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4/26/17

The Paul van Eeden "Better Sleep Principle" and Rye Patch Gold (RPM.v) (from IKN412)

A little background is needed.

1) The IKN Weekly has a "15 stocks maximum" holding policy. There are several reasons for this, but the main thrust is to promote portfolio discipline and keep things real.
2) In IKN 412 dated April 9th I had 15 open positions and decided I wanted to buy a new one. Therefore, one of the open stocks had to go.
3) Even though I'd just run the numbers on Rye Patch Gold (RPM.v) in IKN411 in light of its news of the receipt of its long-delayed cyanide usage and decided to hold through, it was RPM.v that got the chop.
4) Since that date, RPM.v has dropped 22.4%. I got out with a small profit, which after commish wasn't much more than breakeven. In other words my trade was a real world failure, but it would have been worse if I hadn't paid heed to Paul van Eeden's "Better Sleep Principle". 

Read on (name of new purchase edited):

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Rye Patch Gold (RPM.v): SELLING: The short story; to make way for the new position in (EDIT) and to maintain the integrity of the “15 positions maximum” philosophy* here at The IKN Weekly (though I have bent the rules a couple of times over the eight years) something has to give. That’s RPM.v and so I’m going to sell this position in the next five days and close the position.

The slightly longer story; Even after running the numbers last week and summing up by writing a conclusion along the lines of...

  • Good news about the permit arrival
  • I’m holding on the numbers and its potential
  • But financials and cash position now look tight
  • And if they decide to run a placement it will be a bridge too far and I’m out

...as the week wore on that uncomfortable feeling about the corporate balance sheet came back again. I want to believe in this story because, if it goes to plan, RPM has a great looking operation at Florida Canyon that’s currently heavily discounted. The problem is, my wanting to believe ended in me deciding to ignore the risk that RPM dilutes my shares in a final, top-up placement which would deliver my profits to somebody else. And on re-consideration it’s more like a probability than a possibility, plus rumours about things not going as well as we on the outside would like at Florida Canyon have not gone away and keep coming around. If things had run more smoothly on the permitting track it would be much easier for me to brush off the chatter-talk and have more confidence in RPM, but where we are today and how we’ve got here means that I don’t. It’s at the stage where I’m worrying about this trade and it floats back into my brain at nighttime...not a good sign at all. I’m a long-term fan of Paul van Eeden’s “Better Sleep Principle” and here’s an excerpt from one of the times he’s written about the concept (8):

“This is where the Better Sleep Principle comes to play. I had not really thought about it but I have for many years now subconsciously followed the Better Sleep Principle in my own investing. It works like this:
If I start worrying about something when I go to bed at night I fix it the next morning. For example, if I own too much of a stock and am concerned about what would happen if the price falls, I sell some. If I don’t own a particular stock and I lie in bed worrying that the price would go up before I get a chance to buy it, I buy some. I do whatever it takes to make me sleep better at night.
Here’s why you should follow your own instincts to make sure you sleep well at night: it doesn’t help if you follow someone else’s advice and they sleep well while you lie awake. Investing is a very personal endeavor; only you know what you need to do.”

Result: When I made the decision to buy some (EDIT) last week it was easy to choose which company to drop from the ‘Stocks to Follow’. It means it’s likely to be a booked as a small profit of little consequence, but even if the price dives next week and it is closed at a minor loss it’s still nothing much more than a failed breakeven trade, 10% either side is not why I buy junior mining stocks. So, rack it up as another IKN Weekly failure, not the first and won’t be the last.

*Perhaps a bit too grand, it’s an idea.