The Only Way to Win with Gold Stocks
By David Galland, Casey Research
Buddha Investing
In exploring the teachings of Buddha, I admit that my understanding is fairly surface-level. However, it’s interesting to note that Buddha shunned the idea of supernatural powers and urged his followers not to worship him after his passing.
Even so, deification began almost immediately after his death, though many Buddhists might not acknowledge it. Regardless, I find that certain Buddhist practices offer valuable insights into navigating the complexities of modern life—without requiring one to don robes or evade flies.
For instance, I enjoy meditating occasionally, just for ten to fifteen minutes of focused breathing to quiet my mind. I also appreciate the discipline of Zen archers, who work to eliminate all extraneous thoughts and zero in solely on their aim and release technique.
In essence, their objective is singular—mastering their form—shedding distractions that could interfere with their performance. Even today, successors of Buddha have adorned his straightforward lessons on focusing and simplifying goals with elaborate rituals, yet his core messages remain relevant.
This philosophy resonates deeply within various pursuits, including the stock market. Through extensive interactions with investors, I’ve realized that they typically fall into two categories: those with clear objectives and those without.
Those who possess clarity tend to profit, while those who lack it often contribute to the gains of others (investing is essentially a zero-sum affair—every winner has its counterpart in loss).
Recently, I experienced this idea firsthand through a personal investment. Years ago, I bought shares in a pre-public company. It wasn’t a huge investment, but its public debut took longer than expected. Once it finally went public, the stock initially performed well, and since my original reason for investing was still on the horizon, I decided to hold on.
However, the company soon faced setbacks, causing its stock to drop to mere pennies. Unexpectedly, the management pivoted towards rare earth elements and secured a promising project, leading my previously ignored shares to surge on significant volume.
Anyone familiar with small-cap resource stocks knows that selling when there’s a buyer is crucial; without volume, unloading a substantial position becomes challenging.
Which Would You Do?
This situation posed a dilemma: cling to the hope that this unexpected success would yield even greater returns, or take secured profits and move forward?
When facing such decisions, mental clarity often falters. Visions of unimaginable riches contend with anxiety as the stock begins to retreat, leading to sleepless nights filled with conflicting thoughts.
In the end, I remembered the saying: “Pigs get fat, but hogs get slaughtered.”
The Zen Answer to Investment Dilemmas
I decided to sell enough shares to recover my initial investment and secure a solid profit, while retaining a small quantity for potential future gains. This choice instantly quelled my internal chatter.
Interestingly, after my decision, the stock began to rise again—but I refuse to second-guess my timing. The profits I achieved were astronomical, as is typical in the junior resource sector. Complaining would be unreasonable, especially considering how quickly fortunes can shift.
It emphasizes a vital point: it’s crucial—particularly for resource investors—to have definitive goals for each investment and maintain steadfast focus on those objectives.
Do you possess gold or silver primarily as a hedge against inflation? Then why check prices incessantly? Do you consider it a speculative investment? If so, what’s your specific profit goal?
If you don’t have a clear target, it’s similar to embarking on a journey without knowing your destination.
Are you aware of why you own your resource stocks? What milestones do you expect them to achieve to drive their prices higher? Is your aim simply to recoup your original investment with a doubling of your stake, or do you have a specific sell price in mind for completely exiting that position?
Establishing a straightforward investment goal is essential, as lacking one leaves you vulnerable to the fears and fantasies that can lead to poor choices—selling solid companies during downturns or holding assets beyond their rational limits.
One of the most successful investors I know, who has accumulated nearly a billion dollars primarily through resource investments, is renowned for selling too early.
While his financial success is impressive, the method behind it boils down to the following:
- Above all, he adheres to a disciplined process—almost mechanically.
- He buys at lower prices, fully aware of the specific hurdles he expects the company to surpass, and has clear return expectations.
- When his return objectives are met, he sells—often enough to recover his initial investment, but sometimes the entire position, depending on his reassessment of the company’s future.
- He insists on purchasing on his own terms; for example, if invited to a private placement, he won’t participate unless the terms align with his expectations. If they don’t, he knows other opportunities will arise.
- He manages his finances carefully, emphasizing that spent dollars can’t ‘mate’ to generate more wealth. Although he’s not hesitant to concentrate his investments, he only does so after thorough due diligence indicating that the potential rewards are worth the risks.
The simplicity of those principles belies their effectiveness.
Aiming Your Next Arrow
Interestingly, this approach mirrors the investment strategies of the late Benjamin Graham, an influential figure in the world of value investing and mentor to noted billionaires like Warren Buffett. Graham’s methods were straightforward yet powerful, enabling his followers to replicate his success.
Contemplate this: Graham developed an investment process simple enough for his associates to build their fortunes upon. This principle of adhering to a structured approach significantly mitigates the risk of loss. Evidence of success can be found among disciplined investors today.
With this in mind, do you fully understand the rationale for your investments? Have you established clear targets for each position? Have you assessed the proportion of your portfolio tied to speculative resource stocks, knowing they can experience volatile sell-offs?
Warren Buffett famously advises two essential rules for investing: Rule #1—Never lose money. Rule #2—Never forget Rule #1.
Although losing money can often be part of investing in resource stocks, once you’ve safely extracted your original investment, financial losses become impossible. You might forfeit profits, but your base investment remains intact.
As you prepare to make your next investment decision, reflect on these principles. Properly aiming your investments can lead to excellent leverage in small-cap resource stocks, particularly with commodities like precious metals.
Sincerely,
David Galland
for Economic Prism
[Editor’s Note: David Galland is Managing Director of Casey Research. His diverse career includes working at the historic Climax mine and serving as a conference director for the largest investment conference. He has also published financial newsletters and played pivotal roles in mutual fund groups and online finance.]
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