Filtering Out the Noise – Why Speculation is So Tough!

Speculation isn’t easy at all… In order to make big gains, you have to be positioned early into a story, be right on the underlying future direction of your bet, and you’ve got to have enough conviction to “buy right and sit tight.”

It can be a rollercoaster ride much of the time, and since nobody has a crystal ball, there’s no way to know when the next wave up (or down) will occur…

If you’re lucky, your speculation thesis can play out in the course of a just few months… If not (like the case of those waiting for the spot price of physical silver to soar to new record highs), it can be an agonizingly long wait… that feels like an eternity…

The only way to not get shaken out, is you’ve got to have that conviction…

Where does conviction come from?

Usually from countless (thousands?) of hours of thorough research, looking at all viewpoints — From ultra bull to extreme bear and everything in between…

Let’s use an example…

In the case of cobalt, at the start of this year there were pretty much nothing but bullish articles being pumped out on the daily…

In the past month or so, like the flip of a switch, sentiment towards cobalt has very much gone from supreme optimism to downright “doom and gloom” pessimism…

From Clean Technica (June 9, 2018).

Here are some noteworthy quotes:

CEO Elon Musk said recently that battery cells used in Model 3 have achieved the highest energy density while "significantly reducing cobalt content," increasing nickel content, and still maintaining superior thermal stability."The cobalt content of our Nickel-Cobalt-Aluminum cathode chemistry is already lower than next-generation cathodes that will be made by other cell producers with a Nickel-Manganese-Cobalt ratio of 8:1:1."

"We have already cut down cobalt usage substantially," Kenji Tamura, who is in charge of Panasonic's automotive battery business, confirmed. "We are aiming to achieve zero usage in the near future, and development is underway."

Sounds pretty bleak for the future outlook of cobalt, doesn’t it?

And when negative articles that are coming out are coinciding with the decline of your underlying speculation (in this case the spot price of cobalt metal itself), well, it’s gonna be a real gut check time for a lot of speculators who will have to sit back and re-assess their speculation thesis…

From InfoMine.

Double whammy!

Not surprisingly, in the face of all this, a lot of the cobalt-related mining stocks have suffered in share price performance as well…

Triple whammy!

But with these things, especially if we’re dealing with macro trends (that usually take many years to play out), all of a sudden (or even the next day), the market can seemingly change its tune again, with some more positive stories coming out…

Just like that…

From Reuters (June 14, 2018).

Here are some noteworthy quotes:

Panasonic Corp expects to more than triple its cobalt consumption in five years' time, industry sources said, even as the company aims to develop cobalt-free automotive batteries in the near future.

"That 25,000 tonnes is a much bigger number than anybody expected. I suspect they are very concerned about cobalt supplies in the future," a source at a cobalt producer said.

A cobalt industry source said: "Panasonic are normally very cautious and conservative about their estimates. If anything, they talk it down. The 25,000-tonne number came as a shock to us."

"There's a lot of noise about 8:1:1, but they haven't managed to make it work yet. Zero cobalt is even further away," the cobalt industry source said.

For many speculators, it’s altogether way too confusing to try and figure out…

One minute, we’re screaming, “Oh no the end is near for the cobalt narrative! It’s going obsolete tomorrow. Sell everything!!!”

Then, the next minute, it’s back to, “There’s gonna be an insane supply crunch! Demand will swamp supply so I gotta be in it to win it!”

Back and forth…

Over and over, again and again…

So, then, how does one make money in this type of whimsical market that can’t seem to ever reach consensus and make up its mind?

In my eyes, you simply have to:

“Buy low and sell high.”

Temper that greed during the hyperbolic moonshots, and remember in the back of your mind that markets are cyclical (especially commodities)… When you’re sitting on MASSIVE profits, never forget to de-risk positions and take back your principal (and perhaps even more than that)… On the flipside, when it feels like a perfect storm of bad news, you’ve got to be able to keep calm, stop looking at the price charts every 5 minutes, and remember to focus mostly on the underlying macro trends/fundamentals… If your speculation thesis is fully intact (and arguably getting even stronger by the minute), it’s typically not the wrong move to get more aggressive and do your accumulation work when others are shitting themselves and trampling over each other, headed towards the exits…

It’s not easy… If it was, everyone would be doing it…

It can feel like a total rollercoaster ride…

It’s without question, lots of times, a very boring Game of Patience…

But that’s just how the game goes…

You gotta learn how to filter out the noise.

Happy Hunting!