Pyramid Investing

Relativity of investment success in 2011

Investment accounts of most pyramid investors have finished this year with large draw-downs. Last four months were especially brutal. In such circumstances, it is hard to claim success or at least, the success is far from obvious.

Considering our emotions and sentiment about dollar valuation of our accounts, there is little room for celebration. We feel as prisoners in investment gulag. Few have remained with hope about ever being released from the gulag. However, Pyramid Investing is not about letting your emotions govern market actions. It is about proper risk capital allocation and robotical execution on a plan.

Even though Gold had 11th up year in a row and intra-year peak of 35%, Silver was smashed few times and eventually finished down. Expectations would be that account draw-downs were small or nonexistent. However, many pyramid investors had great deal of portfolio in different junior mining companies, explorers or various resource companies for that matter. The whole sector was literally obliterated in 2011 that made the gulag theme prominent. Resource equities fared significantly worse than actual resources they were involved with. Beating continued throughout the year and little chance was given for accounts to recover. Constant selling pressure was relentless. Just take Uranium sector for example after tsunami in Japan.

Irrespective of account draw-downs, pyramid investors need to focus on acquiring quality assets at favorable prices and acknowledge that there is something far more important than net liquidation value of investment accounts.

Gold is wealth, wealth is Gold

Here’s a simple question: What is WEALTH?

Simple answer: GOLD is wealth!

Of course, by Gold I assume Silver too. And energy (Oil, Natural Gas, Uranium…) and food (Wheat, Corn…). Or perhaps even all commodities (real stuff).

Once you know what wealth is, you also need to know: How is wealth MEASURED?

Few know correct answer to this question. And yet having clear understanding of this concept is absolutely critical:

Gold, as wealth, is NOT measured or expressed by its dollar valuation. Value of Gold is measured by scale! An ounce of Gold always has the same value irrespective of its price expressed in dollars, euros or whatever other currency. Wealth is in weight!

I would also venture to say that even value of your cash should be expressed in terms of ounces. Weight should be your base currency. In the world of relative values, you need a reference point to measure real and absolute values.

Number of ounces you have represents how much wealth you have. Grasping this concept is foundation of wealth building which assumes increasing number of ounces in possession. Increased number of dollars only comes as a consequence of increase in Gold weight and it should never be your primary objective.

Back to our performance in 2011: Even though dollar valuation of investment accounts is lower, accumulation of equities at significantly discounted prices as well as additional ounces acquired on price weakness result in greater wealth. Profits created by pyramiding in and out of positions are ultimately converted into Gold and that is all that matters. In light of such mindset, pyramid investors can claim that 2011 has been a successful investment year!

Just for the record, here is a snapshot of futures performance for year 2011 by FinViz:

1-Year Performance of Futures (during 2011)

Recommendations for 2012

There are many reasons for 2012 to play out as a year of crises, as a year of continued crises and as a year of intensified crises. There is nothing linear about crisis and disturbances are unavoidable part of it. While disturbances and instability are more appropriate terminology for engineering systems, in everyday world of investing, economy and politics, surprises are the equivalent.

In order to deal with surprises in as safe manner as possible, your 2012 investing approach should respect the following recommendations:

1. Do not use ANY leverage in your account. Whether large or small, temporary or permanent, planned or accidental, leverage will always get you! 2012 will be a year in which you definitely don’t want to mess with taking chances with leverage.
2. Maintain high levels of cash. Even though this may look absurd in an environment of heightened risks of cash devaluation, it is more important not to get into a situation where you would need to tap into your Gold stash for whatever reason. This is of course under assumption that you DO have plenty of cash to begin with.
3. Increase percentage of your net worth that is kept outside the system. Since risks of losing what you have in the system are elevated, it is only prudent to get some of what you have while you still have it and while you are still able to get it out of the system.
4. Reduce trading. First, reduce the percentage of your net worth that is dedicated to trading (this of course includes pyramiding). Second, increase steps and ranges of your pyramids which complies with expectations of mind-boggling volatility.
5. Keep more of your assets as a core. Keep that core extremely tight and far from your own reach as you will undoubtedly be exposed to many pressures to sell it. Far from your reach means, for example, to take possession of share certificates for your core positions. Such move is also in accordance with recommendation #3 and it helps fight against those who borrow your shares to sell them short.
6. Keep your emotional stability. Never be tempted to price chase anything under any circumstances, no matter how much things look desperate or are running away. Wait for price to come to you instead.

I wish you all happy, healthy and prosperous New Year 2012!

Consistency and abundance of profits in 2010

Another amazing year for pyramid investors has been brought to a close. Consistency of creating profits continued in 2010 in accordance to our expectations. The amount of profits that was created was certainly helped by strong precious metals market. Thus not only Pyramid Investing brought many profits and no losses, but the sheer volume of profits was much greater than perhaps even we anticipated! Pyramid Investing was able to beat the broad market (consistently) with ease, which in general is the most daunting of tasks for any other investing concept.

I would like to point out that there is no doubt in my mind that Pyramid Investing profit creation consistency will ever stop. Twenty or thirty years from now, I am sure I will have repeated the same story many times over. To those of you who still do not have trust or expect some multi-decade track record before committing capital per Pyramid Investing concept, I can only tell: You will be wasting precious time waiting for your expected confirmation or proof that it works, time that you will never have back to relive and invest per Pyramid Investing concept.

Due to applying Pyramid Investing in 2010, we have realized profits by trading pyramids. We are also sitting on unrealized profits on core positions acquired in a pyramidal way. Current financial state of our investing accounts is much stronger than it used to be when we started Pyramid Investing. Another important aspect is that our emotional state is much stronger as well. Now we can withstand much larger hit on our accounts while at the same time acquiring more assets at lower prices. That translates into even greater reduction of risk in our investing approach. Virtuous cycle has been initiated! Everything points to even more successful year(s) ahead of us.

Volatility to increase

I have to admit that I anticipated much higher volatility in 2010. Although volatility did pick up somewhat, it was far from levels that would concern even ordinary investors who are normally afraid of volatility. As usual, I was too early in my expectations. But that doesn’t change anything since fundamentals for tremendous volatility are still existent and actually getting stronger. I may be too early for 2011 again, but I doubt. I strongly recommend buckling up and getting those pyramids ready to fire on all cylinders in 2011!

Perhaps it may be inconvenient to get into a position months ahead of significant move and spend some time in trenches (think Natural Gas for example). But there is nothing wrong about being ready ahead of time. And yet, majority of investors wait until the last moment to prepare. As a matter of fact, they wait for the move to occur as a sign of confirmation of their expectations. I believe that moves in New Year 2011 are going to be so sudden and violent that anyone who has a tendency of waiting will be left in the dust. They will simply remain stunned with no positions whatsoever. Others will price chase in terror and will be subject to multiple whipsaws to their obliteration.

There will only be one trading strategy to successfully survive the upcoming volatility and that is Pyramid Investing. Those who do not embrace Pyramid Investing as a trading are recommended not to trade at all as markets will become untradeable. They should only acquire core positions (ASAP) and hold them (lock them, bury them) throughout the period of next several years at a minimum.

Trading predictions for 2011

Even though majority of prospects for 2011 are outright scary, I believe pyramid investors will come out on the other side unscathed – at least financially. During stable times, Pyramid Investing is supposed to grow wealth in a significant manner. During times of crisis and turmoil, Pyramid Investing preserves real wealth which is also great achievement although on a relative basis.

I do not want to venture into predicting what is going and what is not going to happen in 2011. Pyramid Investing is based on responding to whatever DOES happen. Thus in the spirit of Pyramid Investing, I will give the following trading predictions, considering Gold is around $1,400 now:

• If gold goes to $1,500 I will sell some
• If gold goes to $1,600 I will sell more
• If gold goes to $1,700 I will sell even more…

• If gold goes to $1,300 I will buy some
• If gold goes to $1,200 I will buy more
• If gold goes to $1,100 I will buy even more…

You get the point. What I DO predict is my own actions. So far I have 100% track record of being right on my predictions about my actions!

Core positions

I think the time is right to stress the importance of acquiring and holding core positions in upcoming years. And not just any core positions but strictly precious metals and resource/mining stocks. Core positions are treated differently than trading pyramids. They are strongly held for the whole duration of the bull market. One should never attempt to sell core positions with intent of getting them cheaper at a later time. That strategy WILL NOT work in 2011 and arguably for many years thereafter. Those who attempt to time the market with their core positions will be punished with time out!

Due to acceleration and increased steepness in precious metals price rise, core positions should take significant weighting within portfolio. As opposed to stable times when trading pyramids tend to produce considerable returns in markets that more-less do not trend but move within narrow ranges during prolonged periods of time, times ahead will likely be characterized as times when core positions will have brought the bulk of returns (wealth).

Of course, since no one can predict the future with certainty, it is advised to apply both trading per Pyramid Investing concept as well as holding core positions acquired on weakness in a pyramidal way. I wholeheartedly recommend embracing Pyramid Investing concept for the sake of financial prosperity and survival in the markets during difficult times ahead of us.

I wish you all happy, healthy and prosperous New Year 2011!