But I do want to point this out. The other category I've seen in my own investing that doesn't work very well with stops is actually the property and casualty insurance firms. And the reason is: Because when there's a catastrophic loss like a hurricane, the market dramatically overreacts to the potential losses that the insurers face. So after the hurricanes last summer, a lot of very good insurance companies got knocked down immediately 25% or 30%, which triggered all of our stops. Meanwhile, six months later they've come out and they've said, "Yeah, it's going to be a 10% loss for us. It's not the end of the world."
And so I think there're certain things like that that trip up stops. But, overall, in a regular operating company, they're great to use. Richard Smith: You know, in both those cases, Porter, what I hear is a very clear rationale for why you're going to not use a stop, right?
Where you get into trouble is when you start making excuses for why you're not going to [laughing] use a stop. And one of my favorites that I ever heard was from a reader who had bought the stock that was going to mine gold on the ocean floor. Porter Stansberry: Oh yes.
What was that one called? Richard Smith: Nautilus Minerals. Porter Stansberry: Nautilus Minerals. By the way, I have to tell you. That was one of my favorite all-time newsletter articles we've ever published.
It was such a fantastic story. Buck, there was a Russian billionaire who was putting up a bunch of money and the idea was they were going to mine gold off the bottom of the ocean off of Papua New Guinea. What could possibly go wrong?
Richard Smith: [Laughs]. What could possibly go wrong? So this subscriber – forgive me if he's on the call listening. But he's an explosives engineer at Lawrence Berkeley Livermore labs. He designs the explosives that make the oil rigs in the Gulf of Mexico sever from the ocean floor when there's a catastrophe.
So they have to work once, only once, and always once. Right? So: Smart guy, right?
But he was in Nautilus Minerals, and he said, "Yeah, I'm not using a stop on that one. I'm going to give it to my grandkids." Porter Stansberry: Oh boy.
Richard Smith: That was the ultimate justification of why you're not selling, why you're not following a discipline. Hope springs eternal, right? "I'm never going to benefit from this but I'm sure my grandkids will. And so I'm going to give it to my grandkids and I'm still going to feel okay about the fact that I didn't have a discipline on this one – I didn't have an excuse for not selling." Porter Stansberry: And where's Nautilus today? Does anybody know?
Richard Smith: You know, I don't even know. Porter Stansberry: Country Club Guy? Richard Smith: I'd be surprised if it even exists [laughs]. Richard Smith: My point is: You have to be honest to be a good investor, right? You have to be honest with yourself. And if you have a great reason for not using a stop loss, fantastic.
If you don't, then I've put together a great system based on decades of research at this point. And it's a great way for investors to be in the market with some safety nets. Porter Stansberry: Yeah. And, listen, I want to explain something. I'm sure there're some listeners who heard me say "This is the best newsletter story we ever published" and then I said the outcome for investors was a disaster.
Robert is a blogger, novelist and passionate reader. He is a online casino addict, vegan, hiphop head, reclaimed wood collector. Producing at the nexus of art and programing to save the world from bad design. He sometimes makes random things with friends and thinking over table side bets – are they worth it?