05 December 2014

Profiting from the delta between stupidity & fact

Tekoa Da Silva has an interview out with Rick Rule with a great headline: Speculative Profits Are Made On The Delta Between Stupidity & Fact.
It is a bit long at 77 characters, Tekoa could have simplified it to Rick Rule: Speculative Profits on The Delta Between Stupidity & Fact, which is 68 characters, just shy of the magic 65. But other wise it is brilliant, combining name recognition; "speculative", a hot word in the gold blogosphere; "profits", which implies you'll make money; "delta", which makes it sound technical and intelligent; and switching Rick's use of opinion in the original quote with "stupidity", a much more emotional word. Maybe Tekoa is a subscriber to John Winklebottom's service?
Anyway, the money quote from Rick is:
Remember that making money in speculation is done by taking advantage of the delta between opinion and fact. It has been said by many knowledgeable observers that the market in the near term is a voting machine. In the long term it’s a weighing machine. Speculative profits are the delta between the way people vote (which is always stupid) and what stuff weighs.
In the article he is talking about mining equities but in offline email discussion with a bunch of gold iconoclasts, the point was this stupidity/fact delta equally applies to the tabloid end of the gold blogosphere. They make money selling stupidity and you can make money trading on fact.
Coincidentally, a few days ago in another email discussion I had with a pro market trader he made the following comment:
I noticed just now that someone had forwarded you that fine example of someone who understands nothing about how metal is used nor invested in writing about that of which he is ignorant. That’s what I love about the precious metals markets: They are full of fools who make it easy to make money betting against them.
What's that saying about not knowing who the sucker is at a poker table?


  1. I don't really think the precious metals market is unique in the way it's been described here. All investment markets are full of nonsense commentary & vested interests that lose people a lot of money.

    The pro trader would be making money off other traders, not likely off the baked on gold/silver bugs that hoard physical. The blogosphere commentary is usually particular about buying physical.

  2. A much more aggressively 'in your face' Bron of late - taking the gold bug gurus to the woodshed. Not without some justification!

    Perhaps it is felt that some territory has opened up, with the decision of Trader Dan to attempt a paywall. Could be a substantial number of readers in flux now that Dan seems to have had his fill of listening to opposing opinions!

    That said, it's possible that the real sweet spot will prove to be a balanced and moderate perspective that neither grants quarter to the pumpers, nor indulges in the schadenfreude of those who revel in the misery of the disconsolate gold holders who have drawn lines in the sand all the way down from 1650.

    Just the facts,and informed analysis of their meaning - minus the attitude. Now THAT would be a novel format for the gold blogosphere! What about it Bron?

  3. BB, the goldbugs who hoarded physical during the past four years have lost money (you'd also have to ignore, as I'm sure they do, the huge opportunity cost in favoring gold over, say, US equities).

    No doubt they fully expect all that red to turn to black eventually, but for quite a while and counting, they've been on the losing end of the trade. A hoarder's unwillingness to realize a loss doesn't tell you anything about the advisability of holding course or just shifting out and moving on.

  4. Anon, you seem to have missed my point.

    I don't agree that opportunity cost is the same as losing money, but sure, those who bought metal at a higher price than today and are still holding are doing so at a loss.

    My point was the pro trader is not making money betting against physical holders directly, he is making money from those placing short term bets in the opposite direction.

    Also, while the price of Gold is typically monitored by most in US Dollars, it is not the price that most physical buyers are exposed to.

  5. Nutty Buddy,

    All good points, I've been in a bit of a negative mood personally recently as we all do and that's affected the writing. We'll be back to regular programming soon.

  6. Bron, your work here has been immensely enjoyable of late, and I in no way wish to see you 'return' to any past incarnations of yourself - MORE BETTER would be seeing you continue to refine the dore bar you have already forged!

    That said, it remains a fact that many of us in the pm community remain homeless vagabonds unwilling to settle down in either the dementia of the goldbug asylums - or the reactionary suburbia of their opposite numbers!

    An enormously long-overdue 'middle ground' beckons those bold enough to seize the territory - OCCUPY AU STREET?