A Risk Manager Continues Speaking…

[edit]  This from a long-time NFTRH subscriber…

“Based on my more than 40 years experience as a portfolio manager and financial adviser I can only say: how right you are!”

In financial markets risk management is vitally important, especially when people are happily going along, full applied to a given doctrine, having success and being affirmed time after time.  When in that mode, peoples’ minds have a tendency to narrow.  It is exactly then that they need to respect risk management.

Yesterday I highlighted a discussion between two people who are very bullish on gold stocks, which included a less than flattering reference to me and the methods I use.

A Risk Manager Speaks

That is fine, because when you publicly put your thoughts out there and especially when you do it under your real name, you are open to criticism.  And the facts are the facts; I did not call the bottom on the gold bear market (I managed it) and I did not personally get invested to the hilt (which for me, is almost never ‘all in’, although part of my large ‘liquidity’ reserve is a 14 year old gold holding); nor did I advise anyone else to do so.

But this is not a casino and it is not a game.  These are the financial markets and if you do not have a consistent yet flexible approach, sooner or later you will get killed.  Yet, if you start trying to guess when you may be in the kill zone (i.e. planning to get out at just the right moment) you will either be left out in the cold or you will get sliced and diced by a whipsaw.

But to survive and thrive over the long run you have got to have a plan, parameters to the plan and the ability to subordinate your ego.  You are not a genius.  Get over it.

In this business people make up stories about their performance, they make up stories about their stock picking acumen and they make up stories about how they have a secret sauce (e.g. ‘my proprietary momentum indicator’ or ‘my super secret volume/buying pressure indicator’, etc.).

You are the target.  Sometimes these geniuses will make you rich and sometimes they will make you poor.  It all depends on the environment within which they are plying their wares.  It is up to you dear individual investor trying to float your raft in shark infested waters, to take the ultimate responsibility.

So, in 2007-2008 I was stupid because while being long the gold stocks, I would sometimes write about degrading fundamentals as gold under performed mining cost inputs during an inflationary expansion.  I also used to criticize the gold ‘cult’ (led by Sinclair) long before I ever read Trader Dan codifying the term.  And the hate mail came in.

Then came 2008, for which I was ready and the brand spanking new Notes From the Rabbit Hole service was ready too.  It launched on September 28 simply because I thought ‘okay smarty pants, it’s now or never’.  It was very lonely getting hyper bullish in October and November of that year.  Very damned lonely as everyone had jerked impulsively to the DEFLATION side of the boat after being firmly INFLATIONIST for years.  Humans, it’s what we do; we take the path of least resistance.  But at that time, a combination of a crash in prices and massively bullish fundamentals screamed ‘GET CONTRARY… GET IN!’

The point is though that those times are and should be infrequent.  You can get a once in a lifetime opportunity like that but most often you get a grind.  Over time, you can grind out superlative gains.  The graphic below shows where the NFTRH speculative portfolio (my IRA, actually) was when I chucked the idea of even caring what people think about my ongoing performance.

Do you see what risk management did?  Most of the 149% gain to July 2013 had been made in the gold stock sector.  Yet at that time HUI was down 22%.  The S&P 500 was just starting to ramp up but this gold bug had already booked and decided to preserve gains, all but guaranteeing out performance to both of the noted markets.  8 months later (April 2014) the additional gain was only 3%.  That was ‘risk management’ mode and it was fine.

As posted here since April 2014…


People used to send me emails all the time telling stories of woe about how this guru or that expert or the other gold analyst had led them to near ruin.  These correspondences not only increased my distaste for a community of charlatans, but it let me know that I was on the right path.

So flash forward to today.  Do you think I give a damn about being perceived as not being out front in the gold bull cheering competition (at best) or as being left behind (at worst)?  ‘Well Gary, you have after all now written a couple of self-conscious posts based on what one person thinks of you’.

No no kind sir/madam, you misread me.  I love to write and I especially love to write about things that mean a lot to me.  Risk management means a lot to me and making money and preserving money mean a lot to me too.  I am making money just fine right now and when the time comes, I’ll make more of it (a real bull market after all, is not just a January to May thing).

This week may or may not have been just a mini puke in the miners.  NFTRH continues to manage in real time (in-week) and on a larger perspective (weekend report).  You are free to read off of me (and others) and do whatever it is that you do.  But as the graphic above shows, it is all going to come out in the wash eventually.

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