Investing Victim or Contrarian - Which One are You?

When I first started investing I eventually got lured into the sleazy world of buying and selling penny stocks. Particularly gold and silver juniors.

One of the premier guys at the time of the mid to late nineties was Rick Rule. Really smart guy and now is an Executive Director big wig at Sprott Investments Global. He now takes positions in resource companies for old pal Eric Sprott and he's very successful at what he does.

His favourite question to ask people was "Are you a contrarian or a victim?" because if you're not a contrarian as it pertains to investing then you will become road kill, you'll get killed out there in the big bad world of stocks and commodities. So, you have to be a contrarian. What the eff does that mean?

Traits of a Contrarian Investor

• you go against the flow
• whatever the herd does, do the opposite
• you can be called both crazy and amazing
• you buy investments when others sell
• you sell investments when others are frothing at the mouth to buy
• you may possess the ability to see the future and act on it for financial gain

The problem here, when Rule asks the question he's actually referring to junior mining stocks and nothing else so you have to be careful.

It's a statement used to get you suckered into buying gold and gold stocks. Most investors don't think this way that's why he considers them victims.

He wants you to buy gold and silver junior stocks or physical gold that they also sell as a contrarian play against the doom and gloom end of times. I call BS on that whole premise. Like I said earlier, I lost a lot of money investing in this space when I was horny to make money in the stock market and I thought this was it. I am not blaming Rick Rule or anyone else for my losses. I'm only trying to point out the sales pitches and to be aware from my example what went wrong for me.

Maybe you will be more successful than I was. I hope so if you choose to go this route.

The richest investor in the world has never bought or invested in gold. Here is one quote Warren Buffett has said in the past on gold;

"I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today's market prices about $7 trillion – that's probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I'll take the farmland and the Exxon Mobils."

I consider Buffett a contrarian because he buys things that Rick Rule doesn't. They both make money in a different way. Rick Rule uses the contrarian/victim angle as his tagline to attract money from the unsuspecting. You would think this is the only way to make money in the stock market. I did but now I don't consider myself an investing victim.

I am more inclined to buy mispriced stocks like Buffett and Graham than junior gold stocks like Rule.

That myopic mindset of mine at the time turned me into a victim. Don't be fooled by and swayed by these high profile portfolio managers that this is a great way to make money. Gold and junior penny stocks never pay dividends and are highly speculative. You're risking everything and have no idea what you are doing.

Needless to say you are NOT a penny stock speculator, you are not a victim but you ARE a contrarian if you buy good quality dividend paying stocks that grow over time.

It makes you a speculator and a contrarian because most of the herd believes different.

Which one are you?

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Recommended Reading: Warren Buffett - Investing and Life Lessons