Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold Mining Stocks High-Stakes Speculator?

Commodities / Gold & Silver Stocks Nov 09, 2012 - 02:11 AM GMT

By: Casey_Research

Commodities

Best Financial Markets Analysis ArticleLouis James, Chief Metals & Mining Investment Strategist : I attended this year's New Orleans Investment Conference along with Doug Casey, Marin Katusa, and Casey Research's CEO, Olivier Garret. It was fun to see many old friends among the attendees and other speakers, but the most interesting thing was an experiment I conducted as part of my speech.


You see, there had been a talk earlier in the conference on picking "ten-baggers" (stocks that go up 1,000%). Now, there's nothing wrong with shooting for ten times your investment in a highly volatile stock. It's neither a crazy nor a hyped-up claim - we've had many ten-baggers in our portfolios, including Silver Wheaton (SLW) and First Majestic (AG). But it's not easy, and many of the nano-cap stocks that offer that sort of potential do the opposite and drop 90% - if not all the way to zero.

So I asked the audience to raise their hands if they wanted ten-baggers in their portfolios. About three-fourths of the audience put their hands up. I didn't take time to count the hands, but it was a lot of people - several hundred.

I then explained the realities involved:

  1. Big, stable, safe companies - almost by definition - do not offer ten-bagger potential.
  2. Nobody can tell you in advance which tiny, high-risk play is going to be the next ten-bagger. The best one can do is identify a "basket" of stocks with ten-bagger potential, and hope the ones that work out more than cover the losses on the ones that don't.
  3. The people who make money using this strategy understand that they will lose money on most of their stocks. Let me repeat that: to go for ten-baggers, you must accept that more of your stocks will lose money than will make you money.
  4. The math is simple: you can lose 100% of your money on a high-risk stock, but you can only lose 100% - while there is no maximum gain.

So, yes, ten-baggers are possible. Some highly-volatile junior stocks go 50 to 100 to one. (GoldQuest Mining, V.GQC, is a recent example of a 50-bagger.) So, the strategy for pursuing ten-baggers is to buy ten exceptionally high-volatility stocks, write off the three that go to zero, shrug off the three that drop 30% or 50%, accept the three that gain 30% to 50%, and laugh all the way to the bank when the one long shot goes up 1,000% and more than makes the rest worthwhile.

But if you do this, you must realize that until the ten-bagger makes its discovery, transition, or whatever it's going to do to shoot through the roof, it's going to look like any of the other mediocre or losing positions. (Only in this context can 30% to 50% gains be considered mediocre - and we do, here at Casey Research.)

In other words, you have to have nerves of steel to do this, or you'll panic and sell all your "idiotic penny stocks" and wonder what lapse of sanity ever prompted you to buy them. We've seen this again and again.

I have to wonder how sick to the stomach those who sold GoldQuest at four cents a couple months ago must have felt when they saw the stock shoot up to over $2 on a fantastic new gold discovery in the Dominican Republic.

After explaining these things to the audience and stressing again that the only way to reliably go after ten-baggers is to accept that one will have more losses than wins (and the wins will more than make up for the losses), I asked for another show of hands.

I kid you not: about three people raised their hands.

This confirms something I had long thought, but for which I had not previously had empirical evidence: most people don't have what it takes to be high-stakes speculators. Fair enough - if an investing strategy does not suit one's temperament, one should not try it.

But fortune does favor the bold.

Fear not; I would never try to twist anyone's arm to buy high-risk stocks. I only pursue this strategy with a small number of alert-service subscribers who understand the math and have the temperament to go with it. That service is on a waiting list at present , because seats are strictly limited.

So now you know; the high-stakes table is not for everyone - and that's okay. There are different ways to invest, and every investor should carefully assess his or her temperament - and especially tolerance for risk - before settling on his or her investment strategy.

I hope you will all do this important introspection and determine the right strategies to pursue in the volatile and - we're convinced - highly profitable times ahead.

© 2012 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules