Confessions of a Rare Earth Day Trader – FP

Interesting piece in Foreign Policy titled,  I Was a Rare Earths Day Trader.   More interesting, however, is the subtitle, How a naval confrontation in the South China Sea created a global investment bubble — and cost me half my life savings.

The author is a bit cryptic on how he actually blew up, but it sounds like he started dabbling in Rare Earth Element (REE)  penny stocks, made some money then started shorting too early.   Day traders should not base their decisions on long-term fundamentals.   The same is mostly true for traders in general,  in our opinion, though having a “fundamental story” helps navigate market noise and prevents from being shaking out during periods of increased volatility.

What differentiates traders and investors is time horizon.  And, we, like the author,  have donated a lot capital to Mr. Market learning this lesson the hard and costly way.

Nevertheless,  we were all over this story the day China cut off REE exports to Japan.  We suspected the market would soon begin an intense focus on the sector as the world had their “Sputnik moment” over China’s monopoly and control of 95 percent of the world’s production of REEs.   We’ve traded in and out of Molycorp (MCP) during the price spike.

The author does make some good fundamental points that traders and investors will find interesting and the article is,  in our opinion,  a must read for anyone interested or active in the sector.   We found his points on the company Rare Elements Resources (REE) especially interesting,

In fact, Rare Element Resources’ total holdings consist of a few small plots of land, the most promising of which had been abandoned by at least three previous miners (including Molycorp). Unlike the Bre-X scam, the company’s Wyoming land does indeed have rare earths, but they are in small concentrations and are mostly the less-desirable sub-group of the elements. The company’s chief financial executive and spokesman, Mark Brown, and secretary, Winnie Wong, are regulars on Canada’s penny stock scene — they’ve run at least 18 different businesses with names like Deal Capital, Cordova Industries, Apoquindo Minerals, Pivotal Corporation, Globemin Resources, and Everclear Capital.

Wow, sounds like this stock is headed back to penny stock status.   Our sense is that REE stocks are about to get slammed by the fundamentalists

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