The Need for Timing with Platinum

There is a view that we can just invest in something with no real regard to its performance, like how most people invest in the stock market. We just tend to invest and hope for the best, and that pretty well describes the strategy that the great majority of investors use.

A lot of this probably comes from the fact that most people invest over time, for instance investing a certain portion of their income every month. They see this as a commitment to the long side of whatever they are looking to invest in, where they see this all as having only one approach, to just keep investing more and more and keep hoping that things will work out in the end.

The Need for Timing with PlatinumWhenever we invest in something, we are at least supposed to have a positive expectation, and people will cite the fact that investments like stocks have shown to have a long term positive expectation and they are betting that this will continue.

Whether or not certain allotments to their portfolio will enjoy this long term time frame doesn’t even get considered very much, for instance the fact that you may have 5 or 10 years to go before you will need the money or need to put it in something else doesn’t matter much.

What we tend to miss from focusing so much on the long term is that the path there is always pretty winding and it really does not make sense to stay on it on the occasions where it spends quite a bit of time backtracking, and also gives back quite a bit of profit earned in the past.

People will cite the fact that, in the past, this strategy may have led them to achieve gains which they consider to be satisfactory in the end, which means that this approach overall may have been satisfactory, but whether or not it is the best approach is another matter.

This is what the task of timing investments seeks out, to seek the best path, not just one that ends up producing a positive return based upon prior results in a market. We should not just be out to make money, we instead need to strive to make the most money we can while keeping our risk manageable.

Timing investments, when done properly, looks to manage both return and risk in a manner superior to not timing our investments. Timing investments also does not mean we’ll be making a lot of trades over the years, and we may make quite a few or very few, depending on how the market behaves.

We’ll be looking to be invested during the good times though, the times it makes sense to be in, and be out when it makes sense to be out, and this can add a lot to our performance.

The Importance of Timing Platinum Investments

With something like platinum, which we really can’t count on for long term capital appreciation like we can with stocks, the importance of timing moves from very helpful to essential if we’re looking to do well with it or even not to lose money investing in it.

If we can’t just sit back and do nothing, in other words not seek to time our platinum investments, and expect to do well, there really isn’t any alternative to looking to use timing. We can still try to take a long term buy and hold approach to platinum, but this has not worked out well in the past, unlike the long term holding of stocks which does work out at least decently if the time frame is long enough, so there’s really no good reason to even expect that this strategy will even work.

The magnitude of the moves we see in platinum also require active management, especially given how platinum can plunge in price over relatively short periods of time, where nice gains can be wiped out and we can go from that to being down significantly.

The patterns that we’ve seen with longer term platinum investments is that with the right entries, one can be well rewarded, but if our holding time exceeds 5 years though, we’re going to likely experience a reversal in fortune and end up being back where we started or worse.

We could say that the waves are higher with platinum and this is like surfing where higher waves can be more rewarding but also are more dangerous. Just grabbing a surf board with no skill isn’t going to end up well, although if we do learn how to surf properly we can do pretty well indeed.

If we look back upon platinum’s trading history, we can see that this has been a very tradable commodity, with some big moves in both directions at times, moves that wouldn’t really require all that much skill to take advantage of, if we at least pay attention to its performance and look to ride these waves.

Timing the Platinum Market

What keeps people away from looking to time their investments is the myths out there about how difficult this is supposed to be. This is at the very least presumed to be too difficult for the individual investor to ever master and not just screw things up, and many believe that markets cannot be timed well enough by anyone.

The reality though is that it is not difficult at all to successfully time markets, and the reason is that markets do move in cycles, where momentum occurs in both directions, and these are not really difficult to spot.

When we look at the platinum market right now, in 2018, we see that it is in a downward trend over the last 7 years, and is testing a bottom established back in late 2015. The first half of 2018 has not been a good year so far if you are long platinum, where it has given back almost 20% so far, in the midst of its losing more than half its value during this downward trend.

We might think that this is a good time to enter, or at least a good time to hang on to it, in hopes that it may rebound from here and produce some nice gains over the next few years, but at this point this is just speculation, a guess really, and investing is not a game that we should be just guessing at.

If we’re guessing, then we’re at least taking the initiative to do something other than just buying and holding it, but when we do look to time investments like this it is important that our strategies be sound, lest we make mistakes and end up being in a worse position than if we did nothing at all.

There are some real risks involved in seeking to time investments, for instance if we take a short position right now and we’re wrong, and it does rebound, we’re going to lose money, and if we guess that there will be a reversal here without any good evidence of it, it can keep going down and this is going to be risky as well.

If we were looking to short this, the time to get in on this move would be well before it dropped $1000 an ounce since 2015, and we need to be careful not to chase moves too much on either side, on the long and short side both.

This does not mean that it wouldn’t make sense to enter short here, but it certainly wouldn’t if we were looking to do this from a longer term perspective, as if we do, we have to be much quicker to exit if we are wrong than a long term play would involve.

The longer our outlook for an investment, the more room we have to give it, or to put it another way, the more risk we have to take on, and we’re just not in a situation where it would make sense to take on too much risk here, as if we’re wrong we need to be able to get out fairly quickly.

Managing Risk with Platinum Investing

Therefore, the current platinum situation could be described as being in much more of a trader’s market than an investor’s, where the momentum is clearly to the downside but could reverse over the next while and we want to make sure that we’re not exposing ourselves to too much risk however we play it.

This is going to require tighter risk management than would be appropriate for investors, even ones that don’t mind taking longer term short positions. If we’re looking to go long only, it really never makes sense to buy something that is going down, whether we’re investing or trading on even the shortest time frames, as this is just bucking the odds and we instead need to be going with the tide in some sense and not against it.

If and when we do see a bounce off these support levels, in a way that is meaningful enough for our time frame, then this could become a good long play, where we’d set our stops a little beneath the support point and this would then provide a trade with a lot more upside than downside, which is what we’re always after whether we’re investing or trading.

We’re defining our risk here, which is the most important thing, and we should never enter an investment or trade without doing so, looking to limit our losses to what is reasonable and not just take whatever punishment the market wishes to dish out to us.

Investing will involve taking on more risk, and the longer our time frame, the more we will have to take on, but with platinum in particular, it’s important not to overextend out time frames and this will not only rule out the longer ones such as 10 years or more, it will also have us approaching this more like a position trade, where we’re in for a few years at most and out when things start reversing too much.

It would not be unreasonable for us to still be short in the current 7 year trend, but in several other cases in the past, anything beyond two or three years would have us overstaying our welcome.

We never really set a certain amount of time to be in a trade anyway, and we can never do this actually, we only can set our indicators to look to seek out gains over a certain period of time, which may average out to, say, 5 years, but when we enter and exit always has to be based upon market conditions.

It’s also never just a matter of looking at an investment such as platinum in isolation, as we always want to look at the appeal of other assets, and with the stock market presently moving ahead at a good pace, it may be wiser to wait until things start to reverse there before considering moving more to something like platinum, especially with the platinum market so undefined right now as far as the direction it will go in over the next few years.

One thing is for sure though, if and when we do want to move more into platinum, we’re going to have to time our positions and get in when it makes sense to, and only then, and get out when it no longer is warranted to hold. That’s the essence of market timing.



Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.

Contact Monica: [email protected]

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