Gold, germs (biotech) and steel

Watching the TSX in freefall, mostly due to a small collapse of gold and metal stocks, reminds me how arbitrary value is. Although I have no idea whether this downturn is significant in the long-term or if it's a temporary blip that will allow goldbugs and metal maniacs to get in "cheap", it strikes me as interesting how tied to the calendar this is. As soon as everyone returns from holidays, people return with conviction -- last year for the TSX it was with a set of strong up days. Considering how extended the metals cycle has gone, it's quite possible that the new year has given people a definitive deadline to realize the gains that have been made and perhaps avoid any slowdown.

On my side, I've been watching the Canadian steel producers (I know, not metals, but sort of related). I like buyout targets and considering the consolidation that has been happening (Dofasco's long wait to find out who its father is, Arcelor or Mittal Steel; Nucor buying Harris Steel) it's within the realm of possibility. But as others point out, it's likely some of that "takeover premium" has been priced in, as people like me buy in with that possibility in mind. It's interesting to think how much of the investor's lot is tied to waiting for other people to come around to his or her way of thinking, and how explicitly that is tied to psychology. Value investors like to say that people are "discovering the true value of a stock" or somesuch, but I could conversely say that people are increasing their assessment of a stock's value due to characteristics of security, dependability, trustworthiness (at least in the case of value investing -- not so much the case with investing for growth, but valuation does take many forms).

In any case, I'll be staying out of the gold and metals game for the time being. I dabbled in it before, and its volatility and speculative style (especially in gold) ruined me in small part, somewhat like the foray into Liponex. If there's one thing that an investor should always learn, it's when to sell. Metals, however, did me well enough in the form of Falconbridge, and that's strictly due to the consolidation and bidding war that broke out for it. As an industry, it's a bit questionable whether the next year of earnings is really going to be able to match those of the past year or so.