The Silk Road was an ancient network of trade routes connecting the East to West for centuries.
Named after the lucrative silk trade, the route was forged in 200 BCE by the Han dynasty.
Its usefulness extended into the Roman Empire and Medieval times until its final demise in the 1300's under the Mongol hoards lead by Genghis Khan.
The Silk Road was made famous in the book, Travels of Marco Polo [which your author read many times as a bright eyed boy]. Some of the customs of the Far East were revealed for the first time to Westerners such as soaking a person in a vat of virgin olive oil to limber up before dismembering (yuck!).
In a twist of bravado and irony the Silk Road was resurrected in February 2011 with ONE major twist.
The Road itself was no longer a road!
It had no physical geography per se.
And you needed an Onion to travel down it.
It was in fact an underground website.
Users could buy drugs, guns and fake documents, as well as the services of hackers and hit-men!
To conceal such activities, payment was in Bitcoin. Users had to access it through a web browser called Tor which concealed the user through layers of encryption resembling an Onion.
The story of this $1.2 Billion Silk Road burst into the public conscience in October 2013. Its founder Ross Ulbricht aka. Dread Pirate Roberts was arrested by the FBI.
It’s a fascinating sinister story, detailed immaculately well in this Australian 60 minutes Episode
As it happened, October 2nd, 2013 was a disastrous day for Bitcoin. The currency PLUNGED 20% from $125 to $90! The anonymous currency was underwriting coffee shops and major criminal activity.
A year earlier, had you decided to ‘try’ out Bitcoin to buy your daily coffee and deposited $50 into your account you would have 5 Bitcoins @ $10 each.
Then forgetfully, after buying 1 or 2 coffees, you left the ‘change’ in your Bitcoin wallet.
That would now be worth around $8,400 … clumsy you!
THIS IS WHAT A MANIA LOOKS LIKE
Pretty chart huh?
History is replete with manias, panics & crashes.
Which begs the questions can you ever catch a mania???
- Is it even worth the effort?
- Can it be done? Consistently?
- How can you identify a parabolic market? It’s always easy after the fact.
BIG GAME HUNTING
For our private clients, we are hunting Elephants.
A parabolic Bull market aka. Elephant Bull starts out as the solution to a BIG PROBLEM.
Something MASSIVE like global warming, space exploration, communication etc.
Something that solves for our most basic needs, Food, Shelter, Security.
For example, Bitcoin solves for monetary debasement and excess central bank printing. Bitcoin is an unbounded, transparent currency with no Central Bank issuer.
Some elephant bulls (and bears) we have participated in succesfully over our career:
- Internet 1.0 --> late 1990s
- Commodities --> early 2000's
- Market Neutral and Global Macro ---> 2008
Not to say we’ve written the book on it. But we have learned a few humbling lessons to help us catch the meat of a parabolic, rampaging Bull.
Bull Market identification rule #1 - A parabolic market MUST be met with utter disbelief.
That is, there is no way in heck this solution will solve the insurmountable issue. The solution can evoke mass emotions of:
- Disbelief e.g. magic as in stem cell rejuvenation;
- too good to be true – space travel - or;
- visceral hatred and a fear derived from a lack of understanding - nuclear power.
Bull Market identification rule #2 – YOU the investor must have the fortitude to take action WHILE looking like a complete idiot to the rest of the world.
The earlier you get on-board a Super Elephant Bull, the less you have to risk. Turning pennies into SERIOUS $. But it’s extremely hard to move against the herd mentally!
Your personal psychology is profoundly important here.
Behavioral finance is a burgeoning field. We don’t profess to be masters, only humble Practitioners.
The fact is your personal wiring impacts your ability to attract and hold wealth.
Unless you are born with it or had parents instill money making habits in you, the learning process here is slow and hard.
Two sources that have been game changers for us have been:
I. Secrets of the Millionaire Mind by T.Harv Eker – 20 thought patterns to attract and keep wealth;
II. Secrets of High States – Jim Dines – Acts of Service attract ‘luck’ by some profound Universal Law.
We cannot stress how important both of these have been in our investing education and career!
Bull Market identification rule #3 – Wait for momentum BEFORE you buy
All the variables of an Elephant Bull may be in place for a while, but prices don't move immediately higher, a form of mass disbelief.
This period can last a LONG time and test the nerves of even the most patient investors.
A better approach would be to wait for the momentum to pick up before buying.
Luckily this is quite easy to do since momentum is measurable.
Free Stock Screeners can sift through thousands of issues based on innumerable criteria. This example screens for down and out micro-cap companies trading way below their 52 week highs which have recently moved above their 50 day moving average.
What we are looking for is a common themes among the results. A disparate group of stocks moving higher at the same time can be an important clue as to the next Elephant Run.
As stat quants know, stocks in different sectors link through common economic threads. So if stocks from a disparate group are moving together there may be a broader theme afoot.
One that comes to mind is Internet 2.0 and its ability to restructure wide swathes of business eg. Home Buying (Zillow) and recruitment (LinkedIn).
Bull Market identification rule #4 – buy FUNDAMENTALLY sound businesses
We won’t dwell on this one as it is handled ad nauseam in Investment literature.
The well-worn tomb on value investing is Security Analysis by Graham and Dodd.
For more reading ZING, The Most Important Thing Illuminated by Howard Marks talks about the golden Margin of Safety!
To begin with, a business primed for parabolic stock price movement usually has very low debt. More is piled on as M&A picks up. And enough cash on the Balance Sheet to sustain the business before it achieves lift-off velocity!
Yes it’s worth chasing down a mania.
There are immense rewards for those who get in early before the herd shows up.
Hold FIRMLY for years despite the inevitable ups and downs.
Use discipline to sell small amounts on the way UP.
Realize nobody ever gets out at the top consistently.
Lives to fight another day with the knowledge that there is always a BULL market and a Silk Road to go down somewhere!
Thank you for reading my post. I regularly write about private market opportunities and trends. If you would like to read my regular posts feel free to also connect on LinkedIn, Twitter or via Atlanta Capital Group Investment Management.
Nothing in this article should be interpreted as a recommendation to buy any security. Please conduct your own due diligence.
Greg Silberman is the Chief Investment Officer of Atlanta Capital Group Investment Management [ACGIM]. Atlanta Capital Group Investment Management specializes in creating custom private