Wednesday, February 01, 2006

That is the discipline

That is the discipline.

Neil (Robert De Niro), Heat, 1995

In this memorable scene with Al Pacino (as a police detective), Robert De Niro’s character (a master bank robber) commented on his mental fortitude to leave behind everything, including his love, at a moment’s notice when sensing danger. I’m not suggesting the investment decisions we have to make are anywhere near as grave; nonetheless, a case can be made that having our rationality triumph over our emotion is similarly the key to success, in investing just as in certain other more lucrative professions.

HUI (the Amex gold bugs index) had a good day yesterday (1/31/06), hitting an intraday high of 349.48 and closing at 342.43. It essentially hit the low end of the 350-390 target area that I thought we would see for this run (see this post). So I entered sell orders for GOLDX and half of TGLDX when it was clear the HUI hit some kind of resistance at 350. Odds probably still favor we go up from here after a sideways consolidation but I felt it was time to start taking some chips off the table.

I have plenty of conviction in the precious metals sector based on fundamental economic principles. You could even say I have faith in gold and silver. TGLDX was a position I held since 2002. So the selling decisions were by no means easy. It’s during these the moments that I have to remind myself of “discipline”. If I don’t condition myself psychologically now, I may not be able to pull the trigger 10-15% later when every headline is screaming “buy, buy, buy”.

The HUI made a small gain today, closing at 344.70 after dropping over 2% in the morning. This is very bullish action. Do I regret the small sell order yesterday? Hell, no! It’s like playing poker, going all in with the best hand and my opponent catches a lucky break on the river: I may lose that one hand, but secure in the knowledge that I made the correct play and will come out on top in the long run.