Blind Dart Investing (June 03, 2016)

by FI Fighter on June 3, 2016

in Lithium, Lithium Updates, Precious Metals, Precious Metals Updates, Thoughts

150727CDDchart1

When it comes to investing, my own preference is to buy up asset classes, as opposed to individual stories, whenever I can. For instance, from around 2009-2015, I aggressively purchased index funds and the entire S&P 500. With real estate investing, I participated most heavily from 2012-2015. And last year, I got into the precious metals sector for the very first time.

From looking at macro trends, I can easily see that history simply keeps on repeating itself, over and over again; asset classes move up and they move down. Nothing goes up in a straight line for perpetuity, and eventually everything reverses direction again. Assets have their time in both the sun and in the trash can… My own style has been to try and pick out the “best of the best” merchandise after it has in fact been thrown out to the curb and discarded.

Macro

When nobody else is interested in buying, I’m elated and feel like a kid in the candy store.

When everyone else is enthused about buying, I pack my bags up and head on home.

Pretty simple philosophy, really… But when I place my bets, I like to jump in with full conviction; go big or go home!

Anyway, one important thing that I’ve learned throughout the years is this, “Never confuse a bull market for brains.” If you accept the fact that asset classes do indeed oscillate back and forth like sine waves, then you’ll be better able to fixate on the big picture.

Money is made in the macro, not the micro.

Too often, investors get way too caught up playing Cheerleader, rooting for individual success stories (and ONLY individual stories). These days, when I’m perusing on lithium stock forums, or gold mining stock forums, for instance, I see way too many heated debates about why Stock X is superior to Stock Y… And why any investor buying shares of Stock Y is a moron and needs to have their head examined… Sigh… I have to seriously crank up the sensitivity level on my internal filter because over 50% of everything I read on a forum is about why such and such company is a better buy than the rest of the competition… It’s quite nauseating to digest, to say the least…

Here’s a map of the Pilbara, in Western Australia.

MMS

I currently own shares of Pilbara Minerals (PLS.AX) and Altura Mining (AJM.AX). But as you can see, there are a ton of new junior start ups who have staked claims and also want in on the spodumene action… Good for them, I hope they all hit the jackpot and prove up a massive resource of their own!

Guys, these companies are all playing for the same “team”! Yes, there are individual stories that are perhaps “superior” than others (e.g. better assets, better management team, better jurisdiction, etc.), but all that stuff will ALWAYS be debatable, and bottom line, if the ENTIRE SECTOR does well (and the company you’re buying doesn’t go bust in the process), you will do well too! It’s such a waste of time and energy… getting so worked up and enamored with any individual story! I mean, obviously, you need to own companies with REAL LEGITIMATE ASSETS to their name… but I mean, PLS.AX vs. AJM.AX, or both those Pilgangoora companies against Galaxy Resources (GXY.AX)? The never ending debate rages on everyday on the forums… Who really cares?!?

When I was buying real estate in the Bay Area, I absolutely wanted the houses around my properties to appreciate in value. Why? Because if those surrounding houses became more valuable, inevitably (over time), so would mine! It’s no different with commodities, such as with lithium, gold, and silver companies…

It doesn’t have to be an “us vs. the world” type of proposition…

Rather, I like to focus my attention and efforts to what I call Blind Dart Investing.

Do your homework early (preferably when nobody else cares to invest), find an investment thesis that is either supremely undervalued or offers tremendous hyper-growth potential, back up the truck, and wait it out patiently until the market finally agrees with you.

Because if you are right, with the benefit of hindsight, you’ll someday reflect back and say — “Man, that was such an obvious investment idea… Anyone could have done it… I could have literally bought ANYTHING and I would have made a shit ton of money… Looking back, it was such a once-in-a-lifetime/decade opportunity that someone could have just blindfolded me, handed me some darts, and ANYTHING I threw out into the wind would have hit Bullseye.

That’s Blind Dart Investing.

Index funds in 2009.

Real estate in 2012.

Precious metals and lithium in 2015.

Case in point, here’s how my mining portfolio closed today, June 03, 2016.

Screen Shot 2016-06-03 at 4.12.11 PM

Let’s see… All the gold stocks were up, GREEN, many in double digit figures…

As for the lithium stocks? They all closed in the RED.

Would any kind of squabbling over individual stories have mattered today?

No.

Particularly as it pertains to commodities, the companies you are investing in will end up selling the same product (essentially) to the marketplace. Gold is gold. Silver is silver… Lithium is lithium (for the most part).

 

Anyway, “A rising tide lifts all boats.

 

In the event that the above graphic is too blurry for readers to see clearly, here’s a “zoomed in” image of my mining portfolio, also showing allocation and total value.

Screen Shot 2016-06-03 at 9.26.44 PM

 

If a sector is in favor, anything you buy will make you feel like a freekin’ genius…

If a sector is in liquidation, anything you buy will make you feel like the biggest idiot who ever walked the earth…

 

Shown below is an important reminder of what the Depths of Despair can look like, which is a macro event that creates those rare window of opportunities we need to help us implement Blind Dart Investing.

Market close on January 19, 2016.

Depths of Despair 1_19_16

 

That wasn’t that even that long ago… As you can CLEARLY see above, when macro sentiment is “doom and gloom” for a sector, it doesn’t matter what you buy… The best companies, assets, management teams, exploration projects, etc. will all be valued at… next to NOTHING!

That’s why I don’t bother playing the role of “upramper” or “downramper” for any of these individual companies.

 

Yes, I absolutely try and do everything that I can to help me pick out the best stories for my investment portfolio… But honestly, I pay attention to not only the ENTIRE SECTOR, but also all of the other variables outside of it that can have an impact. For instance, with lithium, you’re damn right that I’m rooting for Elon Musk and Tesla Motors (TSLA), Faraday Future, Atieva, solar companies, etc., because if those outside industries fail, my lithium thesis will also probably go up in flames!

 

In other words, again, money is made in the macro, not the micro.

 

Blind Dart Investing — Buy right, sit tight, and don’t lose sight of the macro!

 

 

 

Fight On!

{ 4 comments… read them below or add one }

1 Roadmap2Retire June 3, 2016 at 7:24 pm

Great post, FI Fighter. Agreed with the points made and like that quote about tide lifting all boats.

To play the devil’s advocate, I want to make a couple of points 🙂
With mining companies, I can see why people seem to think and argue that one company is better than the other…since it depends on the land claims and the amount of resources available at one company’s disposal as opposed to another.

Another point I’d like to make is the management. We know that companies can fail even if they have the best land claim if the management cannot execute. Also, if the management is competitive, they can strike better deals/agreements — which I think might be more important in commodities such as Lithium, which doesnt have a spot market and there are no global rates that the market sets. So, one company in that sense might be better.

Anyway, I thought I’d raise these points in order to further the discussion. Generally I tend to agree that a rising tide lifts all boats and if the sector does well, most companies will perform similarly.

Thanks for a thought-provoking article. Always love the posts you have here.

cheers
R2R

Reply

2 FI Fighter June 3, 2016 at 7:44 pm

R2R,

Thanks for stopping by buddy. You raise some great points there, and as it pertains to mining, yes, it’s definitely most important to try and pick out the best companies with the best assets.

The point I was trying to make (probably didn’t come across so clearly in the article) was that once we’ve identified the “good” companies, as investors, we often expend a lot of time/energy bickering back and forth with others, too fixated on the day-to-day price movements… For instance, with lithium, everyday it’s a battle between who is better, GXY or PLS? Or with gold, for awhile it was KGI vs. LSG vs. RIC vs. CRJ?

All the above are examples of solid companies with compelling individual stories… But when the entire sector is in disfavor (like gold in 2015), all those stocks will do poorly… fundamentals be damned. And right now, they are all doing well b/c sentiment has shifted again and happy days are back.

That’s really my main point… Everyone who is griping now is griping over the same thing — “Why didn’t I buy more shares at the market bottom?” Shares of… any of those gold companies… since they have all skyrocketed in value since bottoming out in January. That’s a macro question that supersedes all the individual focus.

So, price action captures our interest and attention, but it’s really the underlying MACRO picture that will determine how our investments perform. To be clear, the crappy companies will always be crappy, in any kind of market environment… But you really need to focus on a MACRO thesis and work around that.

Cheers!

Reply

3 Income Surfer June 4, 2016 at 3:58 am

Great discussion on contrarian investing, and how a rising tide lifts all boats….buddy. You were early in January, but right ultimately. If you had been highly leveraged, you would have been washed out, before the market move got going. Your post also reminds me that Mr Market tends to paint with a broad brush. If one of the dominant players in a sector reports bad news, all the competitors will often go down……only to have things shake out a couple days later.

Over the longer term, I prefer to own the best companies in a given sector…..but on a macro trade, the whole group moves.
-Bryan

Reply

4 Rudy SMT June 17, 2016 at 12:07 am

Great post.

This is the reason I love ETFs and index funds. Buy up a beaten sector and enjoy the ride.

In February, I released my post “The Best ETFs for 2016” and guess what, top ETFs were mining/metals and energy sectors. Today, I’m up 22% already.

Genious? NO. Luck; LITTLE.

I notice the cycle coming to an end after 3 years of the downtrend. I call it; no brainer investment.

As you said FI Fighter; MACRO is the way to go so we can play more golf.

Reply

Leave a Comment

{ 1 trackback }

Previous post:

Next post: