Palisade Research - Tue, Mar 20, 2018

What I Learned Losing $125,000 Before Turning 25 And How I Made It Back

Futuristic image of a girl soaring from a cliff arms opened in the air

I was laying on my back in the middle of my room staring at the ceiling fan.

It was November 2015 - two years before I had joined Palisade Research.

I was about to turn 25 years old and had already lost $115,000 dollars in stocks and from being in the wrong place at the wrong time in my life.

I couldn't stop laughing.

Not because it was funny - but because how everything that could've gone wrong did.

Here's my how it went. . .

I was a senior in high school during the 2008-2009 recession.

I took the $4,000 I saved up from cleaning tables as a busboy at the Westin hotel and went with my father to Wells Fargo.

I wanted to open a brokerage account, but I was only 17 at the time so dad needed to co-sign for me.

"You're going to lose your shirt in this panicked market," he told me.

"We'll see," I said.

I have always been contrarian minded - I hated doing what everyone else was doing.

I found the most beaten down stocks - Biotech & pharmaceutical stocks - and I went all in.

It wasn't because I knew anything about the sector, but only because they were cheaper than ever.

I also bought a lot of Krispy Kreme Donuts - it was trading for only $1.25 a share.

"It's a recession, but everyone is still eating donuts."

What a steal, I thought.

My portfolio did nothing for 3 years.

But finally things heated up.

By 2013 - Krispy Kreme was over $21 per share.

That's a 1,700% gain from when I bought it.

I felt like I was the smartest kid ever. As if it was my own investing genius that made me these gains. That I saw something no one else did.

I sold my stocks and looked through the market to see what I could buy now.

It was mid-2013 and precious metals and mining stocks were in a brutal bear market. It reminded me of what I saw in 2008-2009. . .

  • Oversold
  • Feared and hated
  • Very cheap
  • And no one wanted to buy them

I had over $75,000 at this point - so I needed to do my homework this time.

I spent the next year studying the mining business, metallurgy and resource market.

I plowed through countless mining stocks to find the best of the best at the lowest prices.

I found what I wanted - and I went all in.

I threw $100,000 dollars into a basket of mining stocks. . .

Friends of mine said I was insane and stupid.

"Gold isn't money anymore - no one buys or cares about that stuff - It's going to fall below $400 an ounce, just watch."

But the more they hated it, the more I wanted to buy.

No matter what they said about gold, none of them took the time to research anything about it.

It was like they were parrots mimicking exactly what they heard on CNBC and from Jim Cramer.

Two years passed - and I did feel insane.

Gold was suffering more - and longer - than I thought.

"How brutal. . . "

But it was okay because my primary focus was to invest in mining stocks that could survive for years in this bear market.

The only problem was that it's taking longer than I ever thought it would. . .

I was down over 70% in October 2015 - three years since precious metals started imploding.

I wanted to bury my head in the sand.

"Why is this happening? Don't people see the potential?"

It was still okay because the individual stocks I was invested in would survive for years to come.

"Eventually they will rebound."

I shouldn't have said that.

Because I spoke too soon.

The worst thing possible happened next. . .

A flurry of problems happened in my life, and I needed a lot of cash - fast.

I had what people call a liquidity crisis.

I was forced to sell my portfolio at a 75% loss. . .

So there I was.

Laying alone in a room - on the floor - with decades worth of tax-loss write offs and a broken spirit.

But I was still confident in the gold market and mining stocks.

I had only $10,000 left to my name to work with.

I stared at the fun for an hour until I thought of something.

I jumped up and ran to my bookshelf.

I needed to re-think my entire strategy - being contrarian and a value investor wasn't enough anymore.

I needed something more. . .

I looked through my bookshelf.

Over the last four years I had bought tons of books on economics, finance, history, etc.

picture of a white cat in a box in front of a bookcase full of books

"What good are all these books if I lost everything?" I thought.

I saw a stack of books with a sticky note on the side

It said, "TO READ" - I picked them up.

It was the Black Swan, Fooled by Randomness, and Antifragile by Nassim Taleb and a couple other interesting books.

I tried reading Antifragile a year prior - but I put it down after three pages.

I don't even remember why.

So I decided to give it another shot - the word FRAGILE on the cover was how I felt.

Maybe there would be something worthwhile to it?

I grabbed it and started reading. . .

"My eyes burn"

The sun was coming up now.

I hadn't slept yet, but I couldn't put it down.

"This is it. This is the missing piece - this is where I went wrong. . . Not just with these gold stocks, but when I bought my first share of Krispy Kreme years ago."

I felt sick to my stomach that this book was next to me this whole time.

And I never read it. . .

I grabbed a pen and notebook and started writing down the best parts of the book.

I was making my own guide.

picture of financial notebooks and notes with economic charts

Two months passed.

It was December 2015.

I used my last $9,000 to try my new strategy out.

But this time I didn't buy stocks - I knew better.

I bought 1 year, way out of the money, Call Options instead.

I'll explain why. . .

After losing all my portfolio, I remembered that life is full of uncertainty - things happen that are unforeseen and can kill your perfect plans.

And volatility isn't as rare as the 'experts' claim. . .

I should've realized this more than anyone because of my life.

When I was 8 my mom died.

It was sudden and a huge blow to my family - it changed everything.

Then my dad died when I was 22.

This volatility shook me up more than anything ever had.

And it changed my entire life's course. . .

That's why I needed to create practical strategies to position myself so that I have huge upside when things go well in life, but also have limited downside if things didn't go well.

Otherwise said, low risk with high reward.

And I learned that I can get this through buying options. . .

For example - I paid a dime for the one-year Yamana Gold and IAMGOLD call options. I paid even less for the one-year Gold Resource Corp options.

I knew that the only way these would have paid off big time would've been if gold soared in the next 12 months.

And the worst-case scenario?

Gold wouldn't have gone up within a year and I would have only lost the premiums I paid to buy those options - the dimes and nickels.

Nothing more!

Then - after they expired a year later - I would re-evaluate the market and my thesis.

If I still saw the potential in gold stocks, I'd buy another year of those options.

And so on. . .

This was I was paying 1/10th the cost to own the same amount of stocks I had before while keeping the huge potential upside - it's easier for a nickel to turn into a dime than $4 turns into $8 even though both are a 100% gain.

"That is the type of 'optionality' I needed in my portfolio's strategy."

A few months into 2016 and my luck finally turned.

I had made gains of 1800%, 800%, and 550%.

Look at Gold Resource Corp below as a case study. . .

5-year GORO line chart with call option details

Giving yourself a long period of time - 1 year in my case - and paying low costs can position you for a higher probability of success.

It wasn't that I had to be exactly right about gold, I just had to be generally correct. I set myself up so that when market sentiment changed, and gold prices started recovering, I would make a killing.

I wish I did this years before. I wouldn't have lost so much money.

"Better late than never I guess. . ."

Markets and investor's perceptions change.

Sometimes things stay the same for a long time - and sometimes things completely shift overnight.

Economists make abstract models and use long equations to try and tell us what is coming next.

But in truth, they have no idea - just their wild guesses that looks fancy.

That's why I learned to make the uncertainty and unpredictability in life my portfolio's best friend.

Let the volatility work for you - not against you.

After making a small fortune - only to lose it all - then to make it back, I have finally found something that works.

I'm not saying what my strategy does will be perfect - I'm still tinkering with it. Making it better.

But it will position you to have huge potential upside while limiting risks.

We can keep the good - the gains - while ditching the bad - the huge losses.

After joining Palisade Research, I decided to put all my hundreds of pages of notes into a practical rule guide (if you haven't subscribed to read the rules, I urge you to do so).

I will be writing more about these topics and what I add to my strategy.

Compared to what else is out there - my rules are original and easy to use.

I hate useless academic jargon. All the theories that don't work.

I only care about what's practical and gives me the biggest upside while limiting the downside.

I hope you subscribe and stick around.

I'll be adding more content going forward and what opportunities I like.

I hope you found something useful from this.

Make sure you learn from my mistakes and don't make them yourselves. . . publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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