Late Nights From the Inbox of Marin Katusa
I’m sure he was a bit surprised when I responded to his email at 11:15pm from my office late last Thursday night. I’ve been on the road, and I had a lot of items to catch up on. So, late nights are nothing new.
But because I run my own shop and make my own rules, I make sure there is no barrier between subscribers and me. I read nearly every email that comes through the inbox.
And if I can’t respond to you personally (traveling to a site visit), a member of my team at Katusa Research is always happy to oblige. This includes my partners, the analysts, and the excellent customer service team.
What can I say? I’m a mobile phone degenerate. I’m always checking it and looking for and dissecting information. It’s how my brain is wired, due to my DNA pushing me forward non-stop.
And when someone comes out with feedback about my service, integrity, and dedication to my life’s work, I don’t dismiss it. First, I seek to understand and then I respond.
I received one such piece of feedback from a frustrated subscriber’s email last Friday and, of course, I responded.
But, more on that in a moment…
The resource markets can shake out a lot of people for many different reasons. And the psychological toll of sideways or down markets plays a large part in an investor’s frustration (I have over 120 pages – and counting – of glowing testimonial emails and from time to time, I get my share of non-glowing emails too).
Take a look at the junior rich Toronto Venture Exchange (TSX-V) over the past 8 months. And how now, especially after the exhaustion from marijuana and blockchain stocks, there’s little energy in the overall junior markets. Frustration abounds…
The amazing thing is that it only takes a small influx of capital to send junior stocks soaring 500%-1000%. Marijuana and blockchain juniors recently proved just that, and lithium and cobalt stocks proved that a little earlier in 2017.
Below is a chart that shows the soaring returns in the cannabis and cryptocurrency sectors compared to the TSX-Venture in the same time period.
However, even in sideways or unloved markets, I believe that if you give a speculation (that you’ve performed enough deep due diligence on) enough time, your investment thesis for that speculation will play out.
I’ve done this successfully many times.
And if the speculation I present doesn’t work out, I will feel the pain more than my subscribers, as I’m almost 100% positive no one else puts either a bigger percentage of their net worth into any of the positions in their portfolio or a larger dollar sum. That may be of little consolation, but my interests are aligned with my subscribers’ – as opposed to other newsletter writers that are paid to pump a stock or don’t even own the positions they recommend. The latter simply baffles me.
More importantly, I believe the companies in the Katusa’s Resource Opportunities portfolio are top rate companies. Time will tell if I am right – but I have bet big, and we will find out if I have picked right.
Now, I feel I need to cover a few items that I keep getting questions about from both old and new readers.
So below, I’ll address some of the common questions I get that will help you keep your frustration in check and to stay the course en route to successful investment scores in what are turbulent markets. Here are some of the main points you need to print and staple to a wall:
Being overweight in any one portfolio position is a recipe for disaster.
Never put more than 10% of your speculative portfolio into any one stock. In the past, I know I haven’t entirely followed that rule myself, but you can only get real success in speculations with risk mitigation and by letting your winners ride (think Northern Dynasty and Alterra as recent examples).
Putting all your eggs in one basket could pay off in a big way (if you’re absolutely correct), but you’re exposing yourself to greater risk. I didn’t always follow this rule. It’s no secret that in the past I put as much as 35% of my net worth into one stock. But the global financial crisis and heart surgery knocked sense into even the thickest of skulls.
If your speculative portfolio is worth $50,000, don’t put more than $5,000 into any one company. Especially if this is a junior company. But just as important as position sizing is, so is the next rule…
Never buy your intended position in a stock all at once. Buy in tranches.
I’ve met many, many successful traders and fund managers all over the world. I’ve yet to meet anyone (or any software algorithm) that has mastered timing a stock perfectly, on a consistent basis.
So take the risk out of timing by buying your desired position in tranches.
If you have $5,000 to invest (from your 10% allocation to 1 company), then split that up into tranches. A good rule of thumb is 4 equal 25% positions (so in this case, 4 positions of $1,250). If you are really excited about the stock, buy your first two tranches. Then sit back and wait for Mr. Market to give you a sale and buy more of the stock at cheaper prices.
This way, if the stock rises, you’re along for the ride. If it goes down, you can scoop up shares for a discount.
Again, I learned this rule by actually improving my purchase techniques with time.
It took years to build up my Alterra position. I also plan on doing the same with my number one conviction story right now.
I have to buy in tranches to accumulate a position and I have to sell in tranches too. Start to buy your position in tranches and the issue of timing your entry and exit perfectly will not weigh so heavy on your mind.
If an investment causes you stress to the point you can’t sleep –sell.
If you are overly distracted by any of your positions and it causes stress, discomfort or you’re losing sleep… sell enough stock to alleviate the situation. Life is too short to worry about a stock position. Enjoy the present and have fun.
If your stress level is high on a continual basis and is becoming intolerable, then you have to reflect on one of two things: 1) you’re over-invested, or 2) speculating just isn’t for you. If it’s the latter, that’s OK. Life is short, do things you love and you will not just have fun but be successful.
You’ve now come to the point of self-awareness and what works for you. If you’re mortgaging the house, playing with vacation money, or your kids’ tuition, then you’re playing with fire.
Only speculate with money that won’t change your lifestyle if you lose 100% of it.
Give your speculation some time to play out.
Being patient and investing like an alligator is extremely difficult. Over my nearly 20 year career, I’ve seen many people (including myself) become impatient and make irrational moves.
I have made many mistakes. But I have learned from each mistake. These are all lessons I share with my readers, and there are many.
Over a 15-year career as one of the largest financiers in the junior resource market, I’ve learned a lot from the many mistakes I have made. One such mistake I’d like to share is actually betting right, but the lack of patience can cannibalize a successful speculation.
Being impatient has cost me a lot of money. Here’s an example from personal experience:
I met an analyst on site in early 2006 and we bonded. Site visits do that at times, especially when the plane is stranded in an unexpected 4-day snowstorm that no one was prepared for.
We stayed in touch over the years. He moved on from the firm he was an analyst within 2008 and joined Verde Potash.
I believed in this individual and without doing a site visit I purchased 4 million shares at CAD$0.25. I trusted him, knew of his strong technical background and the company was trading at a discount to cash, so I was getting the management and the project for free.
The company had C$0.29 cents cash per share, so I felt good about my $1 Million bet.
I had many meetings with management and then I planned to do a site visit of my own to the main asset in Brazil.
(2009 was crazy for me as I spent over 300 days on the road and gained 40 pounds as a result of bad habits such as drinking beer with geologists at night on the road, and not working out regularly. But you would be amazed how much market intel you get from drunk geologists at midnight).
Anyways, Verde Potash management laid out a specific time frame and business plan that they assured me would hit if I stuck it through with them.
Well, the first milestone was delayed.
Then the second.
Remember, early 2009 was a very rough market for junior resource stocks.
I didn’t have the time to go out to the project and see for myself.
But a close and trusted friend of mine (thanks Miles!) stated he knew the project and that it wouldn’t work. I was skeptical after that and frustrated with management for missing the milestones.
I lost sight of the main reasons I’d taken the position in the first place. Then the third milestone was missed and I sold. I netted just under a 100% gain. You would think a near double isn’t bad in a very tough market.
But I screwed that one up.
As it turned out, I missed an enormously greater score. Within 14 months, the stock was trading north of C$10 a share.
Was the delays management’s fault?
I was impatient.
Even though nothing changed, and I trusted management, I let one friend’s perception of the project change my view.
I continue to learn from my own mistakes (and try to learn from others I respect in the industry).
I continually remind myself that, if the specific reasons for investing in a company are still valid, and I trust management, I shouldn’t let non-management time delays sway me to abandon my position.
We try to learn and better ourselves and become better investors.
Crystallize a profit using the Katusa Free Ride Formula.
When you have a profit, risk mitigation is key to protecting your downside and leaving the opportunity of huge upside available to you. Remember, you don’t just buy in tranches, but you must also sell in tranches.
The most efficient strategy (and one I use all the time), is to use the Katusa Free Ride Formula.
So to D.T. who sent in that email on Thursday that made me reflect, thank you.
And after I replied to you, your response email a day later was one I want you to know that I truly appreciated: “You were right, I wanted to know whether or not you were the real deal and your email would suggest you are.”
We’re just two alligators on the same side of the fight and on this journey together. And I’m not backing down on my quest for my next score as I believe we will do incredibly well over the long haul, even in these turbulent markets.
P.S. I really believe in my research, process and the framework I have created before I build a position in a stock. And 5 stocks in my portfolio are flashing green light buy signals right now, including one stock that I will be making one of – if not my largest – position I’ve ever had. To find out the name of the stock, click here. And to get $500 off the purchase price, give our customer service team a call at 778-737-7381 Monday to Friday from8am – 4pm PST and tell them Marin sent you.