Patience is a virtue – Some Thoughts on Silver and Silver Wheaton

by JDH on March 26, 2011

Patience is a virtue. The ability to wait for something without excessive frustration is a valuable character trait. (Piers Plowman by William Langland)

Patience is a high virtue. (Chaucer, The Canterbury Tales, often followed by the come back “but virtue can hurt you.”)

Maxima enim..patientia virtus (Latin, Patience is the greatest virtue)

Patience est une grant vertu. (French, Patience is a great value)

In case you missed the theme after reading the title and the four quotes above, our topic today, class, is patience is a virtue. Allow me to elaborate.

But first, one more quote, if I may:

Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it. (Newton’s First Law of Motion). Or, more simply stated, an object in motion tends to stay in motion.

Huh? What is this, a blog about the stock market, or a discussion of patience, virtue, Latin, and French? What’s next, a discussion of Galileo’s concept of inertia? (Pretty much the same as Newton’s First Law of Motion, but Galileo did get there first, but I digress).

The answer is yes, this is about all of those things. Allow me to demonstrate with a picture of an object in motion (click to enlarge):

This is a seven year chart of SLW.TO – Silver Wheaton Corp. If you had paid under $2.50 in 2005, and had showed patience, you would now own a stock worth almost $43. Of course the value in the summer of 2005 had only increased slightly to the value at the bottom of the crash in 2008. That’s a lot of time for only a little gain. But again, if you showed patience, you would have been amply rewarded.

Here’s the one year chart of SLW.TO – Silver Wheaton Corp. (click on all charts to enlarge them):

What I find interesting about this chart is the number of “corrections” or “pullbacks” that have occurred. I can count at least five minor corrections in the last year, and one major one (from early December to late January, that dropped the price by more than 30%).

But again, if you showed patience, what was worth $17 a year ago is worth $43 today. That’s a 150% gain. Not bad for showing patience. Of course if you had sold at the peaks and repurchased at the bottom you could have made a lot more than 300%, but that’s not easy. Case in point; here’s a six month chart of SLW.TO – Silver Wheaton Corp.:

I have circled the six obvious red candlesticks we have observed in the last six months. The candlestick is red, or “filled”, because the closing price was less than the opening price. Long filled candlesticks show extreme selling pressure, because the closing price is a lot lower than the opening price.

As you can see, on Thursday we had a long red candlestick, indicating that perhaps we had reached a near term top, and the bears were in control. I therefore decided that on Friday morning I would start selling my shares, or at least do a covered write to protect my gains.

And yet, when I checked the market mid morning on Friday, I saw that SLW.TO – Silver Wheaton Corp. and most of the other silver stocks were up. I therefore decided to hold off on selling for the time being.

Patience, grasshopper.

I’m not a day trader, or even a “week trader” or “month trader”. I know from past experience that I can’t pick the tops and bottoms. Even if I do sell at a top, it’s highly unlikely that I will buy back in at the bottom. I’ll either miss it, or forget, and the stock will recover to higher than what I sold it for, so when I buy back in I’m no further ahead.

So even though we could easily drop from here, how far could we drop in a bull market? Perhaps back to the 50 day moving average, currently just under $37? That’s a $6 drop, but even a drop of that magnitude would only put us back to where we were in mid-February. In my mind that would simply be another buying opportunity.

My point is this: if the long term trend is up, showing patience and letting the trend carry you along is the correct strategy.

Don’t believe me? Here’s the last eight years of action in silver:

The chart goes from well under $5 to over $37 today. That’s a nice long term trend. Obviously corrections have happened over days and weeks and months, but since the bottom of the crash in 2008 silver is up almost four times. That’s a powerful long term trend.

So, unless you believe that the trend is over, show patience, and hold.

I have many more thoughts, but time is our enemy, so for now I’ll stop, but I reserve the right to make some additional posts during the week.

That’s for reading, and see you next week (or sooner).

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