Early FI – Taking Shortcuts There

by FI Fighter on March 27, 2017

in Cobalt, Copper, Lithium, Precious Metals

When it comes to early FI, I believe without a shadow of a doubt that there are indeed shortcuts there… Over the years, I’ve learned that my own preference is to focus more so on capital gains/appreciation as opposed to taking the cash flow/passive income route, which is inherently more linear and slow.

Yup, we are attempting to turbocharge our progress to early FI here… Call it a “step function” or “quantum leap” if you like, as in essence, that is the heart of what I’ve been trying to accomplish here.

Obviously, my approach runs anathema to what most everyone else out there is doing, but that’s just fine by me… Early FI is all about maximizing our precious (and finite) time on this planet, and what better way to do that than to get to early FI ASAP?

Despite my strong desire to take “shortcuts” in life, I really don’t believe that my approach is any more: reckless, dangerous, inappropriate, stupid, etc. compared to other more conventional methods out there…

I mean, really, at this stage of the market cycle (this damn bull run has been going on for over 8 years now!), are you really going to try and argue/debate anyone out there that the Dow Jones, S&P 500, Nasdaq, Dividend Growth Stocks (DGI), expensive real estate (e.g. Bay Area), etc. are smoking deals and buying opportunities of a lifetime right now?!?

10 year chart.

Since March 09, 2009 (8 year) chart.

If so, you are straight delusional…

I’m sorry, but someone has to say it… Everyone knows to “buy low and sell high“, but how many people really practice what they preach?

Not many, would be my best guess, as so many of my old co-workers, friends, acquaintances, bloggers, etc. are all still buying up the aforementioned assets with glee.

Over here on this side of the blogosphere, though, again I apologize, because I just can’t do it… I hate/detest/abhor crowded trades where everyone else and their grandmother is at!

It ain’t even about cash flow vs. appreciation (a never ending debate, although like I mentioned at the beginning of this article, my own personal experiences cause me to greatly favor appreciation as the preferred vehicle of choice to get to early FI at a very young age in life)… It really doesn’t matter what you preference is, though, because whenever an asset class is EXPENSIVE (relative to historical valuations), the upside (alpha) is miniscule… In other words, if you aren’t going to be able to squeeze much more juice outta your purchases, what’s the bloody point in buying?!?

As I often like to re-iterate

 

Risking 20-30% of your principal to chase after overpriced assets that could realistically and conceivably return no more than 5-10% gains in the future is a losing proposition.

 

Yes, I believe that markets can (and do) greatly overshoot in both directions, which makes them extremely inefficient in the short-term. For opportunists and those on the path to early FI, hey that’s just wonderful news!

 

Volatility opens the door to opportunity!

 

Seize it!

 

Because the truth of the matter is, if you can just approximately nail 1, 2, or 3 market cycles (no you don’t even have to come close to catching the exact market top and bottom, an impossible task), you will be on the fast lane to reaching early FI in no time!

Don’t believe me and think that I’m full of shit?

I don’t blame you, because like I said earlier, this approach ain’t popular because it’s deemed: reckless, dangerous, inappropriate, stupid, etc by the masses and most reputable popular financial “experts” and “gurus”.

But I sure as hell believe in shortcuts (and timing markets), because from 2012-2015, I increased my net worth from practically nothing to over $1 million

What did I do right?

Buy low.

I bought a bunch of Bay Area rental properties near the bottom… No, I didn’t come close to catching the exact bottom, but with the benefit of hindsight, I can CLEARLY see that it didn’t end up mattering at all! Again, you just wanna be in the right vicinity of buying near the bottom, you don’t have to nail it EXACTLY!

In 2015, I attempted to lather, rinse, and repeat this approach, buying yet again during the Depths of Despair… However, this time with mining stocks, instead of real estate.

In the short-term (when your trade is going against you), you can/will feel like a total idiot.

From January 19, 2016.

Depths of Despair 1_19_16

OUCH!

Talk about a bloody massacre!

In the short-term, that’s how the game often goes…

But I was never afraid of losing money in the long run because I had full conviction that I was indeed buying low (historic lows to boot, when blood was not pouring but flooding the streets)!

And since that darkest hour, here’s how a few of my holdings have fared (some of my better performers).

200% plus returns in just a little more than one full year… and the funny thing is, I still feel like precious metals mining stocks are only in the 2nd inning of a 9 inning ballgame!

You don’t need to perfectly time any damn markets to come out miles ahead!

Not by a long shot…

Just NEVER EVER forget to “buy low“!

When it comes to investing, we human beings like to look at things myopically and oftentimes we can’t distinguish the forest for the trees… It happens all the time, and I think for a number of reasons… Mostly due to ego/pride and emotions.

What do I try and do?

Eat a huge slice of humble pie and accept straight up that I am just a tiny peon in the grand scheme of things and I know that I have ZERO influence over the BIG PICTURE (the macro game).

Instead of trying to outsmart (and outfox) the markets, I’ve learned to just shut up and take what they give me…

As I’m said so many times before, when you break investing down to its root, it really takes nothing more than a rudimentary education to understand it…

Right now, I’m extremely bullish on precious metals (gold and silver), and the following chart alone will show why…

A picture is worth a thousand words!

Gold and silver have been mired in a brutal 4-5 year bear market that looks to have ended sometime in December 2015… Of course, without the benefit of hindsight, no one will be able to know for certain… But like I said, when you strip things down to their most basic form and just look at the damn chart (and where we used to be historically speaking), we’ve got to love the risk vs. reward proposition made available to us right now with precious metals…

Gold is currently trading at $1,255/oz

Gold used to trade at $1,900/oz

Gold looks to have found a solid floor around $1,040/oz

Just look at the purple arrows… Doesn’t the upside potential look like it far outweighs any remaining downside risks?

I mean, sure, gold could drop below $1,000/oz (anything is possible)… But does it seem likely? Objectively speaking, I’d have to say, “No way” because at below $1,000/oz, a ton of gold miners would be under water and selling their product for less than it costs to produce the stuff… And I would have to imagine that HUGE lines out the door to buy physical gold would soon erupt (especially in Asia) with eager buyers looking to back the truck up at those firesale prices…

What’s Rick Rule’s favorite saying?

“The cure for low prices… is low prices.”

By no means do I have a crystal ball, but I would have to think that the odds of gold retesting its former $1,900/oz high is far, far, far greater than the possibility that it craters below $1,000/oz… And if gold only even manages to make it half way there and settles out at say $1,400-1,500/oz, well shit, many of these gold mining stocks will probably 3-5x (or more) from here…

Can you say the same for the: Dow Jones, S&P 500, Nasdaq, Dividend Growth Stocks (DGI), expensive real estate (e.g. Bay Area), etc.?

No way!

When assets are trading at record highs (nominally speaking or otherwise), I don’t care what valuation metric you want to use, NONE of them will be yelling out to you, “SCREAMING BUY!

Early FI Investing simplified for you…

It’s all about the MACRO PICTURE!

Really, I’m not trying to be a smart ass…

I just know that over the long haul, all asset classes behave like sine waves and what goes up ALWAYS comes crashing back down again!

From Macro Trends.

The Euphoria Phase (blow off top) ALWAYS feels like the best (and least risky) time to buy!

But when the music stops…

Does nobody out there remember the Global Financial Crisis (GFC) of 2008?

Apparently only a very few number of people still do…

Newsflash to any newbies out there — Stocks and real estate CAN crash! They have before in the past and I’m certain they will again… someday… I just don’t know when…

But I’m not all about just buying low, chasing after deep value discounts made possible at the Depths of Despair (although that is by far and away the easiest and most potent way to make a lot of $$$ in a relatively short period of time)…

I’m also a big fan of hyper-growth opportunities, and right now, I see another Internet Revolution, Smartphone Revolution, etc. taking place in Clean Energy/Electric Vehicles (EVs)…

A new paradigm shift.

And you never wanna miss out on one of those!

Who doesn’t wish they invested heavily in: Apple (AAPL), Google (GOOG), Amazon (AMZN), etc. when those booms were first starting up?

You would have made a fortune! And with the benefit of hindsight, it ALWAYS looks so, so, so, so OBVIOUS!

With clean energy/EVs, I really do believe we are on the cusp of the next major paradigm shift.

From Albemarle.

Double digit Compounded Annual Growth Rate (CAGR) is what it’s all about!

With battery costs declining, demand will only pick up, and it’s only a matter of time before sparks really start flying…

From ecobalt Solutions.

From Electrek.

How do you participate in this impending clean energy/EV boom? Well, there are many ways, but as an investor who has made the bulk of his returns through the use of leverage, there’s really only one way to play this sector as far as I’m concerned…

Mining stocks.

Mining stocks provide leverage, which is inherently built into the share price.

Here’s what I mean…

Bear Creek Mining (BCM.V/BCEKF) controls the Corani asset in Peru which has 228 million ounces of silver in Proven and Probable Reserves.

From Bear Creek Mining.

That’s a whole lotta silver!

So, if the spot price of physical silver moves up just $1/oz, the Net Present Value (NPV) of such a highly leveraged silver asset can rise as much as $120 million!

From Bear Creek Mining.

To put this all in context, the current market capitalization of BCEKF is $170 million USD.

Just as an example, let’s say the spot price of physical silver rises $5/oz from here, and gets to $23/oz (does that really seem far-fetched to anyone? Silver was over $40/oz as recently as 2011) someday in the near future.

Current price of silver (March 27, 2017): $18.02/oz

The NPV on Corani (all things being equal) should then increase by $600 million USD. To keep things straight-forward, let’s just assume that the NPV increase goes straight to the bottom line, or market cap of BCEKF. Well, then we are now talking about a new market cap of $770 million USD.

A 4.5x increase in share price in BCEKF, or 350% return from today’s prices.

Of course, this is just a very crude example (that should be used for illustration purposes only), but it should clearly highlight the upside potential an investor/speculator gets if they get the macro trend direction right. Similar to real estate, it’s all about maximizing your gains (500% plus returns are actually not at all uncommon for mining stocks) and there is absolutely no better way of doing that than to employ the use of leverage.

 

Please note: Leverage is a double-edged sword and it cuts sharply in both directions… So, leverage NEEDS to be handled with great care, and you should really ever ONLY load up at the bottom of the cycle, or in the case of clean energy/EVs, BEFORE the boom takes place!

 

Personally, I don’t believe the clean energy/EV hype (and general masses/retail investors) will return in full force until at least the summer of 2018 (it’s still super early days here)… We need Elon Musk back on stage singing and dancing before the crowds will get worked up and excited again…

Then the buying frenzy will begin en masse.

So, in preparation for this unstoppable revolution, I’ve been getting well situated in mining stocks, particularly the companies that specialize in the following commodities: lithium, cobalt, copper. As long as the fundamentals of each stock that I own remain robust, I don’t really care much if the share price is in the toilet and crashing lower by the day (e.g. Birimian Limited; BGS.AX/EEYMF)…

It’s so important to emphasize — The BIG MONEY is made over years/decades, NOT overnight!

 

So, I ain’t tripping the least bit here…

 

Anyway, I could be dead wrong on this clean energy/EV revolution, but if I am… so will many, many, many other people (like Elon Musk and Tesla, Panasonic, BYD, ummm the Chinese government) who are much smarter, wealthier, influential, and powerful than me! Again, I ain’t nothing but a peon, so I’m just gonna do the easy thing and try to back the right jockeys (BIG MONEY) who really know what they are doing!

There are NEVER any guarantees with investing, but if I’m gonna go down, I’m gonna go down swinging! I don’t ever want to be that guy who regrets missing out on the next Internet Revolution, Smartphone Revolution, etc. again because instead of buying the most blindingly OBVIOUS hyper-growth story of the upcoming decade, I was too busy dollar cost averaging (DCA) my way into SLOW-GROWTH/NO-GROWTH stories like: Target (TGT), Emerson Electric (EMR), AT&T (T), etc.

I ain’t hating on large cap blue chips (there’s a time and a place)… but those type of investments are best suited and left to investors who are already in early FI, NOT those who aspire to get to early FI anytime soon!

Shoot, I’m already in early FI and I have ZERO interest in putting capital into those SLOW-GROWTH/NO-GROWTH stocks at current valuations!

But back to the topic at hand and the main point — If you really (desperately) want early FI before 40, 35, 30, etc., you’ve got two options to help accelerate your progress up the mountain:

  1. Deep Value
  2. Hyper-Growth

Pair them up with leverage (your ABSOLUTE best friend in an upmarket) + the right market environment, and the gains made can be astronomical!

I really do believe that there are shortcuts to early FI… You’ve just got to be looking for opportunities and doing things that others aren’t willing to do… I’ve experienced it before with real estate in 2012, and I believe with full conviction that I will see history repeat itself (or rhyme) again over the next few years…

 

Deep Value Opportunities: Gold and Silver mining stocks.

Hyper-Growth Opportunities: Lithium, Cobalt, Copper mining stocks.

 

Don’t get me wrong, I’m NOT a perma-mining-stocks-bull… I just happen to be right now, because really, what are my alternatives?

 

Stocks?

Bonds?

Real estate?

 

All of which are priced for perfection impending destruction and offer very little (if any) remaining growth prospects?

 

Thanks, but no thanks…

 

I’ll take deep value and hyper-growth (double digit CAGR for the next decade plus) assets over the mainstream weapons of choice (stocks, bonds, real estate) any day of the week!

 

We’ll see how things play out, but I’ve made my bets…

 

Five metals to rule them all — Gold, silver, lithium, cobalt, copper.

 

Perhaps, with a dash and sprinkle of nickel and graphite (other critically important clean energy/EV materials) a little further down the track as well…

 

Macro Investing… Will history repeat (rhyme)?

 

Stay tuned!

{ 13 comments… read them below or add one }

1 MikeNo Gravatar March 27, 2017 at 12:32 pm

I work with many of baby boomers that have been holding off retirement for quite awhile. Once this large group of folks start moving to fixed income (bonds, CDs, etc.) in order to have a stable retirement, they’ll inevitably have to sell off those stocks. I see a prolonged correction in the stock market coming…

Reply

2 FI FighterNo Gravatar March 28, 2017 at 9:12 am

Mike,

Stocks certainly aren’t cheap right now so it will be interesting to see how they perform over the next year or so. I don’t like froth so I’m of course just sitting on the sidelines, but keeping my eyes on things. Same for real estate.

Buying opportunities come and go… Right now, it’s a waiting game for me.

Cheers!

Reply

3 KevinNo Gravatar March 27, 2017 at 6:41 pm

Love you stuff. How are you feeling about uranium these days?

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4 FI FighterNo Gravatar March 28, 2017 at 9:18 am

Kevin,

I still like uranium and think it’s cheap relative to historical valuations. The spot price of uranium certainly has seen much better days…

With that said, I don’t have the conviction in uranium to bet big at this time… Yes, there is undeniable growth and new reactors coming online, but that growth rate pales in comparison compared to clean energy/EV, so I can’t justify sinking excess capital into uranium (which grows something more like a utility company), when EVs will be driven by consumer demand, and in places like China, where they really need it, so we could get some massive growth in the next decade.

Maybe in another year or two, the supply crunch in uranium will cause the stocks to really lift up, but I think we still have some time to drain excess capacity, and secondary supplies… But I’m just speculating here, and all it would really take is one large mine to have issues and it could very well be game on again in uranium. Eventually, the sector should come back in favor and lots of big gains should be made… Uranium, perhaps more than any sector will be a game of patience.

Cheers!

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5 ReddyNo Gravatar March 27, 2017 at 8:50 pm

Jay, I absolutely in agreement that the macro ideas of Lithium, Cobalt, Copper [maybe Graphite?] have the hyper growth potential. But I am not able to figure out how to invest in these areas, I am afraid of buying individual stocks but rather buy a few ETF’s which cover these macro ideas.

I am 200% with these macro ideas, but how do I invest [without having to buy individual stocks?]

Please let me your thoughts, when you can.

Reply

6 FI FighterNo Gravatar March 28, 2017 at 9:29 am

Reddy,

As it pertains to ETFs, there is Global X Lithium and Battery ETF (LIT). I wouldn’t call it the perfect ETF, because it’s not all mining stocks, but it does provide diversification and let one get in on the clean energy/EV movement…

TOP 10 HOLDINGS
As of 3/27/17 FULL HOLDINGS (.CSV)
NET ASSETS % NAME MARKET PRICE ($) SHARES HELD MARKET VALUE ($)
22.41 FMC CORP 61.45 556,081 34,171,177.45
14.63 QUIMICA Y MINERA CHIL-SP 32.96 676,785 22,306,833.60
5.91 SAMSUNG SDI CO LTD 120.86 74,519 9,006,429.89
5.58 TESLA MOTORS INC 270.22 31,476 8,505,444.72
5.17 ALBEMARLE CORP 104.60 75,306 7,877,007.60
4.78 LG CHEM LTD 253.85 28,708 7,287,603.90
4.66 ENERSYS 76.62 92,726 7,104,666.12
4.53 GS YUASA CORP 4.70 1,470,294 6,910,102.20
4.41 SIMPLO TECHNOLOGY CO LTD 3.42 1,967,600 6,731,562.68
4.20 PANASONIC CORP 10.83 591,720 6,405,879.38

Perhaps in the future they will add cobalt, copper into the mix, or someone else will come up with an innovative product that does so.

I prefer to build my own custom ETF, but I’m all ears and will try and keep tabs on these type of products as they become more readily available once this boom really starts moving.

All the best!

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7 ReddyNo Gravatar March 28, 2017 at 2:26 pm

Thanks for your reply Jay. I am thinking I will purchase COPX and LIT, to cover Copper and Lithium.

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8 NickNo Gravatar March 28, 2017 at 3:24 am

Jay,
This is sketching I struggle with every day. I out around 3000 in the market each month. 1500 into the federal govt tsp, 1000 into two traditional iras, and 500 into a betterment taxable acct which serves as my kids college funds. We have about 145000 all in the market with 70k of equity into my rental home. I could just place all money in bonds, the savings acct but feel the market has been good to me lately. When will it top out, when is the bottom, can I be the white unicorn that can time the market. Decisions, decisions..

Reply

9 FI FighterNo Gravatar March 28, 2017 at 9:31 am

Nick,

Yeah, that’s a tough one to answer… Nobody has a crystal ball and can predict the future… When it comes to general equities, there doesn’t have to be a binary approach… I own no general equities, but I own a lot of rental properties and even though I am not buying anymore atm, I’m also not liquidating everything either… Sometimes a good compromise is found somewhere in the middle.

From an opportunist’s point of view, though, I’m certain we have seen and will see much better buying opportunities in the future when it comes to general equities and real estate… These prices are absurd and there’s not much alpha left to extract, which is why I’m out for now.

All the best!

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10 ScottNo Gravatar March 28, 2017 at 6:00 am

Glad to have you back stateside and posting regularly again. Do you have any intentions on selling any of your Bay Area properties? Although I don’t foresee another 2008 crash happening, I am somewhat tempted to cash out of my Bay Area home to lock in my appreciation gains since I am relatively close to retirement ~ 3years. Keep up the great work.

Reply

11 FI FighterNo Gravatar March 28, 2017 at 9:34 am

Scott,

I may liquidate one additional rental property in the Bay Area (partnership deal). Other than that, most likely not since I bought at good prices and the cash flow is robust… I have no problems holding on to the remaining properties.

Yup, I can certainly see the temptation to cash out and lock in some appreciation… I did so by liquidating one property last year, and have performed two separate cash out refis… Bay Area appreciation has been a wonderful gift to anyone who owns property there, no doubt, fortunes have been made.

Like so many, I’m just waiting on the sidelines and wishful we will have some more opportunities in the future.

All the best!

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12 HenrikNo Gravatar March 29, 2017 at 5:18 pm

Hey.

Very interesting ideas. I also went pretty heavily in IVN but a few years earlier than you, around the 1.6 -1.9 mark before it really dropped down. I’m still staying in there though as I believe there’s more upside. And I also topped up some sub 1$ at least, not enough though in retrospect…

I’m currently going fairly heavy in to PXX(Oil sands) and BBB(silver mining). I live in Canada so those make sense for me basically.

I just took the gain from a bunch of stocks including C and AIG where I’ve seen a doubling since I got in, I may be doing a “stupid” thing but I believe, like you do, that I can make it work much harder in the mining stocks. Although I’m also bullish energy stocks to some regard.

I know very little about American mining stocks though to be honest. So my question is are your current holdings still interesting to you? Is there a particular one out of them you think it’d be worth reading up more on? I would prefer to hang on to my USD in and not convert them to CAD just yet, so I would prefer to make them work there.

I’m trying to decide if I should try to have a lot of cash on the sideline prior to a crash as that’s likely to drive the speculative stocks down drastically as well.. But I’m so impatient!

Thanks for a great blog!

cheers / Henrik

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13 SriniNo Gravatar March 31, 2017 at 4:24 am

Hi Jay,

Good to see new posts in your blog on your return to US. i have just stepped into a deal to liquidate one of my RE to free up cash to give fire power to invest and cover me fully in my FI.

Starting Apr 3rd i am a free bird.

On side i realized yesterday that my stink bids in Bear Creek got filled at 1.59 last week. Between alexo and Bear Creak i continue add which ever falls more or cheaper of the two. Looks like its Alexo’s turn to get into my portfolio.

My gut says market will give time until June to cherry pick weakness. Have a great time

Enjoy

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