The Only Way to Win with Gold Stocks

By David Galland, Casey Research

While I have read certain works on the life and ponderings of Buddha, I claim no deep knowledge of his philosophy.

Note that I didn't use the word "religion," because Buddha himself claimed no supernatural powers and even begged his followers not to deify him after his death.

Hardly had he drawn his last breath some 2,500 years ago, however, when the deification began – though most Buddhists won't claim it as such.

Even so, there are Buddhist practices that I think are useful in this hectic world of ours – practices that don't involve dressing in robes and refusing to swat flies.

For example, I rather like to meditate from time to time.

Nothing too involved, just ten or fifteen minutes of quiet, deep breathing as part of calming the mind and all that.

I also find a lot of wisdom in the training of the Zen archers, who seek to clear their minds of all internal dialogue not related to the simple process of releasing the arrow at the target.

Simply put, they strive for only one goal – perfect form.

Thus, they clear their minds of all others, even those that might be considered complementary to the task at hand – for example, getting a pat on the back from the instructor or plopping the arrow closer to the bull's-eye than the next person down the line.


Of course, as humans are wont to do, Buddha's successors have taken the man's simple approach to life and wrapped it in gaudy and self-important rituals. But that shouldn't take away from Buddha's core beliefs.

Especially the bit about simplifying and focusing your goals.

That idea has always seemed to me to have relevance for a wide range of pursuits, from the putting green to the stock market.

Based on my many interactions with investors over the years, I have concluded that there are really just two types. There are those who have clear goals, and those who don't.

Those who do make the money. Those who don't provide the money to those who do (investing is a zero-sum game – for every winner, there is a loser).

This thought was made more tangible to me in recent days, based on a personal experience.

Long story short, I had invested in a pre-public company years ago. It wasn't a big investment, and it took longer than anticipated to ultimately go public. When it did, it had a fairly good run, but as the reason I bought it in the first place was still ahead of it, I hung on.

Well, as is so often the case, the company missed a hurdle and came tumbling back to earth, with the stock trading hardly at all and for just a few pennies a share.

Lo and behold, the company's management reinvented the company as targeting rare earths and managed to acquire a project of merit.

The investment that I had written off as worthless soared on high volume.

Now, if there is one thing that anyone with experience in the small-cap resource stocks will tell you, is that the time to sell is when there is someone to sell to – because absent volume, getting out of a decent-sized position is not easy.

Which Would You Do?

So, there was the dilemma – would you hold on in the hope that the surprise home run turns into the sort you bestow on your grandchildren?

Or do you secure your gains by selling and moving on?

At the point of such a decision, the mind gets very un-Zenlike.

Visions of untold riches dance in the head, followed by fits of fretting as the stock pulls back.

Next thing you know, you are tossing and turning in the night, conflicting thoughts chasing each other around like cats.

In the final analysis, I recalled the old adage that "pigs get fat but hogs get slaughtered."

The Zen Answer to Investment Dilemmas

I sold enough to take my initial investment off the table and guarantee a healthy profit – holding on to a modest position to enjoy any further upside. Having done so, the internal dialogue came to an abrupt halt.

Now, the funny thing is that after a brief pause, the company is again moving up – but I have no intention of second-guessing my decision to sell when I did.

On a percentage basis, my returns were in the moon-shot category – the sort that only the junior resource sector can produce – so it would be just plain churlish to gripe.

More to the point, the stock could just as easily have peaked and once again collapsed, in which case I would really feel like a dolt had I not taken an exit.

All of which delivers me to the point.

Namely that it is very important, especially for the resource investors among you, that you actually have a firm goal in mind for each investment you make – and that you remain single-mindedly focused on that goal.

Do you own gold or silver as a protection against inflation? If so, then why even bother checking the price on a daily basis, let alone every few minutes?

Or do you own it as a speculation? If so, what is your specific profit target?

Don't have one? If not, then it seems to me a bit like setting off on a journey without knowing where you want to actually go.

Do you know exactly why you own the resource stocks you do?

What hurdle are you betting they will clear next, and by doing so ratchet the price higher?

Is your goal to get your original investment off the table on a double?

Or do you have a specific price target in mind, at which point you will close the position entirely and move on to more fertile ground?

This idea of keeping an easily understood, single goal in mind for each of your investments is hugely important, because without it you are going to be susceptible to the fears, fantasies, and folly that ultimately cause investors to end up on the losing side of the equation… by selling good companies on pullbacks, holding on to positions well past the point of reasonableness, or chasing stocks after they've spiked.

Probably the most successful investor I know – I won't give his name, because he might not like my pointing out that he has tucked away close to a billion dollars, thanks primarily to investments in the resource sector – has a well-deserved reputation for selling too early.

While it is remarkable that he has made so much money in this sector, what is more remarkable is how he did it, which I would sum up as follows:

– First and foremost, he follows a process – almost mechanically.


– He buys low, with a specific objective in mind, both in terms of hurdles he expects the company to clear, but also in terms of the returns he expects to get on his investment.


– When his return objectives are met, he sells – maybe enough to get his original investment off the table, maybe the entire position, depending on his reassessment of the company’s potential to clear the next hurdle. But he always sells at least enough to get his original investment off the table, no matter how much exciting news there is and how much optimism others may feel about the stock.


– He only buys on his own terms. If invited to participate in a private placement, he will do so only if he is completely comfortable with the terms. If the company is offering a warrant with a one-year expiration term and he thinks the development work will take two years, he'll ask for a two-year warrant. If the company won't budge, he moves on, confident in the knowledge that there will always be another deal coming down the pike.


– He’s careful with his money. As he likes to say, if you spend your dollars, they can't mate and make you more dollars. He's not afraid to concentrate investments, but again on his terms, and only when he has done the due diligence needed to be confident that the potential reward warrants the level of risk involved.

If those principles and practices sound simple, it is because they are. But following that process is also incredibly effective.

Interestingly, this process rhymes with the finely honed investment methodologies of the late great Benjamin Graham, author of The Intelligent Investor and mentor to a small cadre of close associates that include Warren Buffett, Jean-Marie Eveillard, William Ruane, and Irving Kahn – all of whom used what they learned from Graham to become billionaires, or close to it.

Let that sink in for a moment. One man, Graham, developed a methodology for investing – and it's actually a pretty simple methodology – that the people working with him were able to duplicate in building their own fortunes. Following a proven process works.

And while Graham wouldn't have touched a junior resource stock with a twenty-foot pole – his methodology was focused on balance sheet analysis, not a strong point for junior exploration stocks that have no E in their P/E – the principle of following a specific process that mitigates the odds of a loss holds up well. The proof in the pudding is the success of my aforementioned friend and many others I know who are similarly disciplined.

With all of that said, do you know why you own what you own? Do you have a clear goal in mind for each of your positions? Do you know how much of your portfolio is allocated to speculative resource plays, and are you comfortable with the idea that those stocks have historically suffered extreme selloffs?

Warren Buffett, whose investment acumen is hard to argue with, likes to quip that the two most important rules for investment success are: Rule #1 – Never lose money. Rule #2 – Never forget rule No. 1.

While it is almost impossible not to lose money along the way while investing in resource shares, it is equally true that once you have scraped your original investment off the table, it is impossible to lose money. Sure, you can give back your profits – but you can't lose money.

All of which is, I think, worth reflecting on as you aim your next arrow.

And if you aim your arrows just right, small-cap resource stocks can give you great leverage to the underlying commodities – such as the precious metals.

12 thoughts on “The Only Way to Win with Gold Stocks

  1. Awe inspiring, Jeremy… Setting goals is ALWAYS the focus of any business and investment. Dealing with gold and silver is kind of like a huge thing for a lot of investors and they focus more acquiring it rather than selling it. I think your point should matter a lot to everyone, especially to those who still don’t have a clearer view of what they’re doing.

  2. Jeremy, Thanks for a helpful article. Buddhism is all about removing distractions, something that seems to be difficult to comprehend for a lot of us that use our money in an attempt to make more money. The many traders that follow the crowd and buy high, then end up in a panic and sell low consequently losing all their money can certainly take a lesson from this and learn to pay attention instead of reacting only with the emotions... matter of fact that would probably help all of us. If only those who don't think did.

  3. It is truly wonderful that the Diety created the Internet to
    communicate ultimate truth to us. Pity the pre computer

  4. might want to check the internet because there was recently a buddist who died and went to hell and came back to tell that every single buddist including the Budah guy himself was in hell and that the whole religion is a total lie. He also saw Jesus and was told that the only way to salvation is thru Him, not any false religion. Go google this for yourselves. I'm standing here to tell the truth and I don't care if anyone is offended by my truth. Jesus offended many people, that's why they crucified Him. No one uses any other name as a swear word - only Jesus.. Only the name Jesus offends people. Think about it - because that's the only Name that has truth in it and the only thing that causes people to come under conviction - which no one wants to hear anything about. No one wants to be told them are wrong and going to hell. Funny isn't that. Everyone says they are going to heaven until you start asking how many of the 10 Commandments they have kept and then they realize that plus the explanation in the Sermon on the Mount (Matt 5-7) that there is no possible way they can keep them. Then they realize they have a serious eternal problem which has no solution other than Jesus. Go ask the Muslims who have seen visions of Jesus appearing to them telling them islam is a total lie. Don't take my word for any of this - go find out for yourselves.

    1. Dear Chris: Your interpretation of scripture is blasphemous. You attribute to the Heavenly Father and His dear Son qualities that would heap shame on any mortal father. If a son or daughter of yours misbehaved badly and repeatedly, would you throw them in a fire? No, you would pray for them and never give up trying to help them - and you would always love them; and you are just a human father. You - and those who you have decided to listen to - obviously cannot fathom what God's UNCONDITIONAL love is all about. You know a bit of scripture, but you have no idea - not the beginning of an idea - of what its true meaning is. A wise man - wiser than you - once said: You could bring all the saints and prophets of all the world's religions into one room, and there would be total peace and harmony; but if you were to bring all of their followers into one place, there would be total war. “And the disciples came, and said unto Him, Why do you speak unto them in parables? He answered and said unto them, Because it is given unto YOU to know the mysteries of the kingdom of heaven, but unto them it is NOT given.” Matt 13:10-11 Jesus was referring to the multitudes who came to behold and listen to this awe-inspiring Man; but it was only his close disciples who were developed enough to understand - eventually - the deep truths he was revealing...are you convinced you are on a par with the 12 disciples? If you spout nonsense in the name of God, I think not.

      BTW...did you get anything at all out of the article?

      1. I think most of the readers at this site worship at the alter of the trade triangles, as interpreted by the high priest, Adam.

      2. As Steve Starr points out this is a profane, not a sacred site, and therefore the wrong sphere for discussing the finer points of religious belief. As Jesus said, 'Render to Caesar what is Caesar's, and to God the things that are God's' (Matthew 22:21) when He was talking about something profane - paying taxes.

        However I will answer you Peter O because you are out of your depth and you also get on your high horse and pontificate without knowing what you are talking about. You have the temerity to declare that you and not others know what Scripture means, while you yourself commit the sin of quoting selectively and inappropriately, plus committing the sin of thinking that you have the right to judge and despise them. See then Matthew 7: 1-5.
        7:1 Judge not, that ye be not judged.
        2 For with what judgment ye judge, ye shall be judged: and with what measure ye mete, it shall be measured to you again.
        3 And why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye?
        4 Or how wilt thou say to thy brother, Let me pull out the mote out of thine eye; and, behold, a beam is in thine own eye?
        5 Thou hypocrite, first cast out the beam out of thine own eye; and then shalt thou see clearly to cast out the mote out of thy brother's eye.

        God gives everyone a chance to follow what He demands, but there always comes a day of reckoning, sometimes immediately, sometimes a few generations later, sometimes two thousand years. Christianity is teleological and conditional. There is an end to all individual timespans for repentance, just as there is an end to this age.

        Liberal theologians like you Peter who build up a picture of God based on an idea of infinite patience and politically correct, liberal ideology ideas of unconditionality instead of the Scriptures will have a very tough time coming. God has infinite power but does NOT have infinite patience. You lack humility and magnify yourself as having read and understood the Scriptures better than others. Read then the Old Testament again, slowly and properly, each thought in context. Read also the words of Jesus Himself in Matthew 7, 21-25:
        21 Not every one that saith unto me, Lord, Lord, shall enter into the kingdom of heaven; but he that doeth the will of my Father which is in heaven.
        22 Many will say to me in that day, Lord, Lord, have we not prophesied in thy name? and in thy name have cast out devils? and in thy name done many wonderful works?
        23 And then will I profess unto them, I never knew you: depart from me, ye that work iniquity.

        Finally, if you haven't got the spirit by the Second Coming, tough! Jesus says you will be shut out of the Kingdom of Heaven. See Matthew 25, 10-12.
        10 And while they went to buy, the bridegroom came; and they that were ready went in with him to the marriage: and the door was shut.
        11 Afterward came also the other virgins, saying, Lord, Lord, open to us.
        12 But he answered and said, Verily I say unto you, I know you not.

        How does that fit with your liberal and politically correct ideology, Chris?

        1. I think you should spend less time reading and more time praying from your heart. If you spent the time to get to know the Heavenly Father, you might find Him to not be the monster you accuse him of being. (Not even remotely liberal and certainly not politically correct - apparently not religiously correct either...!)

          1. I am amazed you continue. You lost the argument that you began by quoting the scriptures and had nothing left to argue with because the scriptures I quoted for you were irrefutable.

            Your reply is feeble. Praying without knowing what God is all about and how others have reached him for over five thousand years is like being up the creek without a paddle. You have an amazingly high opinion of yourself.

            Once again, you dispense advice to below from your self-raised position on your pedestal. You say that I am accusing God of being a Monster. I certainly did not. I quoted from several sources, including Jesus himself. Do you realise that you have now rejected His Word? Are you a real Christian, or just an authoritarian character who requires everyone else to follow his dictates?

            As for your advice about praying from the heart, who are you to know and judge how I pray from the heart? Once again Matthew 7: 1-5 applies to you.
            Take it to heart, and stop throwing your weight around like a cheap dictator.

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