Don’t Fall in Love with Stocks – The Anatomy of a Pump and Dump (MUST WATCH)

by FI Fighter on May 22, 2016

in Links, Lithium, Precious Metals

Top-Trading-Mistakes_body_Picture_4

I’ve said it so many times before, but I’ll say it again because it’s so important and worth repeating — “Don’t fall in love with stocks… or any of your investments.

I mean, like ever… Just don’t do it. It’s probably the worst thing that you can do for your financial future. Not everything you buy will always turn out to be a wise decision (that’s mathematically impossible). Accept the truth upfront, and you will have made life infinitely easier for yourself. When the bad picks start to manifest themselves (and become an undeniable reality), you need to re-assess the situation with a clear head and be absolutely open-minded and honest with yourself.

Cutting your losses and selling your losers isn’t going to be easy, but oftentimes that’s just simply the right thing to do.

After all, why do people invest?

More or less, it comes down to making a profit at the end… As it pertains to this blog, early financial independence is the name of the game.

So, don’t fall in love with your stocks… or any of your investments.

If the fundamental story or thesis changes, move on to something bigger and better.

Speculation and the Bull

Lately, I’ve been writing a lot of articles about lithium. Naturally, I guess it was only a matter of time before a few of my articles found there way across the web, and onto various lithium sites, blogs, forums, etc.

Today, someone shared a link with me from a HotCopper thread and encouraged me to watch the accompanying video.

The other day, I wrote a piece about Pioneer Resources (PIO.AX), going over the most recent press release and subsequent sharp decline in share price. That event was most unfortunate, and if I wasn’t crystal clear in the last article, let me re-emphasize that I’ve got nothing against the company at allIn general, I just think that early-stage speculation stocks are most risky, and investors need to be extra careful.

We should all realize that lithium is the flavor of the week right now and currently experiencing the beginning stages of a bull market. These lithium stocks are flying vertically (a rising tide lifts all boats), but sooner or later, the wheat will get separated from the chaff.

The markets can be irrational and insane over the short-term, but in the long run, TRUE VALUE always wins out.

Everyone Loves a Good Chase

When a sector is SMOKING HOT, speculators will always want to jump into the game and find “the next big thing”. As it pertains to lithium, that’s perfectly understandable, since stocks like Pilbara Minerals (PLS.AX), Galaxy Resources (GXY.AX), Altura Mining (AJM.AX), General Mining (GMM.AX), etc., are all up 800% or more, Y/Y.

Of course, any late-comers are going to want to get in on that kind of action (but now it’s too late and those incredible, “first-mover” returns are gone for the “best of the best” companies holding REAL ASSETS)!

As I’ve pointed out in so many previous posts, if you aren’t accumulating shares during the Depths of Depsair, good luck trying to pick up the highest quality companies at a discount during the Heights of Greed; those stocks will have been the first in line to get re-rated and priced at a premium. So, when the premiere lithium stocks such as PLS.AX, GXY.AX, AJM.AX, GMM.AX, etc. are no longer substantially undervalued, the MASSIVE GAINS will only be able to be found in the second, or third tier, speculative stocks.

But as we all know, spec stocks are highly volatile and risky… It’s inherent in their nature. Spec stocks are so damn early-stage, that a single positive or negative press release can spike the stock by over 50%.

Human Emotions

With that said, if you’re going to insist on gambling in that type of environment, you need to again remember to never fall in love with your stocks.

Human emotions, I swear, I will never understand them…

The following are the types of feelings and thoughts you should NEVER HAVE as an investor.

 

“And I won’t be selling one! Just for the record….”

“I think we all here know down rampers and rampers alike know this sp won’t stay around these levels forever.”

“I’ll ride this baby into the ground before I contemplate selling anything I hold.”

“Don’t listen to anyone high on silver their agenda the so called experts will be gone once the SP hits high one day follow what you believe.”

“I would say the holders of the larger more established stocks that have already bagged in price feel threatened by the juniors…”

 

And so on and so forth…

Focus on the Actual Facts

Yes, those type of sentiments take me back to last year, which were the exact same thoughts shared by the most ardent Rubicon Minerals (RBYCF) supporters… Man, were those investors DIEHARD, or what?

You had everyone else in the mining community looking objectively at a fading (dying) story that was on its last legs (ammonia level problems, mill suspension, start-up issues, new CEO, 80% decrease in mineral resources)… Yet, the Rubicon folks just kept on buying, buying, and buying more shares… For certain, never “selling one” the entire time… Yes, the Rubicon Faithful really did believe that it was “RBYCF shareholders vs. the world”… And they were hell-bent on their quest to prove all the “haters” and “doubters” wrong… After all, who needs to face the facts when you’ve got raw emotion on your side (sarcasm)?

RBYCF_chart

Looks like the world won… With the benefit of hindsight, I’m guessing that if the Rubicon bagholders could go back in time, they would have cashed out a lot sooner!

We all know that mining stocks are all super risky and volatile… So, if you are going to invest, you need to do so neutrally, with a levelheaded mind. Otherwise, you’re going to end up putting yourself (and portfolio) in even greater danger…

If you’re cool, calm, and collected, you are NOT going to accuse anyone of being “downrampers“, or “trolls”, with a hidden agenda… That’s so incredibly juvenile… No, the world and mining community are not conspiring against your favorite stock, as much as you’d like to believe that to be true… Quite frankly, nobody cares so damn much about your “preciousssss”.

smeagol

Just look at the facts as facts…

Nothing more.

Look, in my own case, I gladly sold out of shares of Pure Energy Minerals (PE.V), after they released some really crappy drill results… I took the paper losses in stride, rolled with the punches, and re-invested my dollars into a much better lithium story. You can be certain I wasn’t ever willing to “ride this baby into the ground.

Predicting a share price to increase much further just based off of “following what you believe” and “sheer will”? Oh boy, if that’s your investment thesis, you are asking for some serious trouble…

Investors who own more mature companies with proven REAL ASSETS “feeling threatened by a junior (start-up explorer)?!?” Please, don’t give yourself too much credit so early on… If anything, those “threatened” investors are actually looking out for good news, because if your junior can someday deliver REAL RESULTS to the market, why wouldn’t anyone consider adding shares of your beloved, later on?!?

We are investor, after all. We all want to make money! If your spec stock starts delivering in spades, the entire mining community will be interested in buying up more shares. It’s nothing personal… Who doesn’t love a good story? You just have to show everyone that you’ve got the actual goods, first…

Until then, it’s all just wild speculation…

The Anatomy of a Pump and Dump

Anyway, enough said…

Please watch this AWESOME video, which I think is absolutely a MUST WATCH for anyone invested in spec stocks, or mining companies, in general.

 

 

Fight On!

{ 2 comments… read them below or add one }

1 Elle @ New Graduate FinanceNo Gravatar May 22, 2016 at 12:00 pm

Great post.
Like you have said, it is so important to not invest emotionally.
It is so important to look at the past to reasonably understand what could happen in the future.

It is easy to complicate investing with emotions and predictions, but what is actually necessary is to take a step back, simplify one’s thought process, and try to understand how the present relates to the past.

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2 FI FighterNo Gravatar May 27, 2016 at 12:01 am

Elle,

Thanks! Definitely, I always like to dive into the past and study that before trying to project what might happen in the future.

Emotions are tough to strip away as it pertains to investing, but I’ve found that if you invest with a firm thesis in place, it becomes a lot easier to deal with the noise and fluctuations which are bound to occur.

All the best!

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