Welcome back FatCats, I trust you are well.
We’re growing like a weed, as my Father would say.
And beautiful things are happening.
A good friend of mine Joe that I grew up with, a guy I haven’t seen in 18 years, called me this week. Turns out one of you guys forwarded him the latest FatCat issue, hence why he reached out.
I love that.
And as it turns out, my friend Joe is a FatCat, amongst other things.
A pilot by trade, once he made captain with one of The Big Three—United, American, Delta—he continued to impress, and was asked to join their “Accident Investigation Team.”
Think Air Crash Investigation, in my opinion the best show on television. A bit ironic considering the amount of time I’ve spent on planes over the last 10 years.
If you’re ever feeling a bit provocative, and you happen to be at an airport, just go sit right in the middle of the biggest crowd you can find waiting for a delayed flight. Pop open the laptop and put on an episode, just slightly too loud.
Haha. Good times.
Once you succeed to that level in aviation, you make coin, and have a lot of free time on your hands, as the plane generally flies itself. Joe told me once in high school,
“You know what captains do while you’re in the back? They read the Wall Street Journal and try to figure out where to put all this money they’re making.”
Joe was no exception.
And this guy really invests. Reads all the books. Knows all the different systems, philosophies, latest theories. Invests his capital using over a dozen systems simultaneously, combines them, modifies them.
Very sophisticated investor right here.
And he loves crypto. While we were asking for extra blankets and a beer, he was quietly positioning a substantial amount of his wealth into a little-known investment called Bitcoin…when it was trading at just under $80.
Yeah, he’s done all right for himself.
So Joe and I catch up. He wants to talk investment strategies, I want to talk plane crashes. He indulges me for a bit.
“Joe, ever had to declare an emergency? Ever been on a flight that had to make an emergency landing?”
“Yeah, and so have you.”
What is he on about? And then I remember.
I was 14, he was few years older and only recently a licensed pilot. He invited me to go on a trip with him and another pilot friend of ours, a real southern kid named Dallas. We go up in this 4-seater Cessna, no more than 100 years old by the looks of it, from Bowling Green to Paducah. Kentucky. God’s country.
This thing was LOUD. I’m in the back with earplugs; they have their headsets on up front and can communicate just fine. I can’t hear a word. It was all routine, but then…commotion in the cockpit. A lot of Talking. Waving of the hands. I wouldn’t say panic, but in that general direction.
I don’t much like this, especially as I can’t hear what they’re saying, and then I see Joe frantically tapping one of the instruments with his fingers, hard. Looked like a compass to me. Now I know it’s called the “directional gyro,” and it’s kind of important to the whole “where are we” question.
The dial sticks, then moves. Another tap. Sticks. Tap Tap. No movement.
It’s frozen in place. The wrong place.
Joe and Dallas look at each other, eyes wide. Shit.
Our path to Paducah took us around a little patch of federal land known as Fort Campbell, home of the famed 101stAirborne.
Well, it was supposed to take us around.
By the time they realized their instrument was little more than an antiquated decoration, we were directly OVER the army base.
Turns out the Military doesn’t take too kindly to unauthorized aircraft flying over their bases.
Joe pushes the stick down and left. We dive. For a moment, I’m weightless. Should’ve passed on this little excursion. We land somewhere, remote, and Joe sprints to the airport office, leaving Dallas to follow proper shutdown procedures. His face is white.
I arrive inside to see Joe flailing around like a possessed child, urgently filling out paperwork like his life depends on it. Perhaps it did.
There’s a form called the NASA ASRS. Aviation Safety Reporting System. It’s a bit like a get out of jail free card. Screw up, and as long as you filled out and mailed this form before the FAA finds out, you won’t lose your career.
But, for that determination, they go by the date and time the form was postmarked. And it has to be certified mail, if you wanna be able to prove you sent it in time.
The post office for whatever town we were in was open for another 40 minutes. Plenty of time.
There’s a pilot sitting around in the lounge. Joe offers him $20 to race us to the nearest post office. No interest. But once Joe explains the situation, he takes us there for free, and fast.
Stamped and mailed, I thought we were in the clear.
Then we get back to the airport. Camo trucks. Military Police. Here we go.
Our boys in uniform kindly escort the three of us inside. They are not amused. Unauthorized flight path. Restricted airspace. National Security. And other scary phrases as well.
But after Joe takes them outside and shows them the blown instrument, and after the airport manager steps in personally on our behalf, they let us go.
In hindsight, one hell of a time!
Joe never lost his sense of adventure, and his zest for crypto reflects that.
But that’s just one trade. Can’t exactly buy in over and over again at $80.
“I need to spread my bet, but I’m only averaging around 20% on my other systems, any advice?” Joe asks.
Joe and I agree on one thing: a 20% return is for the dogs. We wanna make 10X at least.
“Ever heard of The Warrant Strategy Joe?”
“No, what’s that?”
Exactly. This guy has heard of everything, but he hasn’t heard of The Warrant Strategy. And I’m not surprised. I couldn’t even find it on google.
In my opinion, The Warrant Strategy is the single most effective strategy in all of mining, if not in the entire world of investing. And here’s why:
Every other system, every other way of investing, requires you to tie your money up, often for long periods of time. You buy a share, a coin, an ounce whatever, then you wait for the price to go up, sell, and make a dollar.
Let’s say you have 10k to invest. Just buying shares on the open market, you invest your 10k and you cannot invest it again until you close out that trade.
Now imagine the rules are different.
Imagine a trade that allows you to invest your 10k in exchange for a piece of the company, at a price below what it’s trading for on the stock market. Now imagine being able to pull out that 10k a few months later, while retaining an option to make money on the company, over the next few years.
Now you do it again. And again. And again.
Over the course of a year, you’ve been able to invest your 10k four times, each time retaining a way to make money on that company, and to top it off you bought the shares below market price in the first place. You’ve effectively invested 40k, even though you only have 10k. Do it again the next year, and you’ve effectively invested 80k with only ten thousand dollars, and you still have a way to make money off each of those companies for years to come.
Think it doesn’t exist? It does. And it’s legal.
It’s called warrant harvesting, or The Warrant Strategy. A more thorough explanation:
First off, we’re talking about a strategy primarily implemented with companies trading on the TSX, usually junior mining companies. Why?
The junior resource sector as a whole offers a leveraged play to the metals (Gold, Silver, etc.) In a downturn, the mining stocks drop much further than the underlying metals. Conversely, in an uptrend, the mining stocks will always outperform the metals.
For example, since 2011 when gold dropped from $1950 to $1150, mining stocks as a whole dropped about 90%.
If you throw out the big companies (Barrick, Newmont, etc.) you will see that the medium sized miners fell by 95%.
Go even smaller to the junior exploration companies where the declines have been between 97% to 99% – this is where we implement The Warrant Strategy.
Most investors are simply sitting in the market and buying shares in these little stocks. The Warrant Strategy does not do this. The Warrant Strategy invests in companies by participating in private placements.
Understand junior exploration companies never make money. That isn’t their model. They drill holes in the ground to prove up resources, hoping one day to become a mining company, or to get bought out by a Major.
This is why junior mining is the most volatile sector on the planet, but I guess you can include crypto in there now too.
In order to keep the lights on and continue drilling, these companies are constantly issuing new shares through private placements. Investors who participate in these financings send their dollars directly to the company and in return are mailed a share certificate. As an incentive, and to give investors the opportunity to make outsized gains, almost all placements are accompanied by a warrant.
A warrant gives a shareholder the option, but not the obligation, to purchase a further amount of shares at a set price, for a set time period.
Warrants come in different varieties. A full warrant means each share of the company you buy is accompanied by a warrant, 1:1. A half warrant means you must buy two shares to get one warrant, 2:1. Warrants are good for anywhere between 2 and 5 years, at which time they expire.
Here’s an example…
Let’s say Jolly Gold Exploration company is trading at .255 cents. We research Jolly Gold, and conclude it should perform well over the next two years.
First option – A traditional investor would take $10,000 and buy shares in the open market (hoping to buy around .26 cents). That gives him roughly 38,500 shares.
Second option – An investor using The Warrant Strategy knows Jolly Gold is currently raising money via a private placement at .20 cents, with a full, 2 year warrant at .25 cents. He sends the company $10,000, and is issued a share certificate for 50,000 shares and 50,000 warrants.
Now let’s say for the sake of argument that Jolly gold goes to $1 within the next two years.
Option 1 – 38,500 shares X $1 = $38,500. The traditional investor made 4X.
Option 2 – 50,000 shares X $1 = $50,000, plus 50,000 warrants exercised at .25 cents, meaning another 50,000 shares worth .75 cents each.
50,000 warrants X $.75 = $37,500.
Total value of shares and warrants = $87,500. The Warrant Strategy investor made 9X his money.
Return from option 2 is 2.25 times higher than option 1.
Now here is where The Warrant Strategy gets interesting.
When participating in a private placement, your shares are restricted––you can’t sell them–– for four months. (A bit longer if you’re a US Resident, sorry) That means in 120 days, you can sell those newly issued shares.
But the warrants are still yours until they expire.
Assuming you get out at roughly the price you entered the placement, or better yet at a profit, you can now take that cash and participate in another private placement.
If you repeat this over 3 or 4 years, every 4-6 months, you end up with far more warrants than stocks.
Rather than making 10 to 15 times your money buying the stocks in the open market, a person using The Warrant Strategy can yield a return of 50 to 100 times their original investment.
Make sense? If not, don’t worry. It took me a while to wrap my head around it.
Essentially, this strategy has one goal, collect as many warrants as possible.
Participate in private placements to get the warrants in the first place, sell at 120 days, and flip that initial investment into another private placement, gaining you even more warrants, over and over again.
Each warrant is a chance to make money if the stock goes up. It’s a lottery ticket, and with The Warrant Strategy we amass millions of these lottery tickets.
Many expire worthless, but if we have harvested enough, over many different placements, inevitably one of these companies drills a hole into something interesting, and the bet hits.
And/Or, the price of gold goes up, driving the price of these stocks up along with it, whether or not they deserve it. Another chance to hit. In the industry we refer to that event with a saying:
“When the wind blows hard enough, even turkeys fly.”
I know several guys who turned less than 100k into millions, plural, using The Warrant Strategy.
So why hasn’t Joe heard of it? Why haven’t most investors?
Because no one wants to talk about it.
I called four of the guys that taught me this strategy in the first place, hoping they would comment for this article, and zero were willing to go on the record.
One lit me up just for asking. Ouch. Sorry bro.
Why all the secrecy?
Because mining companies don’t want you to sell their shares, and they certainly don’t want their stock price to crash after 120 days from too much selling. Mining companies prefer long term partners, guys that will buy more shares as time goes along, guys that keep the lights on.
So, those using this strategy, religiously selling at 120 days, can’t talk about it.
Because it would ruin their reputation, the reputation of their companies, and the good will they have with junior mining companies––many of whom they may do business with on any number of levels outside of just private placements.
And so it remains the best kept secret in investing.
But, to be sure, there are some negatives. A lot of these warrants never make money. Some of these stocks will crash within 120 days, and you don’t get back what you put in.
And, you cannot legally participate in a private placement unless you are an accredited investor.
An accredited investor is a person worth more than million bucks or making at least 200k/year, someone sophisticated enough to understand they are involving themselves in super risky activities that may lose them some or all of their money.
In my opinion, it’s just a glorified disclaimer, absolving anyone of responsibility for money you may lose, other than yourself of course.
There are a hundred creative ways to qualify, but that’s a whole other article. What I can tell you is when I first signed my paperwork to become accredited, I prepared myself and my company for an audit to confirm my wealth.
That audit that never came. Not for me, and not for any other accredited investor I know. And that’s more than a few people. I’m not convinced any verification process exists whatsoever, or ever has.
So, speak with a great brokerage house, one familiar with the TSX and private placements, and figure out if there’s a way you can play. Or email me; I can recommend you someone.
But, if you want to be a sophisticated accredited investor, realize you are going to lose sometimes. That’s the deal; take the good with the bad; no complaining!
This strategy can produce phenomenal wealth. But you don’t get high reward without high risk, so understand that’s the game you’re playing; nobody wins every hand.
But I love the risk. And I love the game. And we’re certainly happy to have more of you guys at the table.
-Christoph Grizzard, The Fat Cat Investor
If you're interested in learning more about The Warrant Strategy, contact me at email@example.com
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