A good read from Ray Dalio’s story:
Just before Thanksgiving, I met with Bunker Hunt, then the richest man in the world, at the Petroleum Club in Dallas. Bunker saw the debt crisis and inflation risks pretty much as I saw them. He’d been wanting to get his wealth out of paper money for the past few years, so he’d been buying commodities, especially silver, which he had started purchasing for about $1.29 per ounce, as a hedge against inflation. He kept buying and buying as inflation and the price of silver went up, until he had essentially cornered the silver market. At that point, silver was trading at around $10. I told him I thought it might be a good time to get out because the Fed was becoming tight enough to raise short-term interest rates above long-term rates (which was called “inverting the yield curve”). Every time that happened, inflation-hedged assets and the economy went down. But Bunker was in the oil business, and the Middle East oil producers he talked to were still worried about the depreciation of the dollar. They had told him they were also going to buy silver as a hedge against inflation so he held on to it in the expectation that its price would continue to rise. I got out.
By early 1980, silver had gone to nearly $50, and as rich as he was, Bunker became a lot richer. While I had made a lot of money on silver’s rise to $10, I was kicking myself for missing the ride to $50. But at least, by being out, I didn’t lose money. There are anxious times in every investor’s career when your expectations of what should be happening aren’t aligned with what is happening and you don’t know if you’re looking at great opportunities or catastrophic mistakes. Because I had a strong tendency to be right but early, I was inclined to think that was the case. It was, but to have missed the $40 move up was inexcusable to me.
When the plunge finally did happen, in March 1980, silver crashed back down below $11. It ruined Hunt, and he nearly brought down the whole U.S. economy as he fell.2 The Fed had to intervene to control the ripple effects. All of this pounded an indelible lesson into my head: Timing is everything. I was relieved that I was out of that market, but watching the richest man in the world—who was also someone I empathized with—go broke was jarring. Yet it was nothing compared to what was to come.
My interpretation: the market can be irrational at times. If you think the market is overvalued and due for a big correction since 2016, yet it is still going up and hitting all time highs.You might be right but early. From what we know, economics and market always, always correct themselves according to fundamentals.
Edward Z, Guest blog
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