This weekend, I heard a story told at the Casey Summit in San Antonio, Texas that really got to me. Marin Katusa, the Chief Energy Investment Strategist at Casey Research, got approached by an elderly lady in her 70s who once had $600,000 dollars. She had been invested heavily in speculative junior mining companies, and her portfolio value was down to only $40,000 dollars. She approached Marin in a state of helplessness asking him what she should do with her money invested — sell or hold on to these companies. Marin explained to all of us that he was in a state of shock himself hearing that this poor lady lost more than 90% of what she had invested with and is now wondering what to do next.
His advise to her couldn’t have been more appropriate. He started by asking her if there was anything in her own personal life that she would have liked to do or any things on her bucket list that she hasn’t done yet. She said that she would love to visit Europe. His simple response to her was to take what’s left with the money that she has, and go on a vacation.
People should understand that speculating, is not a place to gamble with everything you have. Some people do and happen to hit it big, some just skate by not really making anything, and others just lose. I believe Marin’s advice was spot on because he was basically telling her that moving forward, it’s time to be happy and to enjoy what little she had left.
This story is a case-in-point example for why people should only speculate with money they can afford to lose. I’m a firm believer that you only mess around with 1-2% in speculative investments. Losing 1-2% is not going to change what you eat for breakfast in the morning, but if 1-2% turns into a 10-bagger, that investment has now become 10-20% of your portfolio which is a significant bump net worth. 1-2% might feel like nothing, but a significant move in the right company could be a massive uptick in your overall portfolio.
For the average person, this is really sound advice, and advice that I believe most should stick with.
Wealthy People Can Afford To Have More Fun
This is true with anything, someone who makes $1,000,000 dollars a year is obviously going to feel much less pain purchasing a $100,000 dollar car than someone who only makes $20,000 a year.
This is totally subjective figures, but once you have a net worth that is north of 2-5 million dollars, you can start taking on positions that significantly exceed 1-2% of your portfolio. The rationale behind this is that your basic needs are most likely taken care of and your expenses should theoretically be manageable if you’ve been prudent. If you go ahead and lose this money you will be okay the next day, and if you hit it big, your portfolio gets taken to significantly higher highs.
For sure this is how people like Doug Casey, Rick Rule, Marin Katusa, and Eric Sprott speculate. They have made so much money that they can afford to cross over from the speculation arena and start placing serious bets down on the table.
The point of this article is for everyone to do a self assessment of where they are and what they are able to invest with. It would kill me to hear that our members are gambling on investments the way this elderly women did, and now have nothing to show for the lifetime of savings they poured into one investment. You shouldn’t be investing money that you need to pay your electric bill with. The goal before you can start being more aggressive with your savings is to be financially free. Once you reach this point, you can take more liberties to invest as you wish and not affect the manner in which your livelihood depends on.
Chief Editor at CrushTheStreet.com