART, instead of feeling the pressure of her money burning a hole in her pocket, she would have seen that silver was above both the 200-day moving average AND the 30-day moving average and could have waited for a correction…They nearly always come when something is so overbought.
  2. ALWAYS average into your positions (buy in “tranches”). Had Kung Fu Girl simply divided her full position in half, or in thirds, or in quarters, and purchased one tranche at a time over the following four months, she would have had a much better cost basis. (Fortunately, she was able to convince Kung Fu Guy to buy at $16.50, but this really shouldn’t “count”—she herself had blown her whole wad!).
  3. ALWAYS check your emotions. Afraid of “missing the boat”, our heroine threw caution to the wind and jumped in with both feet….there is always another boat.

Fortunately, she did have a few things going in her favor…she was investing with a long-term uptrend and had spent over a year educating herself on the silver market, and she had a lot of patience. And this time (unlike her previous experience), she bought from a very reputable dealer with outstanding (small) premiums and fees.

I hope you can learn something from this little fairy tale that will help you with your own investing… Now get on out there and create your OWN fairy tale (minus our heroine’s many mistakes!)

To your financial success,

—Kung Fu Girl