Pouncing Tiger, Hidden Profits

Reap Profits By Crouching and Waiting Until the Time is Right

If you’ve ever read a political thriller novel, or seen a movie or television show about terrorists cells, covert ops, spies, or conspiracy theories, you’ve no doubt heard the term “sleeper.”

A “sleeper” in this scenario is an covert agent for a government or group who is planted in another country in anticipation of some need, hypothetical or real, that will be carried out at some unknown time in the future. They may lie in way for years, even decades—but eventually their time will come.

These “sleepers” give no indication to their friends, neighbors, and many times spouses, that they are lying in wait to carry out their mission... and they often come out of nowhere, surprising even their closest acquaintances.

Or maybe you're not into spy novels, and prefer the foreign subtitled films? That's weird, but oh well. The first one that comes to mind is "Crouching Tiger, Hidden Dragon."

A wise warrior tiger doesn't wander around the jungle recklessly all day looking for prey, wreaking havoc at ever turn... he waits until the time is right, then pounces on his prey.

What does this have to do with investing? Hear me out.

They're analogies.

Being a financial “sleeper”, or a crouching, pouncing tiger of hidden profits is a mindset. If you’re well-read, and have any knowledge about how the wealthy make their money in business or investing, you know this is one of the best ways to protect and grow your wealth long-term.  It is the single most effective way to take advantage of low-risk, high-reward setups in the market where short- to medium-term moves in the market are expected.

A “sleeper” lives a normal life. He doesn’t obsess or become anxious about whether his day is coming. He isn’t an activist. He doesn’t seek out opportunities to proactively subvert the enemy. He doesn’t try to move the enemy government into position to come in line with his mission.

Similarly, a tiger isn't a dummy. He doesn't have the energy to chase his prey through the jungle all day. He simply waits, listens, and watches for the right time. He’s trained himself to know what to look for. And when he sees it, he moves.

Both the sleeper and the tiger have the advantage against his enemy of being clandestine. They can strike out of nowhere, completely unexpected. That’s how they manage to make the biggest “splash.” The longer they lie in wait, the deeper their cover becomes... and the bigger the eventual prize.

The "Sleeper" Spy and the "Tiger" are Types of Investors

Back to earth now... we’re interested in applying this to investments.

As conservative and risk-averse investors, we look to identify the biggest “cheap-shot” opportunities in the market... times when it’s so obvious we have to take action, that it’s almost “unfair” to the rest of the investors out there.

We have no interest in open, equal, fair fights in the market. We look for times to invest when the opportunities are so obvious, so easy, and so low-risk, it’s almost laughable...

These opportunities don’t happen every day. But they do happen often enough, and asymmetrically across individual stocks, ETF’s, commodities, bonds, and more.

Low-risk opportunities are beneficial because the not only make our investment portfolios safe, but they allow us to sleep at night, reduce the amount of time and effort we expend managing our finances, and allow us to bank bigger profits than the average investor.

Let me give you a great example.

Commodities are a special kind of great “sleeper” trade. Commodities are also highly cyclical—boom and bust. If you get in at historically low prices, when no one is buying, you typically pay a great price, and once other investors wake up, or demand for the commodity rises, you make incredible gains. Conversely, if you buy when everyone else already has... the market man takes you to the woodshed.

Take uranium for example. 2011 was a great high-flying year for anyone that bought in the run-up. They made fantastic gains... but you can see what happened shortly after.

Uranium is currently trading 78% below its most high around $65 back in January 2011. No one is buying, or talking about it. People hate nuclear power—does the disaster Fukushima ring a bell?

But the bells are starting to ring again for nuke power. For the first time since the disaster, Japan’s Nuclear Regulatory Authority recently approved the restart on two nuclear reactors.

The world freaked after the Fukushima disaster. Many countries, like France and Germany, pledged to decommission their nuclear power programs over the next two decades. Environmentalists are constantly up in arms about the dangers of nuclear power. I could go on. But buying cheap and hated stuff that Wall Street thinks is “crap” has repeatedly been a great strategy for us.

It really just comes down to economics, in my opinion. Screw politics. Most of it is hyperbole or targeted appeasement propaganda. Europe can make all sorts of “pledges” and claims to satisfy interest groups bent on de-comming nuclear power. The truth is, nuclear power is cleaner than the most prevalent of all power sources today—coal. It’s also significantly less expensive (by 50-66% at even the most conservative estimates) than both solar and wind.

So let’s be clear—uranium is a sleeper. Is now the right time to buy? Maybe. We could be throwing dead money into uranium by buying now, simply because it might lay dormant for the next 12-24 months—or longer. That’s why before putting money into a sleeper, I like to see an uptrend forming, and something in the market that catalyzes new demand. News like the above with Japan is worth watching out for.

There are other sleepers in commodities. Another more recent example is the price of corn, soybeans, and wheat. These commodities have not traded this low in years, and demand is likely to pick up, with supply experiencing a seasonal decrease in the fall. No one is buying yet, but we known from the seasonality, they will be soon.

This wheat, soybean, and corn setup is a short-term, high-reward, low-risk setup. A couple of ways to trade the trend for the next 3-6 months would be buying the ETFs JJG and CORN. Both should perform admirably for us going into winter. 

Discipline will make you an effective "tiger" investor

The bottom line on “sleeper” trades is this... it takes discipline, patience, and a good amount of prudence. Don’t back up the truck and load up... still abide by position sizing and trailing stops. You’ll be rewarded for following a strategy of waiting and striking at right moment.

That's the gist of my spiel on the "sleeper" strategy. We invest when things are quiet for a commodity or stock, but things have historically been much higher. And we look for a catalyst which will drive things higher. Once things are set fire, that's when we start to see the payoffs.

Good luck.

Live long and invest,

Jeremiah