Gold & Rule - Investor Psychology

Is It Too Late To Profit From Gold & Silver Investments?

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Blog by Terry L. Krohn

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Investor Psychology

Our purpose here is not to duplicate the scholarly work on investor psychology, much of which is referenced in this link. Rather, let us simply state that understanding human nature is a critical factor when searching for insight into market behavior - and among the myriad of human qualities, fear and greed seem the most fundamental to market analysis.

Interestingly, bull markets in gold and silver embody both fear and greed in pushing prices higher: fear, because of a growing concern for alternative paper investments, and greed, when market participants become convinced that an asset can only trade in one direction. So, with the presumption that fear and greed are primary market drivers, "There is no bull like a gold bull."

In addition to greed driving the investment behavior of the public, greed also drives market insiders. With the conflict of interest facing banks and investment houses - both advising investors as well as making their own investments - greed tempts them to misdirect the public for their own benefit. Thus, the small investor is at a significant disadvantage when he takes market "news" as gospel.

A case in point is Goldman Sachs. Even ignoring that the current Treasury Secretary, Hank Paulson, is a former Goldman Sachs' executive, of all the investment houses, they are arguably privy to the most insider information as they have representation in the Plunge Protection Team - the President's Working Group on Financial Markets or more accurately, a team of insiders who manipulate our markets with your money. Now, it could be strictly coincidence, but how Goldman Sachs escaped the sub-prime fiasco is just one in a long line of cases where this firm was very lucky. One arm of the firm was selling sub-prime mortgage debt, and another side was quietly accruing a short position (a position that profited from the sub-prime crisis).

Understand, the charter of almost any company is to make money, and you can't fault such an entity for being true to its nature (unless, of course, it breaks the law). The problem lies, however, when corporations cozy up to government - almost certainly, a recipe for disaster. The role of government is to make decisions in the best interests of the people, often irrespective of the bottom line - i.e. irrespective of the profitability of said decision.

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