Margin of Risk

Jim Sinclair | JSMineSet.com
August 16, 2003

Q: Jim, you used margin when you where building your foundation. I am young and willing to accept risk. So Jim, what's your problem?

A: Let me answer your question under two subheadings for simplicity's sake.

Responsibility

Few who write on the Web fully recognize the responsibility they have to their readers. I would also suggest that this statement applies equally to those in the print and electronic media as well. In contributing to the debate on questions of the day - whether they be economic, political, or both - you need to consider your words with attention and care, especially when someone else's livelihood is at stake.

Training

My father is Bertram J. Seligman. From simple observation and a study of history, I believe he was the greatest trader that ever lived. Yes, greater than Jesse Livermore who befriended Bert because of his talent.

Bert traded like an old master painted. He used to trade 10% of the NYSE's volume and ended the day with a 500 share position. He taught me to trade from as far back as I can remember. I sat beside him in the car, in the office, and in the house.

We failed miserably as father and son but succeeded beyond anyone's wildest imagination as partners. He was also a business man. He financed the first movies in aircraft via "In-flight Motion Pictures, Inc." He put the first refrigeration device in trucks via "Thermo King Inc."

A partner of Smith Barney who ran its trading department had inadvertently become a controlling shareholder in a small company and called Bert when the company asked him to lower his position. Bert took on the man's entire position and control of the company and went on to promote Dr. Land's new camera. The company eventually became Polaroid and Dr. Land visited my home on several occasions.

Bert financed a company that had invented a feminine hygiene product called Pursettes which was sold in the U.S. through the 1960's and 1980's. One of the great fortunes he made was in a metals company called Strategic Materials.

He was also a partner in deals and trading operations with Jesse Livermore, Old man Kennedy and Arthur Cowen. He invented what is today called the NASDAQ.

At my request, he left me totally out of any financial or material inheritance, having given me more than that: the knowledge to spot value in businesses and - more importantly - how to trade for a living.

I was in a trading department when I was 12 years old. At 19, I was an over-the-counter market maker maintaining 35 markets. That is the training and qualification you need to handle huge margin positions.

During the entire gold market, I never got a margin call - not because I never made a mistake but rather because I margined myself and if a call was pending I liquidated my holdings before the close of that trading day.

I am trained to be a survivor in a battle that takes no prisoners. You may not be. I live markets day and night. I come from the lineage of Jesse Seligman and a famous banking family.

Now you will love this. The Cartel of Common interest is comprised largely of Seligman firms. Yes, my ancestors founded them all except Merrill. Goldman and Lehman are my family's. Many of you made fun of me when I first told you those cartel members had met their match. Well, they have. They face the bloodline of their founder and did not know it until know.

Read the book, "Our Crowd," by Stephen Birmingham and it's all there. Markets, metals and entrepreneurialism course through my entire body not just my blood. The market is my mistress but compared to the real life equivalent I thrive on the volatility associated with this one.

I am committed totally to markets. I love risk and feel alive only when all is committed. Absolutely nothing else in the material sense interests me. Now that I have played the material game, even that no longer interests me. Money does not interest me. I have given away much more than I have. The game interests me. The game is called building companies and trading markets.

Now I am passing my love of this business on to whoever recognizes the gift and is willing to run with it. My two youngest children have chosen to go their own routes outside the financial sphere and my eldest daughter is in my service in Africa. She is an adventurer in her own right but remains uncomfortable with the intensity I show when the bell rings which is her feminine prerogative.

For the curious, my name has been James E. Sinclair since the day I was born. My mother was Abbey's Irish Rose.

The Solution

The solution for you is to trade gold and gold share options (limited loss and no margin calls) but not to write them. The solution is not to trade option spreads because nobody gets rich in spreads; they generally only launder money of scam commissions.

They demonstrate you are mathematicians and so what? Pros don't scream at that statement. What I consider a fortune and what you consider a fortune might be two different things. Options are only for the start and finish of a move and have little application in the middle.

For you and others like you, I will prepare a "how to" article on options this weekend. They are not investments and apply to only a few out there. But like all members of the Community you have a piece of whatever I am able to offer. I will therefore deliver.

For the conservative majority, it can be a learning experience for the time you wish to sell covered options on your positions. As an example, a covered option would be to sell a call on 100 NEM because you own it and want income. The risk there is only lost opportunity.

The day will come when such a transaction is wise but that is down the road. Right now we trade and invest for opportunity.