I had a close encounter with road rage the other day.
I was driving in heavy traffic on a multilane highway in San Juan. A car merged aggressively in front of the car in front of me. That car slammed on the brakes, so I had to as well. The guy behind me wasn’t paying close attention, apparently, and almost hit me. I saw this in my rearview mirror, and then saw him swerve angrily to the right, into the “slow” lane. I shook my head, guessing what would come next.
Sure enough, the fool stomped on the gas, zoomed forward, pulled into the space in front of me, and braked hard. Teach me a lesson, I suppose. Fortunately, I was expecting this, and had already slowed down when it happened.
Now, I’m not an expert in honking in Spanish. I’m not sure what the right combination is for: “I’m not the one you should be angry at—try the idiot who cut the guy off in front of me, just as you did now.” But I believe that bad behavior should face its consequences. So I honked.
Mr. Congeniality replied in kind, of course, and with interest. He also turned around to face me, and flipped me off while driving forward and off the highway. Luckily (or not), that was onto an off ramp, and he didn’t hit anything. Whether this was deliberate or not, I can’t say. I thought it unfortunate that he didn’t remove himself from the gene pool, but quite good that he didn’t kill anyone else—that day.
What’s this got to do with the price of gold—or anything else we care about?
I’m glad you asked…
I had another recent encounter with angry, potentially dangerous behavior, but this was online. Road rage on the information superhighway.
The fellow was complaining about the crooks who scammed him into buying mining stocks that dropped like lead balloons, taking his hard-earned money to money heaven. Or hell, as the case may be.
This came up in response to one of my video interviews. It was one of my first, so I admit I wasn’t too tough with my guest—not yet into my “In The Pit” groove. I should have asked some harder questions. Next time.
That said, I’ve known management of the companies in question for many years, and I don’t think they’re crooks. The stocks have fallen hard this year—but one of them delivered 20x for shareholders before. The other could still do that, with a little luck.
For the record:
- The fact that a share price drops, even substantially, is not evidence of malfeasance on the part of a company’s management.
- The fact that a highly volatile junior mining company’s share price drops substantially is not, by itself, evidence of anything wrong with a company at all.
- The failure of an exploration company to make an economic discovery is not evidence of criminal activity—in fact, it’s the norm for a very difficult task.
- A once-profitable company going belly-up is not proof of criminal or dishonest behavior. It may not even be evidence of incompetence, as it can happen due to many factors beyond a company’s control, including huge fluctuations in commodity prices.
- I have, in fact, been flat-out lied to by some mining company execs, but it’s very rare. I can count them on one hand after almost 15 years in the business. I can think of only two instances of behavior that seemed fraudulent.
- The worst that can be said of most resource companies is that management always highlights the most positive aspects of their assets and downplays their flaws. But the same is true in other businesses and walks of life. It’s like dating. Everyone tries to put their best foot forward—and everyone knows that one must be on one’s guard.
But I’m not here to defend the company. In fact, I recommended selling the stock in the one I’d recommended, before I left my former employment to launch The Independent Speculator.
It’s the insecure resource investor’s road rage I want to highlight.
This sort of emotional overreaction may be the single most dangerous thing to any resource investor’s portfolio. The enemy, as Rick Rule likes to say, is to the left of one’s right ear and to the right of one’s left ear. Investors who cannot master this enemy should probably not even try to become speculators.
More than anything else, successful speculation requires calm, rational analysis—and the sang-froid needed to follow through based on logic, not emotion.
The good news is that we are not entirely helpless victims of our genetics here.
Granted, cultivating the cool hand and level head needed for successful speculation is going to be harder for very emotional people. But that doesn’t mean such people can’t overcome the challenge with sufficient will power.
Better still, we can adjust our attitudes and expectations, which makes it much easier to let reason guide our actions.
For example, in my literal road rage example, I saw the guy behind me veer angrily, so I wasn’t surprised when he pulled his stupid stunt in front of me. That made it easier to do the right thing instead of whatever my anger—and I confess his misdirected rage made me very angry myself—might have led me to do.
As a speculator, I make sure my attitude is one of playful optimism. I do this by speculating only with money I can afford to lose. It’s much more than just a game, but since it’s not life-threatening, it’s much easier to maintain a relaxed attitude.
I also make sure my expectations are very low. My personal “trick” is to mentally categorize money placed in speculative investments as spent. It’s gone. I’ve speculated, so I know I may never see a dime back.
With this expectation set, anything better than a catastrophic loss of capital is a positive outcome. And the actual wins, when they come, are cause for well-deserved celebration.
In practice, it’s rare for even a highly speculative investment to result in a 100% loss. I’ve never had that happen to me yet. But as Doug Casey says, it all comes down to psychology. Telling my emotional self that the money is already gone has been a huge help to me when trying to make the right decisions in the face of actual losses.
One more thing. When I do lose—as happens to us all—I don’t blame management, or government conspiracies, or anti-business NGOs. I place the blame squarely on the guy in the mirror. Even if one of these things did torpedo one of my investments, it would still be my fault for exposing myself to such a risk. Shouting and cursing others doesn’t help. Learning from the experience to better evaluate the risks next time does.
That’s my take,
