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We’re Winning, But We’ll Stop Our Loss

March 2, 2017

In 2015 I had several stocks in my portfolio that lost 40% of their value in a matter of months.

That’s a lot. Seeing almost half of your investment disappear is quite a terrifying feeling.

I had invested in a variety of junior gold and silver miners. I had expected them to be quite volatile, but honestly, I did not expect them to go down 40%.

I didn’t panic though. I had set my “stop-loss” at 50%.

That means I would stop my loss when my positions lost half their value. I’d sell them to stop the bleeding.

Now, a 50% stop-loss is not normal. Most investors will have a tighter stop-loss. Somewhere in the 20% range.

This is an important practice to understand AND execute. Determining your stop-loss BEFORE you enter a position ensures that you do not emotionally sink your portfolio.

It’s very easy to get sucked into an investment story. You may think something is going to happen… but then it never does. And while you’re waiting for that something to happen, your portfolio slowly dies.

Remember, if you have a 50% loss, it takes a 100% gain to get back to where you started.

So… why do I bring this up?

Our uranium investment.

I recommended buying $URA at the beginning of the year. Within 2 months we saw 25% gains. That’s incredible. I told you to sell your position if you wanted to secure your win. A lot of you did – congrats!

But, a lot you didn’t sell. Now that the stock price is back down (which I specifically warned about) I’ve gotten a pile of emails asking what you should do.

By the way, we’re still up over 10% in the position, so we’re still sitting pretty.

First of all, this is a long term investment. A long term investment is NOT 2 months. It’s at least several years. There is going to be lots of up and down, so don’t get too wrapped up with relatively minor movements.

Second, you need to set a stop-loss for yourself. I’m not going to give you one (even though I know that’s what you want!). I’ve given you the story about uranium, so you have to decide what your risk tolerance is.

Personally, I see uranium setting up very similar to precious metals in 2015. At the time sentiment towards gold and silver was near all-time lows. In many cases, mining stocks were selling for less than 90% of their highs, just several years earlier. The whole metals space was clearly cheap.

Uranium could be setting up for a similar rally. Only, this rally could be much larger than what we saw in gold and silver.

The same mining stocks that lost 40% in my portfolio went on to rally over 300% in 2016. They were fantastic wins for me. If I had panic sold out of my positions when I was 40% down, I would have never seen the eventual gains.

But, if I had hit my stop loss at 50%, I would have sold. I would have stayed disciplined, because it’s emotions that usually get the best of us.