What Is Gold ?

Swinging Hard for Home Run Investments can get you Beaned in the Head: Confessions of a Plunger

Investment gurus, like Doug Casey and others, say that we should do more of what is working and less of what isn’t. In striving for perfection, or investment gains, we should regularly apply Pareto’s Law – the 80/20 rule. Yeah, and hindsight is 20-20. Sometimes, when you get a gut feeling that you may be on to something, a trade or an investment idea, you may be right but not right enough and that tiny mistake is the difference between joy and champagne and a stomach ache that goes on for days…

What’s plunging? What’s a plunger? Entering in to an investment with way more money than what is sane. That’s plunging. It’s over-confidence and greed in action. It’s a powerful mixture. Like with potent euphorics, a plunger can be found, pre-plunge, wide-eyed, with a calculator in hand, murmuring and giggling about, “10,000% profit! Hee heee. Holly S&*T, this is going to rock!,” as they stare back at their screen and watch the market tick along. It’s really a sorry, drunken-like state and the hang over can be vicious. Plungers know this feeling. Plungers sometimes lose more money than they care to discuss.

Pareto’s law you will remember is the 80/20 rule. Twenty per cent of your investments produce 80 per cent of your winners. It applies to anything. In sales, perhaps 20 per cent of your salesmen produce 80 per cent of the sales. It’s Pareto’s Law. But, in breaking in to new territory, there’s no data to work with so sometimes you grab yourself by the….and jump in, right? “I think this is going to be big!”

Me, I have had success with buying and selling junior mining shares. Gold, silver, and energy stocks, trading on the TSX Venture Exchange. I started learning about the sectors through reading newsletters and going to mining shows and talking with miners and reading everything I could from the best of the best. Guys like Louis James and Marin Katusa. It paid off, and it paid off quickly.

Summer of 2008, I attended an excellent summit in Chicago. The summit was put on by Casey Research and it was honestly one of the greatest learning experiences I’ve had: from the moment I got off the plane to the moment I got back on it, I learned. The subject was Options and since we were in Chicago, we discussed commodities and we studied how to use options to make very smart, sophisticated trades that minimize risk. Risk is very important to understand. Options can be an exceptional way to control risk, if you follow certain rules. They can be extremely risky if you do not.

So, with new knowledge floating around in my head, I was ready to make ‘consistent’ gains trading options. Using the ideas from the summit, using options to trade currencies and commodities, I did just that. I made consistent gains. At this point in my life, I was used to gains. I had plunged once by now and endured the consequences, but generally, investing in mining stocks, I had earned money ‘consistently.’ The plunging wasn’t yet a problem.

Enter fall 2008. Junior miners took it in the neck. I got scared as hell, watching my money vanish!

“Buy when there is blood in the streets,” so I did. Casey Research, my old go-to in times of crisis, was buying up junior mining stocks as many as they could. It took guts, but I scraped together what capital I could and bought. It paid off. I should still be holding them all. However, I am not…

Sell in May and go away! Have you ever heard of this? Sure, who hasn’t? I have seen markets correct violently in May and I was sure it would happen in May 2009.

Enter the idea of becoming a millionaire, shorting banking stocks, using options (recklessly) to make aggressive speculations that American banking and insurance companies would get killed in May…or June…or??? Never happened. They kept going up and up and up, and I kept on trying, plunging, sure that they were due for a big correction or double dip as they say. Ouch.

I’d like to take this opportunity to curse all of you who bought AIG, Bank of America, and Citi Bank, or those of you who bought puts on the VIX in May of 2009. You’re mostly the Federal Reserve Bank anyway, so go to hell Ben! Hey, that felt pretty good!

Terry Coxon, who learned from Harry Brown, has said, “if you’re ever thinking about HUGE gains, it’s time to sit down in a comfortable chair and take some deep breaths, until the idea goes away.” I like Terry