$HUI : Know Your Odds


A few high probability 2020 targets indicated by the $HUI. Successive targets with 2/9, 5/6 and 15/7 odds of a favorable outcome suggest unhedged gold stocks have a good chance of moving appreciably higher through the end of the year.

Speaking of gold stocks, in spite of its decision to hedge a bit, we doubled up on Argonaut Gold, as well as added once again to our stake in International Tower Hill.

What about the Downside Odds for $HUI?


A move lower to 192.61 isn’t out of the question, although the trades with the highest probability of a favorable outcome remain to the upside while the $HUI cycle and trend remain firmly up.

$SBGL: Sibanye — The End of the Road

We never imagined riding Sibanye-Stillwater to a price-point that exceeded our initial target on the back of Palladium, but that’s what happened. Palladium, however, is not a trade in which we have a great deal of confidence going forward, so we rang the register for a return of 142%.

Our cash reserves have been boosted to 15% of the Fund and we are eager to put it to work.

How We Bet, Part IV: Is the Odds Engine a Cure for Common Estimation Errors?

In our experience, yes: It protects us from asymmetric skewing.

It is of a union between projections of future value and bias that asymmetric skewing is born.

What is an estimation error?

An estimation error is the difference between an estimated value and the actual probabilistic value.

Most estimation errors that we run into are products of handicapping. Let’s use Denison Mines as an example.

We use a period of 23 Years in order to calculate Benchmark Odds against which to measure Denison’s Implied Odds. Without the Benchmarks, we would not be able to determine the presence of value.


As you can see, we don’t have any long value bets staring us in the face, but even so, the odds of rising to 0.46 in 2020 are quite good — 66.67%.

Interestingly, that’s not far off the mark of Denison’s intrinsic value at $24.70/lb. U308, which we’ve estimated at 0.41. So it looks like, from a fundamental standpoint, shares can be picked up today at a 11% discount.

That’s great, but where are the estimation errors?

The big estimation errors occur when an estimate of future value is calculated. For instance, take Denison’s valuation at $30/lb. U308. At $30, we think Denison is worth 0.49/share. And if somehow, by some miracle, spot uranium popped to that level, Denison would have a 33.33% chance of rising to its calculated valuation.

But the market is stubborn. It simply will not revalue a stock in concordance with your projections. And it is of a union between projections of future value and bias that asymmetric skewing is born. In other words, your own estimation errors have convinced you that your betting odds are considerably better than they actually are.

The odds matter…


Here’s another consequence of estimation errors: You miss out on the value bets* that intersect with good odds.

*The 0.37 price point was so tantalizingly close to representing a short value bet at great odds, that it would have been a shame for a value bettor to pass up (Note: It wasn’t passed up, obviously.)

How We Bet — Part III: The Value Bet Demystified

In Parts I and II, we covered our internal approach to Value Betting stocks, but perhaps an understanding of ‘Value’ as it pertains to stock betting still eludes you.

What is Value Betting?

Value betting is essentially a bet where your own calculated odds of an outcome are better than those calculated by the bookmaker.

In stock betting, we simulate bookmaker odds with Benchmark Implied Probabilities. If the Implied Probability of an outcome is greater than the Benchmark, we are able to say value is present, which doesn’t necessarily make the bet a good one. If one’s own calculated odds are 4.55 and the bookmaker’s are 9.00, is this a great bet? No. Although there is value, the odds are still poor. We’d take a pass on this bet. Again, we are looking for an intersection between value and good odds. That’s the sweet spot.

The Bookmaker’s Advantage

If you’ve dialed in your Benchmark Implied Probabilities, you will find that true value bets are rare, especially after the Vig. After all, as you well know, the house doesn’t like to lose.

So how is one to win? More importantly, how does one find and exploit value bets?

For starters, you’ve got to develop an algorithm with which to appraise stock prices that is not utilized by bookmakers. Remember, an algorithm is just a set of rules to follow. It doesn’t have to be complex. Our own algorithm is comprised of 20 short lines of code, reducible to 16, that lives both simultaneously in our charting software and in Excel. We could also, in a pinch, run the algorithm in our heads. That’s how simple it is. Our algorithm is easy to take for granted now. Too easy. And I have to remind myself that it took 20 years of trial and error to develop it. In fact, this is the algorithm that convinced me of the relative unimportance of sophistication.

So don’t be discouraged if you are forced back to the drawing board time and again in search of an algorithm that will enable you to join the house in its bets against the squares. It’s worth the blood, sweat and tears.

I actually want you to succeed!

I’m betting against you, but I want you to win, too. I sincerely do. Notice I’m not charging you for anything. I don’t run a fund in which I want you to become an investor so I can charge you a fee. I don’t need you to come to a seminar. I don’t need you to buy a subscription to a special Insiders Only newsletter. And we don’t need your traffic to generate ad revenue.

We won’t necessarily share our secrets with you, but we do want to share the process whereby which we arrived at those secrets, hence this betting series. We want to inspire you to develop your own secrets. We want you to become self-reliant. We want you to shed your predilection for seeking out confirmations of your biases. We want you to kill your gurus. We want you to be radicals bent on reintroducing as many little inefficiencies into the market as you are able. We want you to form your own opinions and place your own courageous bets.

That’s all we want.

More in Part IV.

How We Bet — Part I

We do a lot of handicapping, but we acknowledge that won’t make us better traders. The value of handicapping ends with stock picking. Once stocks are picked and opinions are formed, one must gauge whether or not one should place an actual bet.

We are primarily value bettors. This is not to suggest we only place value bets. Rather, the better part of investment capital is allocated to those issues where a clear discrepancy between benchmark and implied probability is evident, while the remainder is allocated to long shots. In our portfolio, the ratio of value bets to long-shots is roughly 70/30.

For every issue we study, odds are calculated for 12 discrete price points; from the odds, an implied probability for each price point is generated. The implied probabilities are then weighed against benchmark implied probabilities for the sector to which the issue belongs.

Whether a bet is placed on the long or short side is determined by whether or not its cycle — as we calculate it — is up or down.

We maintain benchmark probabilities for the following sectors: gold, silver, platinum, uranium, oil services, and agriculture.

Over the course of the next week, we will be publishing herein a visual representation of the math with which our betting forms (totes) are produced. As odds are read differently depending upon the part of the world in which you live, output will be in decimal, fractional and American forms. We are Americans, but we think in European fractional terms, so when discussing odds, it will be primarily in the terms of fractions (e.g. 13/1 against…).

In addition, it’s important to note that we also compute conditional probability sets, but for simplicity’s sake, these won’t be included on our published totes.

Is this really how we place our bets?

It is. It’s also how we quantify our exits. However, the totes that we will be publishing will be those wherein value is present a high percentage of the time relative to a benchmark, though this isn’t necessarily the price point at which we will choose to exit. Our own tolerances allow us to exit at price points that have a fair confidence interval with a preset margin of error.

Stay tuned!

URANIUM: Now the Real Carnage Can Begin!

Now that the majority of our initial Odds Engine downside targets have been reached (see here and here and here and here), the real carnage can begin:

And from our post of 12 December 2019 — Cycle Death and the Uranium Junior — were you curious about our estimated time-frame for a bottom:

P.S. It’s important to remember that the 900% return you expected on the stock you bought at $0.50/sh. and which has declined by 90% to $0.05/sh., now is represented by a rise to a mere $0.50/sh. There are still good trades to be had down the pike, but this requires that position size scales proportionately as shares cheapen.

Uranium: The Downside, Probabilistically Speaking


First and foremost, we are traders. We play the odds. Sometimes the odds aren’t good, but even poor odds at a fair price can be profitable. And at the end of the day, that’s what matters to us: making money. But in order to do that, one must preserve one’s independence. That means being willing to hold an unpopular opinion and to not be beholden. Being beholden to peers or to the management of the companies in which one invests, unduly colors judgement to the extent that the odds are no longer perceived in the cold, calculating light in which they must be regarded.

Someday, the odds for long trades in uranium stocks will improve. We look forward to that day. In the meantime, we are happy to hold the unpopular opinion that the bear lives and breathes, even if it costs us ‘friendships.’


Probabilities are a sport for me and for my business partner, my beautiful wife Tina. We have developed rigorous buy and sell standards that leverage probabilities, but there is one sector on which we broke every rule and subverted every standard, buying against all odds, when all indicators pointed to trades with an exceptionally low probability of success: uranium.

Every last one of our uranium holdings represents a bad bet. We were suckers. Bad bets at good prices are forgivable, but we can’t even claim to have bought any uranium names, save for Forsys, at a good price.

My mantra has always been ‘lower for longer,’ but I never imagined that I’d still be saying lower for longer 3 years after taking our initial stake in Goviex. I’m still, gulp, saying it.

We have never participated in a sector with bleaker prospects — prospects that grow dimmer daily. Yet we plan to hold our uranium book in spite of the odds against it, as we are allocated in a way that guarantees that we can not be annihilated in the worst of downturns.

However, this may not be the case for all of you. Are you allocated in a way that will enable you to weather a fierce acceleration of the uranium bear market? Will you live to fight another day if your portfolio’s uranium constituents drop by 50%? 75%? Are you hedged?

So here it is: I can’t think of a single thing about the sector to which one may look forward and consequently, I am officially a bear, albeit a long/hedged bear. I see uranium oozing out of every sewer drain and sidewalk crack. Every dish is served with a side of it. I find it behind my son’s ears when he’s taking a bath. There’s just too goddamn much of it. And until there isn’t, the high probability setups belong to the shorts.

$DYLLF : Deep Yellow to Fast Track Tumas PFS

The impressive results from the [Scoping] Study clearly demonstrate advancing this project to the pre-feasibility study stage is justified, appreciating that uranium prices are expected to improve strongly over the next two to three years. With this approach, the Company has a significant opportunity to continue prudently advancing the Tumas palaeochannel deposits in a cost effective and timely manner and assist in achieving our aim of establishing Deep Yellow as a tier-one uranium producer.

John Borshoff, “Positive Scoping Study Delivers Pre-Feasibility Study Go-Ahead”