Thread: Riding the silver rocket with no parachute

I had "got suckered" into the Rich Dad real estate coaching program for $6,000. I had just come off from a business failure and decided I needed help if I was ever going to succeed. I allowed the salesman to push towards real estate instead of business because I had lost my confidence. I don't blame the salesman, just myself. Bottomline, I am not a real estate millionaire, just $6,000 in debt.

As you can imagine, this made me feel even worse. It was then that i learned about silver. I started buying silver 1 silver eagle at a time. When I started silver spot price was just over $17 an ounce. Over the course of 8 or 9 months I accumulated 100 ounces. After observing silver rising about 100% during this time I started to think "how can I get some leverage on this."

I first looked into the commodities market. The minimum contract was on 5,000 ounces and totally out of my range. I then found SLV, an ETF that was optionable. I thought it was the answer to my prayers. One contract of options controls 100 shares of stocks. I sold my silver and loaded up on call options. For about a month I looked like a hero; $300 here, $400 there. It was working so well that I decided to reposition myself and increase my leverage more. It had gone from $40 to $48 in about 3 weeks and I had tripled my money. I repositioned into $70 Oct calls. By doing this I now controlled over $500,000 of silver. The next day silver went up again and my options increased in value $4,500!!! I felt like superman. I thought I had finally done it, I found my path to financial freedom.

This was short lived. Silver then crashed. Whether you believe silver was in a bubble or believe the crash was artificially caused by banksters naked shorting paper, and manipulating the CME rates, does not matter. The results are that it wiped out my position.

I am passing this story on to you because I made some critical errors that MJ points out in his book.

Event over Process: Waiting for silver to explode in price is an event. There is no process involved. You do your research and then pray to God you are right once you make your move.

Uncontrollable Limited leverage: Options have a lot of leverage, but you have no control over the outcome. I suppose if you have a youtube channel like Max Keiser or Bob Chapman you can influence people to buy silver, but the results are rather negligible.

Why Starting a Business is Superior: Here is some food for thought. It took silver 9 months to double in value. If you printed some t-shirts for a cost of $7.50 per shirt, and then sold them all in a week, you just made a 100% gain in only 1 week's time. If you have trouble selling them you can change locations, create a consignment deal with local mom and pop stores, or sell them online. The point is that you have options available to you as opposed to sitting around waiting and hoping for silver to go up... ...an event that may or may not happen.

I had forsaken "process" which is the main reason for my failure. I had bet everything on an event that I had no control over and I got burned for it.

I am starting over from the bottom. I have hopefully learned from my mistakes and am making adjustments and I will try again. My focus now is to create a business, fill a need, then invest my profits. This sure beats squeezing myself for every penney I can scrape together and bet it all on something only to watch it go up in smoke.

I had plenty of good reasons to believe that silver is set to explode in price, and these are the sirens luring us to the rocky shores. I am not saying that silver, or real estate, is a bad investment. I am saying that if you are starting from the bottom like I am that you are better off to build a business.

Hopefully my story can help others avoid making this mistake.

Good post bro. I've read the Rich Dad Poor Dad book, and it's a great book. I didn't agree with everything in the book but the overall message was superb, a different way to look at building wealth.

Robert is a fastlaner so charging $6000 for a program is just another one of his many fastlane revenue streams, it's for the sidewalkers. Other fastlaners don't pay that kind of money for any short term training.
To me, stocks, options, futures, currency etc should be a way to invest money that you can afford to lose. That way, greed and fear won't dominate your moves. You will be able to hold/buy/sell without your emotions taking over, blinding you. You will still lose money, but you will win more than you lose.

Real estate is way to invest money that you don't want sitting in the bank losing value to inflation. It's a good way to invest money if you know what you're doing. Historically, real estate has made more millionaires than anything else and I don't think that's going to change.

Originally Posted by arpeggiomeister

Event over Process: Waiting for silver to explode in price is an event. There is no process involved. You do your research and then pray to God you are right once you make your move.

You could also look at it as your process wasn't well formed. You were having success, but you didn't sell when you should have. Trading by all means requires a well-formed strategy/plan devoid of emotion. You have to look at trading like a business! Take profits! Commodities, stocks, etc - NEVER GO STRAIGHT UP.

Originally Posted by arpeggiomeister

Uncontrollable Limited leverage:

Options have an incredible amount of leverage if know how to use them correctly. That leverage could be used in your favor if you sell/buy the right spreads. But yes, the outcomes you cannot control. In a lot of ways, options are like business in you have to analyze the market and make predictions ...

I use options a lot and particularly like being on the sell side. (Sell puts, vertical spreads, etc.) Once in awhile I'll speculate and buy puts/put spreads (I had GLD, RIMM are just a few puts I've owned in the last few months.)

In general, the Fastlaners are leveraging membership websites that tell people when to buy/sell options. Other's who make it a living (and some do very handsomely) are exceptional participants.

Originally Posted by 911Carrera

Good post bro. I've read the Rich Dad Poor Dad book, and it's a great book. I didn't agree with everything in the book but the overall message was superb, a different way to look at building wealth.

Robert is a fastlaner so charging $6000 for a program is just another one of his many fastlane revenue streams, it's for the sidewalkers. Other fastlaners don't pay that kind of money for any short term training.
To me, stocks, options, futures, currency etc should be a way to invest money that you can afford to lose. That way, greed and fear won't dominate your moves. You will be able to hold/buy/sell without your emotions taking over, blinding you. You will still lose money, but you will win more than you lose.

Real estate is way to invest money that you don't want sitting in the bank losing value to inflation. It's a good way to invest money if you know what you're doing. Historically, real estate has made more millionaires than anything else and I don't think that's going to change.

I have had a lot of time to think about this and i have my own perspective as to why real estate has created more millionaires than any other industry, and the reason has nothing to do with real estate being a great investment. I am not slamming your reesponse so please do not take offense, just offering a perspective that most people have not taken the time to consider.

Why has real estate created more millionaires? (MLM would argue this but they are full of it) Just as MJ has formulas I have developed my own, and will write my own book once my success story has unfolded.

There are 3 components that are common to every "super-fortune" I have ever researched.

1. Sales
2. Leverage
3. Cash Flow

Sales is the toughest part of the formula, and also the most essential ingredient. Without sales you have nothing. Aside from prostitution and drugs, the easiest thing to sell on the face of the planet is housing. Why? Because we all need a place to live.

There are more people that become millionaires in real estate not because it is superior to building a business but because a person who couldn't sell anything to save their lives can still rent out an apartment. Real Estate makes sales easy, and already has leverage and cash flow figured into the equation. I am not saying it is an easy road, but easier than building a business from the ground up.

Real Estate has been marketed as a superior road to take because it creates more millionaires but few people have stopped to ask why. All the real estate gurus bug me because they sell this point so hard while covering up the truth.

Excuse my rant.

Originally Posted by MJDeMarco

You could also look at it as your process wasn't well formed. You were having success, but you didn't sell when you should have. Trading by all means requires a well-formed strategy/plan devoid of emotion. You have to look at trading like a business! Take profits! Commodities, stocks, etc - NEVER GO STRAIGHT UP.



Options have an incredible amount of leverage if know how to use them correctly. That leverage could be used in your favor if you sell/buy the right spreads. But yes, the outcomes you cannot control. In a lot of ways, options are like business in you have to analyze the market and make predictions ...

I use options a lot and particularly like being on the sell side. (Sell puts, vertical spreads, etc.) Once in awhile I'll speculate and buy puts/put spreads (I had GLD, RIMM are just a few puts I've owned in the last few months.)

In general, the Fastlaners are leveraging membership websites that tell people when to buy/sell options. Other's who make it a living (and some do very handsomely) are exceptional participants.

You have some great points. I did have a plan. It did not work out the way I had hoped, but I did execute and stick with the plan. There are many of us that believe silver to be the strongest investment opportunity of this decade. 90% of the above ground supply has been used up for industrial purposes and is essentially unrecoverable. According to my research silver is more rare than gold now. Without going into great detail, I had a price target of $100 an ounce by the end of the year.

How and why I had that price target are inconsequential, the fact that I was wrong is the only thing that matters. There was a process I went through to research this information but I had missed key factors. If I were to do something similar trading again I think there are more key factors that I would still miss. I would miss them because I do not have control.

I can not control how many keyboards, cell phones, solar panels, etc. are going to be built this year. I can not control the naked short selling of gold and silver for the purpose of propping the US Dollar being done by the major banks. I can not control the general lack of awareness by the general public of what is happening in the silver market.

I went all in, which was a critical mistake within itself. What I wanted to convey to people is that going all in on something you can't control is financial suicide. I had strong reasons to believe in what I was doing. Demand is through the roof, supply is limited, most mines are cooper or zinc mines and silver is just a byproduct, mining is not keeping pace with demand so supply is shrinking, countries such as China and India are encouraging their citizens to buy gold and silver, etc. There is a mountain of evidence and the fundamentals all point to an explosion to the upside. I made the wrong prediction based on this info.

I do like the idea of selling options. I can't sell puts on my account, but I can sell calls. I got lured by "the big kill". I put this up here to help others avoid my mistake.

Real estate created lots of millionaires because of one major thing: LEVERAGE. As long as the market is going up, leverage is your friend. And as everybody "knew" (until 2008), real estate ALWAYS goes up, right??

Real estate also bankrupted a lot of people for the same reason. Leverage is a two-edged sword and it will take your head off if it swings against you.

For that reason you should get down on your knees and thank your deity of choice that you were in options and not futures. Options have lots of leverage, but the downside is limited. The worst you can do is lose your entire investment. In exchange, options are a time-wasting asset (assuming you're the option buyer) -- they lose value every day.

Futures don't have that time-wasting feature, which is good. BUT futures (and FX) leverage works BOTH WAYS. Until yesterday, the maintenance margin for a Silver futures contract was less than $20k. You could have bought a contract with $22k in your account, and held it with $16k. If you'd bought only one Silver contract this week with your $22k account, you could have lost FIFTY THOUSAND DOLLARS in the last two days. That's how much one contract went down on Thu & Fri.

In reality your broker probably would have dumped your position as soon as your account went negative, so you probably wouldn't have lost much more than your risk capital. In theory a market can "lock limit" -- meaning it's limited to move $X per day and nobody's willing to trade at that price -- and you CAN'T get out of your contract until the limits reach the market price. That can ruin you. As far as I can tell, though, silver doesn't have a daily limit any more.

As MJ said: you need a PLAN when you trade. You can't jump on the rocket and assume it's always going to go up. Figure out your exit strategy and FOLLOW IT.