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Friday File: Gold, Grenville, and some Buys and Sells

I wrote a short note to you last weekend while I was attending the Berkshire Hathaway annual meeting, and as part of that I noted that I had taken some profits on several of my time-sensitive gold positions, including some warrants on Brazil Resources and call options on Sandstorm Gold, among others. I didn’t get rid of my gold exposure entirely, but when you have time-constrained investments it’s important to manage them (you can’t just buy and hold if you have an option expiring in a few months, or a warrant expiring in a year or two). The end of last week turned out to be a near-term peak in gold and speculative gold stocks, at least until the weak job number came out today, and that made me feel brilliant all week.

And that, I’m afraid, is just about the worst thing that can happen to an investor.

Taking some profits at a near-term peak gives you a great endorphin rush — and to make it worse, I stopped by the casino in Cedar Bluffs, Iowa, across the river from Omaha (like many cities, Omaha exports much of its “sin” money across the border), and won $900 on a $25 roulette bet.

That means I’m almost certain to do something stupid now… not necessarily because of the “reversion to the mean” where good results might seem to make it more likely that you’ll see poor results in the near future, but because windfall profits make you feel invincible and brilliant, and feeling invincible leads to making big, risky moves (just ask someone who has to pay the car insurance for a teenage driver). There is no greater driving force toward investing success or failure than the psychological demons who haunt each of us in slightly different ways. Big wins make you feel so good that you seek bigger wins so you can get that same rush again, and that increased risk taking (or, in the casino parlance, the drunken shout of “let it ride!”) does not usually work well for long.

With great brilliance like this, of course, comes great responsibility — so how shall I make you and I rich with my incredible insights today?

When it comes to gold, I continue to think that we’re in an unstable period when there’s a chance that gold prices could rise substantially because of ...

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