Making money is large part of achieving independence and living free.
In my own life, I focus on select entrepreneurial ventures to generate capital, and specific investments which subsequently grow that capital. My investment habits might be best described as ‘peculiar,’ because, believe it or not, I do not have a strong risk tolerance when it comes to my money:
- I only invest in instruments that I fully understand (or someone I trust fully understands).
- I invest in big picture trends that I am totally sure about.
- I do not get over-leveraged because I don’t enjoy handing my position over to the bank.
- I accept losses and don’t automatically assume that my position is going to come bouncing back.
- I tend to take profits quickly (a bird in the hand).
- I buy assets that I think are extraordinarily undervalued, and sell assets that are extraordinarily overvalued.
- Most of all, I look for the obvious opportunity that I call the ‘low hanging fruit…’
Low hanging fruit is the ‘no-brainer’ opportunity that the market presents from time to time– the GDX gold miner’s index at $16 several months ago, 4.75% mortgage rates, and a slew of debt-free companies trading at a substantial discount to their net tangible asset value.
It happens. Some people believe that these types of opportunities don’t exist because markets are ‘efficient.’ I don’t buy it. I think that markets are totally inefficient (at least in the short term), comprised of highly-charged, emotionally-frenzied participants who often act in completely irrational and irresponsible ways.
Major market participants have a herd mentality, following each other around in and out of mortgage-backed securities, treasury inflation protected securities, GM bonds, and financial sector stocks. When you consider that 50% of the people out there are, by definition, below average, it certainly begs the question if any of these guys know what they’re doing when they let computer programmers and math whiz kids figure out what the price of oil will be next Tuesday.
I certainly don’t know. I always get a kick out of people’s ‘year-end’ predictions where they say ‘gold will be at $1,310 and the Dow will be at 8028.33.’ I suppose it’s fun, but the odds are better to bet on 18-red.
So where am I looking right now?
Today I think the low hanging fruit is the longer-term future value of certain commodities. I have no idea what gold and silver will be trading at tomorrow, next month, or even next year… but I am certain that the longer the timeline, the higher the likelihood that these commodities will achieve explosive growth… and for that, we can thank runaway deficit spending and currency inflation.
Given the US Commodity Futures Trading Commission’s looming regulatory headlock on evil speculators, I’m staying away from energy until the smoke clears. I do, however, have gold and silver in my sights. I’m looking at futures contracts with delivery in 2011, meaning that I am effectively locking in the price for gold and silver two years in advance.
Between the two, I believe there is more speculative upside in silver; given historic ratios and potential growth in industrial demand, the current gold/silver ratio of 70:1 is too high. Silver should appreciate at a faster rate than gold, and the opportunity to pay $13/ounce for it in 2011 is low hanging fruit in my book.
There are several ways to capitalize on this, including options strategies, futures, and even ETFs. I will share the trade with you if requested in this forum. I’m also curious what everyone thinks about silver, and what low hanging fruit do you see in the marketplace right now, if any?
Incidentally, there are several trading services out there that specialize in shorter-term trading opportunities… I’ve made some money in the past with Casey Research’s Trend Trader service, and if anyone has other recommended trading services please share in the comments on the website. I generally look at these as great opportunities since they normally come with a risk free trial period, enough time to paper trade the recommendations.
