When it comes to investing, everyone knows that they should invest without emotion… but over time, I think we all quickly learn that to actually do that in real-life is a near impossible task. I have no problem admitting that my emotions have gotten the better of me on many occasions, and I have no doubts that they will cause me to make even more bad decisions in the future… We are all human after all, so it’s always going to be a difficult task to avoid getting emotional whenever we witness huge wins and even bigger losses…
Earlier this year, one of my mining stocks, Ivanhoe Mines (IVN.TO/IVPAF), was surging and I sold out of my position booking over $140,000 in profits. At the time, I called it my greatest investment ever. And you know what? In the heat of the moment when price action is clearly in your favor, there’s this insidious thing called GREED that starts to take a hold of you… Even though I knew it was probably a good idea to at least try and book some profits, in the back of my mind and deep down, it just felt like the wrong thing to do…
I was getting worked up and emotional…
Ultimately, I was able to overcome my emotions and sell, but I’m not going to say it was an easy thing to do… And shortly after selling, the stock proceeded to rise another C$1.00/share, which of course did nothing more than make me feel like a total idiot for selling out prematurely…
But you know what?
Many of my friends and family (who follow this blog) felt even worse than me… and they wanted to chase up and purchase some Ivanhoe stock for themselves… irregardless of price.
That’s what price action can do to investors!! When an asset is rising seemingly everyday, it’s human nature and the lust for GREED that overwhelms us… We want in any any cost and are willing to close our eyes and blindly buy… That’s how fucking insane the Fear of Missing Out (FOMO) is!
I’ve seen FOMO many times before in my investing career… Most profoundly with Bay Area real estate (which is still in full force right now!), then later with general equities (also hitting full stride just about now), and finally with mining stocks (particularly with Ivanhoe and silver stocks last summer).
The latest case of insane, insatiable FOMO?
Cryptocurrencies of course! Particularly with Bitcoin and Ethereum.
Shit, where have I seen this song and dance before?
Oh right, there was also all the hype and rage with lithium last year… which I participated in late and got burned pretty badly…
Regardless, it should come as no surprise to you readers that all the buzz being generated in the cryptocurrency space is enticing me to: BUY, BUY, BUY!
Like I said, I’m only human… and I’m very cognizant to the effects of GREED and what it can do to you… But although my instincts and impulses are to back up the truck and buy with reckless abandon, I’m not going to go do that…
My mistakes have taught me to hold out and wait for better buying opportunities… If I’ve learned anything from investing/speculating in mining stocks, it’s this — Nothing goes up in a perpetual straight line! No matter how much of a frenzy there is, there will eventually come a point in time when buyer exhaustion sets in and the asset starts plummeting in price. What goes up usually comes crashing back down again after the crowds vacate the building.
Even the almighty IVN.TO is not immune to profit taking and pullbacks.
Here’s a Year-to-Date (YTD) chart of IVN.TO share price performance.
As you can see, consolidation is a healthy thing!
And a few years ago, another one of my current holdings, GoldQuest Mining (GQC.V/GDQMF), made a major discovery (Romero copper/gold project) which caused shares to take off like a rocket… Not surprisingly, though, the euphoria subsided and over time the stock came crashing back down to earth… and then some.
OK, that was a pretty extreme example but you get my point… Chasing any asset that is going up to the moon is always a dangerous thing for anyone to be doing, especially latecomers to the game. In the heat of the moment it ALWAYS feels like the right thing to do to give in to FOMO, and although that can sometimes work in the interim, over the long haul, I just don’t think that’s an effective and lucrative strategy to be implementing…
With all assets, the reality is this — Prices go up and prices go down.
Back to basics — “Buy low and sell high.”
Believe me, this shit is hard to do and implement in real life… When you “buy low“, you’re typically targeting after assets that nobody gives a fuck about and are deeply hated… So, of course it will feel like the wrong thing to do!
But, I’m convinced without a shadow of a doubt that going dumpster diving after assets that are not in favor by the masses is a better way of making big gains over the long-term…
In the short-term, the toughest thing to do is to resist FOMO and realize that in the game of investing/speculating, you simply can’t win em all.
Nope, this ain’t Pokemon that we are playing here…
And that’s all just fine and dandy…
Because as much smarter and more experienced investors have taught me — There’s ALWAYS another train arriving at the station!
If an investment thesis you really like is taking off, you probably shouldn’t sprint full speed chasing after it… The odds are quite high that you’ll slip and fall and hurt yourself badly in the process… As I showed above, it’s also likely that the train you’re after will run into some issues down the track and have to turn around and reverse course… If you didn’t exhaust yourself running after it but instead sat down patiently on the bench at the original train station, you’ll have a second chance to hop aboard…
But sometimes, we’re dealing with bullet trains… and they don’t always turn back to us…
If that’s the case, so what?
There’s ALWAYS another train arriving at the station!
If any investment gets away from us for good, just accept it with grace and move on…
Easier said than done, but again, you can’t win em all and as investors/speculators we really need to accept this universal truth up front; it makes things a whole lot easier to deal with.
I mean, let’s just look at the last year or so…
Many silver stocks delivered 100%+ returns in 2016. At their peak, some of these silver stocks eclipsed even 300% gains.
Then we had lithium stocks which boomed in mid 2016, delivering massive returns for shareholders.
Earlier this year, we had another clean energy metal, cobalt, surging which helped lift cobalt stocks up.
And now, it’s time for the cryptocurrencies to shine brightly!
So as you can see, the “next big thing” is always just around the corner… The opportunities are plentiful! There’s no need for any FOMO!
Why dwell about “the one that got away?”
Go try and find the next winner!
If not that, at least take a chill pill and wait for whatever sector you’re interested in to pull back and return to the original train station.
Don’t sweat the technique.
The new strategy I’m trying to practice is this — When a sector that wasn’t on my radar starts to go vertical, I use the alert signal to start deep diving into research… This is when I start reading articles, watching YouTube videos, and start sponging up information; I’m doing that with cryptos as we speak.
But I refuse to chase up again!
The lithium pull back that occurred in Q2 2016 taught me an important lesson of the dangers involved with falling for the hype.
The herd ALWAYS get slaughtered… Never forget that!
So, even if you’re putting in a ton of research hours, you really have to find a way to tune out the price action in the interim.
And if by the slim chance “it’s different this time” and the asset pulls away from you for good… never to return back again?
Oh well, life goes on…
And in the BIG PICTURE, you don’t need to catch every single train in order to succeed. It’s not always about hitching a ride onto the “next big thing”. Taking a conservative approach and avoiding substantial losses is just as important (if not more so) than landing that next ten-bagger.
Investing/speculating — You can’t win em all!