It Takes Courage to Be a Pig
By Brian Hunt, Advisory Panelist, Investment U
Friday, December 5, 2003: Issue #295
Six years ago, I announced to my family that I would make my living as a professional investor someday.
My sister, who holds a business degree, scoffed at the idea. “Haven’t you ever heard of the efficient market theory? The stock market’s too complex for anyone to beat it.”
Well, Sis, I just got a step closer to my dream starting from scratch as a farm boy from Iowa, I’ve made more money this year from my investments than any other source of income. And I haven’t hit my 30th birthday yet!
I’ve done so well by putting a large percentage of my money into my best ideas, throwing out the idea of diversification. I’ve been a pig and it’s made me a lot of money. Here’s what I’ve done, and how you can do the same
Riding the President’s Coattails
I’m lucky enough to be the only guy who works day in and day out with the President of Investment U, Dr. Steve Sjuggerud. Nearly six months ago, I saw that Steve was “backing up the truck” to buy gold related investments. Following his lead, I took some large positions in gold-related investments and they’ve turned out fantastically – the gold stock index (the ^HUI) is up over 100% in the last year.
Beyond that, my research into “micro cap” stocks (extremely small stocks) showed that they were poised to boom. So I launched a micro cap trading service. Micro cap stocks are up 87.5% year-to-date. Currently there are 10 stocks in my recommended micro cap portfolio, with an average return of 18% and an average holding period of roughly a month – that’s about a percent a day for every trading day of the month!
If you had committed heavily to gold, as I did, or to micro cap stocks, for example, your returns this year would be extraordinary you’d have easily doubled your money.
Now don’t get me wrong. I think spreading risk by taking positions in many different investments is a good idea most of the time. But when you diversify heavily, you diversify away all the potential for a huge return your best ideas don’t get as much money as they could.
If you want to perform in line with the market, then diversify heavily. If you want the potential to massively outperform (or massively under-perform) then you’ll have to take some risk.
How to Be a Pig AND Stay In the Money
“If you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.” legendary investor George Soros.
George Soros built a multi-billion-dollar fortune through investing. He knows what it really takes to make money. And his advice above is exactly the opposite of “being well diversified.”
The key to successfully “being a pig” – having a large position – is to seriously limit your downside risk. If you’re going to have “a big line,” as they used to say, then you can’t let it go against you. So you must have a serious defensive strategy. I set tight trailing stops, and I follow them, getting out quickly if I’m wrong (because we will be wrong at some point).
What I’m talking about is extremely risky. But it is the best way I’ve seen to make a lot of money from stocks. It’s worked out for me this year as I said, I’ve made more from my investments this year than from any other source of income.
In the rare instances when your conviction about a position is extremely strong, it’s okay with me if you bend the rules a bit as long as you use a trailing stop to cut your losses early if you’re wrong.
It takes courage to be a pig But that’s where the money is.
Good Investing,
Brian Hunt
Today’s Investment U Cribsheet
- For more on the often great returns you can reap from micro cap stocks, check out e-Letter #257 – Mega Gains from Micro Stocks. To learn more about trailing stops, read e-Letter #250 – Getting Out With A Profit.
- Asset Allocation: Why Investors Should Diversify Beyond Stocks
- Trailing Stops Made Simple…
- What If You’re Wrong?
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