Sunday, August 17, 2008

Catching the falling knife - it's dumb and it hurts

I purchased a small position in silver early last week, paying US$15.02 per oz. The reasoning was a rather simple case of having believed that the very quick drop was over done (in percentage terms silver had dropped far more than the other precious metals) and that the bounce from close to US$14 would continue. I was expecting a quick return to somewhere above US$16.

I was proven wrong the next day when I woke up to find that silver had dropped below US$13 in overnight trading, leaving me sitting on a quick and ugly loss (as well as feeling stupid). The question is whether I should (i) take my losses and sell now (ii) buy more (if it was worth buying at US$15 it should be even more attractive at under US$13) or (iii) do nothing and treat it as a longer term portfolio investment.

I have no particular views on which is the best course of action at this point. I have no pressing need for the money so do not expect to be a forced seller at any point.

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