The only thing more frustrating than a long bear market is a long bull market. Riding a great bull market is like riding a real bull. You are always in danger of getting thrown off. And once on the ground, it is hard to get back on.
Last week, we looked at the gold market. We bought when the metal was selling around $300 an ounce. Then, over a period of four years, we were able to buy in slowly and cautiously, each time the price dipped. But then, as the bull really started running a year ago, it ran right by us. We kept waiting for a pause so we could jump back on its back. Instead of pausing, the beast just ran faster. Now, it is flying so fast, we’re almost afraid to touch it.
But the real money in investing is not made by dabbling…and then sitting on the sidelines. The real money is made by people with the courage to grab the bull’s horns with both hands and hold on! In the bull market in stocks — 1982—2001, for example — the Dow ran up from under 1,000 to nearly 12,000. The last bull market in gold saw the price rise from barely more than $40 to $850 — a gain of more than 2,000%. And the most recent bull market in oil has already taken the price up 700%.
No, dear reader, it is not by trading in and out that you make a lot of money. That is only entertainment while making money for the brokers. Making the most of a bull market is like getting the most out of smoking; you have to start early and keep at it heavily…until it finishes you off.
The way to make real money is to take a big position in a big move, buy very low and sell very high. That means riding the bull market from beginning to end, which raises some vexing questions. How can you know when you’re getting close to the end of a bull market? How can you know when it is time to get on and jump off?
If we had a foolproof answer, we wouldn’t be writing The Daily Reckoning. We wouldn’t even be human. It is not given to man to know the fate of his markets. The best we can do is to look over our shoulders at examples from history and guess. And our best guess is that that the bull market in gold has a long way to run, and your best bet is to hold on. Don’t let yourself be tossed off by corrections, setbacks and bone-jarring bumps along the way.
Anther great bull market is taking place in India. The Bombay index is up 300% in the last three years. The major India funds have gained 80% in the last 12 months. And so, readers might want to know: is this the beginning or the end? Again, we have no sure answer, but we will make a guess.
The rise of the India stock market is part of a trend that probably has another 50 years to run — maybe 100 years. India is poor. Western Europe and America are rich. This disequilibrium only arose in the last 300 years. Before that, the average working man on the banks of the Ganges earned about as much per day as the man on the banks of the Thames or the Potomac. Our guess is that today’s great disparity is fleeting rather than permanent.
Last week, an Indian entrepreneur came by the office. “Yes, share prices have gone up a lot,” he explained. “But our companies are growing at 30% per year. Adjusted for growth, they are still cheap.”
Our visitor had begun building cars in India. With an investment of only three million pounds he had set up an automobile factory. The motors come from Renault. The body parts are made locally from composite materials.
“We only need to see 1,000 cars a year and we can break even,” he explained. “Of course, we don’t have to pay high wages or a lot of social costs.”
Someone should tell General Motors. Maybe someone already has. Word comes this morning that GM is hiring in India, even while it lays off thousands in America. That’s roughly why wages are rising smartly in India, while they sag in the United States.
But will it continue? Will the Indian share market continue to soar? Or, will it tumble in a breathtaking correction? And here, yes, we are so happy to be of service, we can give you a thundering, decisive answer: yes! Alas, we can’t tell you in what order.
Better yet, don’t worry about it.
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.
