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  1. I find that I’m too risk-averse for this speculation. My version of castle-in-the-sky is rather boring: A small play fund in $MJX that is based only on three factors:

    1. Even though I don’t use it, marijuana is probably in the top three mind-altering substances that people have chosen to use throughout history. It’s already a (substantially illegal) several billion dollar industry, and it’s not going anywhere unless these publicly traded companies are closed in relation to laws.

    2. My expectation that prices are artificially low today due to Jeff Session’s revocation of the federal government’s previous non-enforcement position on marijuana laws.

    3. My expectation that the United States and Canada will continue to march toward legalization despite Jeff Sessions, because there is already majority support in the US public and in Congress for changing the law (and it is growing fast) and because I guess apparently Canada’s right on the verge, but I don’t really know what I’m talking about there.

    I couldn’t stomach trying to choose the winners out of thousands of potential businesses that might profit (weed companies, pharmaceutical companies, fertilizer companies, distribution companies….) so I went with the closest thing I could buy to a broad index of those companies. Enter: $MJX, which happily began public trading right at the time I was searching! Hopefully I’ll look back in five years and say “Glad I bought this at ~$37/share, since it’s now $3,700/share!”
    The Vigilante recently posted…Net Worth 4Q 2017: A Blessing is Looming!My Profile

    • I view–rightly or wrongly–drug laws through the lens of a coalition of “Baptists and bootleggers.”

      I was in court recently to file paperwork. On a lark I sat in on some hearings. Every one of the unhappy people entangled with the legal system had alcohol involved. The Baptist in me wishes I could wave a magic wand and make it go away. That way lies Prohibition.

      The second constituency for the current drug regime are bootleggers. Milton Friedman said “illegal drugs are expensive drugs” and this means huge profit margins for purveyors of illegal drugs. The last thing a bootlegger wants is legalization. Watch the movie Key Largo sometime.

      If Federales think they need to interfere with the sovereign states’ legalization moves, I don’t think it is because Mr. Trump has become a Baptist. This worries me.

      In any event, this introduces uncertainty into the market for marijuana and marijuana-related products. Uncertainty is for speculators, not investors.

    • Mr. Groovy

      Agreed. Marijuana is becoming mainstreamed, and a marijuana based stock fund is a good bet. I love the cut of your jib, IV.

      • Mainstreamed, indeed. Excited to see the upswing when investors follow me after learning (A) that Sessions doesn’t personally enforce this law, and most of his local US Attorneys come out (as many have) saying it is foolish to waste resources enforcing it, and (B) Congress or several more states legalize. I’m not holding my breath for Congress, but there has been some hopeful bipartisan criticism of Sessions based on his little anti-weed escapades.
        The Vigilante recently posted…Net Worth 4Q 2017: A Blessing is Looming!My Profile

    • Mr. Groovy

      I love it, Xyz. As long as you’re playing with your head and not over it, castle-in-the-sky investing is good, clean fun.

  2. It’s more speculation (gambling) than investing really. And I’ve done it too, so I’m not judging. 🙂 I used to play with options and bet on some single stocks. My best “bet” was Tesla at $39 and sold it just over $300. I haven’t bought an individual stock (or option) since then though – I’m all about index funds now. And it’s working pretty well for me. 🙂
    Brad – MaximizeYourMoney.com recently posted…Highest Paying Jobs Without A College DegreeMy Profile

    • Mr. Groovy

      Agreed, Brad. Castle-in-the-sky investing is nothing by gambling. I woke up quickly and basically got out of it before I got burned. I only have one castle left, my lithium concern. But we’re holding on to that because 1) China, Europe, and the United States are pushing electric cars, 2) gigafactories are being built all over the world, and 3) current lithium producers can’t ramp up supply overnight. It’s a perfect storm of supply and demand, and my lithium concern is in a perfect position to take advantage of that. That’s the hype, anyway. Thanks for stopping by, my friend.

  3. Excuse my Bogle-bigotry, but I think that someone like you or me doesn’t do Castle-in-the-sky investing, we do Castle-in-the-sky SPECULATING. We don’t have the inside track. At this point, the only sane way to INVEST is through an index mutual fund. Individual stocks constitute too much risk for someone who isn’t a securities analyst. Sure, we can grok trends and you’re justified to get excited about stuff you see in https://www.nextbigfuture.com/ But the way we should be INVESTING in cool stuff like this is to tilt a portfolio toward a tech-centric index.

    If you want to know what kind of Castle-in-the-sky SPECULATION to jump into right now (imagine your Dustin Hoffman about to be seduced by Anne Bancroft) one word, “blockchain.”

    • Mr. Groovy

      Haha! I can see a cartoon now of Anne Bancroft’s thigh with the word Bitcoin affixed to it. What a great analogy. And you’re absolutely right, my friend. Castles-in-the-sky is total speculation. The word investing should never, ever be associated with castles. Thanks for injecting a heavy dose of reality, Steve. Bogle-bigotry is always welcome here. Cheers.

  4. This is the first time I’m hearing of the castle-in-the-sky investing. It reminds me of paying attention to current consumer trends. Similar to what happened recently with fidget spinners and slime. 5 wins out of 6 on the portfolio is amazing.

    • Mr. Groovy

      Hey, KP. I got very, very lucky. But my real luck was in realizing that I wasn’t the next Warren Buffett. I got out castles before Mr. Market taught me a great lesson on humility. Thanks for stopping by, my friend.

  5. Love your rules for castle-in-the-sky investing. I also know I won’t be doing it anytime soon!

    When I was getting all of my credentials processed for teaching, it looked like I was going to come up short for an endorsement so I took another consumer ed/intro to econ course at our community college. The mock stock I picked? Apple. In 2007.

    Extra fun fact? I didn’t even need the course. The state just goofed on the paperwork.
    Penny @ She Picks Up Pennies recently posted…Frugally Awesome…or Awkward: Holiday EditionMy Profile

    • Mr. Groovy

      Wow. Just looked up Apple and saw that its stock was trading at $13 a share in 2007. A thousand dollars invested in Apple back then would be $13,500 today (and that’s not accounting for any splits). Not too shabby. Thanks for stopping by, Penny.

      P.S. I love the state of Illinois. It never fails to justify my lack of faith in government and politicians.

  6. Interesting! I’ve always been burned whenever I’ve tried ‘castle-in-the-sky’ investing. I think part of the problem was that it was based on someone’s recommendation + some basic Google gaming i.e. not in depth. Like the fact that you included rule #3 which is where a lot of people trip up.

    • Mr. Groovy

      Haha! Nothing ever good comes from a stock tip from your barber or your friend. You’re better off finding your castles yourself. And rule #3 is critical. If you don’t have a clear exit strategy, you’re not ready for castle investing. Thanks for stopping by, WO. Always a pleasure.

    • Mr. Groovy

      Exactly. Be curious, read, and a keep a list of potential castles. And then when you’re more financially secure and a castle goes public, give a that castle a whirl. When played right, the downside is very small and the upside is very large. Thanks for stopping by, Luxthrift. I really appreciate it.

  7. Ooh I like this – too bad you missed out on a fortune with Intel or MSFT though! I remember making a ton of money on MSFT playing a Stock Market Simulation game throughout grade school. We ranked 13th in the state for all teams thanks to that and a few other good picks.

    Definitely be willing to lose what you bet though, that’s great advice. You’ve made some solid picks it looks like and seems like you made a good call on when to call it quits. 🙂

    If only everybody who ‘invested’ in cryptocurrencies followed this advice, too!
    Dave @ Married with Money recently posted…The Three Bag CompromiseMy Profile

    • Mr. Groovy

      Damn, I wish they would have taught us about stocks back in junior high and high school! Maybe I would have developed an investor’s mindset in my 20s rather than my 50s. I got very lucky with my castles. Funny, though, I never even considered “investing” in cryptocurrencies. Talk about castles-in-the-sky. Thanks for stopping by, Dave. I always love hearing what you have to say. Cheers.

  8. This sounds right up my alley. Lots of reading, industry analysis, and a bit of gambling. I like picking individual stocks and have been pretty decent at it thus far. I’ve even gotten the timing down pretty good. I’m not on your level yet, but would def risk a few hundred just to see what happens.

    • Mr. Groovy

      When I was living in New York there was an ad campaign for Off-Track Betting that end with this admonition.

      “Bet with your head not over it.”

      I think this admonition is works perfectly for castle investing too. As long as you bet a very small amount, it’s harmless fun. Thanks for stopping by, OMGF. I really appreciate it.

  9. I’m not adverse to using such a strategy on small portions of a portfolio to otherwise help you stay the course on index investing. But over the long run I still believe it’s largely an average losing strategy beyond the psychological benefits.

  10. I don’t remember reading about the term “castle-in-the-sky” when I read Intelligent Investor by Graham…I guess it’s time to revisit the book. LOL. I like the idea in general and would categorize it as probably part of the 10% or so of my portfolio that I could allocate to speculative investments or other highly risky investments. The Real Clear Science is an interesting website and I have just added it to my RSS feed.

    Cheers!
    [email protected] recently posted…Understanding Cryptocurrencies: Bitcoin, Ethereum, Ripple, and OthersMy Profile

    • Mr. Groovy

      Same here, my friend. It’s definitely time to check the origin of that term again. It might have come from Malkiel, and the phrase might actually be “castles in the air.” Damn, this blogging stuff is hard! Thanks for stopping by, Enoch. I really appreciate it.

      P.S. Glad you added Real Clear Science to your RSS feed. It’s a great clearinghouse for articles that pertain to technology and the future. There’s a lot of interesting things going on out there, and it’s fun to read about them.

  11. Great article Mr. Groovy, as always. I agree that castle-in-the-sky investing has a small place in a portfolio. I’ve never been able to do it with stocks, though (I’ve always bought and sold at the wrong times).

    But these days, I think cryptocurrencies may be that “next big thing”. Take an example (credit Ameer Rosic on YouTube):

    You want to sell a car. Today, you have to agree on a price with a buyer. Then, they may have to get a manager’s check to pay you, and you have to go through the DMV to transfer the registration. You also must wait for the money to clear into your account.

    With a blockchain smart contract, the price and title are already on the blockchain. The buyer pays with crypto, and title is transferred instantly. Less paperwork, less delay.

    Like with all castles in the sky, it may or may not succeed. But I think that when technology like this exists, it eventually finds widespread adoption.

    Cheers,

    Miguel

    • Mr. Groovy

      Agreed. If I were on the hunt for another castle, I would be looking in two areas: blockchain technology and graphene. And thanks for the Ameer Rosic tip. Just checking him out on YouTube. Very interesting, my friend.

  12. Mr. Groovy, This is very cool to me. I think you know I’m just a boring dividend growth stock investor. It is a slow and steady wins the race strategy. Your strategy takes a different sort of research, vision and risk taking. I admire you for it and thank you for writing about it. The strategy’s not for me, but I like investing and like reading about how other folks go about it. Well done. Have a great weekend. Tom
    Tom from Dividends Diversify recently posted…6 Steps to Create Your Passive Income Machine (Part 2)My Profile

    • Mr. Groovy

      Thank you, Tom. I couldn’t agree more. I’m definitely a slow-and-steady-wins-the-race-strategy guy too. One’s investment portfolio should never be “exciting.” And once we sell Lithium Americas–when it hits $50 a share in 2020–our castle investing career will be officially over.

    • Mr. Groovy

      Haha! I look like a freakin’ genius. But we know we totally lucked out. For whatever reason the financial gods were smiling on us. I suppose I’ll always be a castle hunter. I come from a long line of degenerate horse gamblers. So betting is my DNA. But it will only be one castle at a time, and the amount of my wager will always be very small relative to my portfolio. Thanks for stopping by, my friend.

  13. This is the type of investing that I am always tempted by and never have the guts to actually try. I think the key is your second point: bet only what you can afford to lose. Recognize that this is more gambling than investing.

    I should set a small amount aside and give this a try if only to satiate the craving to go for it.
    Matt @ Optimize Your Life recently posted…Who Do You Want to Be?My Profile

    • Mr. Groovy

      “Recognize that this is more gambling than investing.”

      Truer words have never been spoken, my friend. It’s definitely harmless fun as long as you tread very, very lightly. $500 or $1000 bet now on some obscure blockchain or graphene company could pay for Baby Optimize’s bachelor’s and graduate degrees. Although I wouldn’t skip the 529 plan. Thanks for stopping by, Matt. Always a pleasure hearing from you.

  14. Isn’t there always the next best thing? I like your approach, to castle-in-the-sky investing, research, money to lose, and an accountability partner. I’m not sure we were ever in the position to take advantage of an opportunity like this, so we have stuck to the index fund strategy.

    Looking forward to part two with Claudia and Garrett.
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    • Mr. Groovy

      Agreed, Brian. Castle investing is strictly gambling. And because of that, I’m basically done with it. It’s much easier to sleep at night when 99% of your portfolio is invested in low-cost index funds. Thanks for stopping by, my friend. Should have parts 2 and 3 served up on Friday. You’ll love them. Claudia and Garrett are wonderful sports. And great pickers too!

    • Travis

      Lithium Americas is poised to go from OTC to NYSE stock exchange, opening a whole new world of potential investors. Not too late.

    • Mr. Groovy

      Perhaps. If you ever want to give it a whirl, though, follow Joe Lowry on Twitter. The man has encyclopedic knowledge of the lithium industry. But if you think you’ve missed the boat on lithium, here’s one for you. Graphene. It’s supposed to be a wonder material–lighter than a feather and stronger than steel. But apparently it’s very hard to make. If I were still in the castle game, I would look for a company that is making progress on the graphene production front. But remember to bet small. Talk about a castle-in-the-sky.

  15. Laurie Blank

    “…besotted frat boy.” ROFL here!! I was a besotted cosmetology student myself, so I totally get your frustration with your ignorance during those years. Go Cubbies and quarter beers!! Now THAT is an investment plan – not!! Luckily you had Mrs. Groovy and her moxie to pull you out! 🙂

    • Mr. Groovy

      Haha! We’re definitely kindred spirits, Laurie. However, I prefer Mets and quarter beers to Cubbies and quarter beers.

  16. Well done Groovies! Doing your research and taking a risk with an amount you could afford to lose is very smart, aggressive, growth investing. Sure you can get burned – ever heard of a company called Datawave? No? Didn’t think so, because I lost 5Gs on that moon shot 😩 – but hey, others have panned out and kept me in the game, always willing to take a chance on a winner with a little extra investment money😎

    • Mr. Groovy

      Dataware! I love it, Kat. Way back in 1984, my friend got a job with Wang Computers after he graduated from college. I remember him showing me this new thing called a floppy disk. And I remember how I thought Wang Computers was going to be big. My friend even suggested that I invest in Wang. But I thought buying stocks was only for rich people and scoffed at the idea. Besides, back then I barely had enough money for beer, never mind a computer upstart going against IBM. Good thing I was a drunken loser. Wang soon began to flounder and eventually went bankrupt in 1992.

  17. Man that is awesome.i have never had enough money or been brave enough to do individual purchases. Maybe in the near future…maybe. for now index funds it is.

    You are right though. Reading and understanding new fields is the way to find the castle…

    • Mr. Groovy

      Hey, DDD. Total agree with you. Castle investing is like going to Vegas or the race track. As long as do it very infrequently and strictly limit your gambling money, it’s rather innocuous. If you ever think you’re going to make a killing, you’re doomed.

  18. Benjamin Graham is turning over in his grave! No margin of safety analysis on either the buy or the sell? Definitely speculation rather than investing.

    I’m guessing you for more of a contrarian investor. Buying the dogs out there for dividends or something. Sort of like picking up trash!

    • Mr. Groovy

      “I’m guessing you for more of a contrarian investor. Buying the dogs out there for dividends or something. Sort of like picking up trash!”

      LOL! Nice, Susan. And for a while, I was heading in that direction. But fortunately I got a hold of my hubris and I stopped flying close to the sun. I basically stopped castle-in-the-sky investing in 2013. I only have the lithium concern left and I’m keeping it because the downside is very small and the upside is extremely large. Got very lucky with this one.

  19. You’ve got more balls than I do Groovester, I’m not sure I have the stomach for that. But your track record looks pretty damn good. Maybe you could start your own brokerage company, “Groovy-Traders” or something like that 🙂

    • Mr. Groovy

      LOL! Mrs. Groovy is the one with balls. She’s the Warren Buffett of the household. She can invest in an individual stock and not look at for 10 years. I looked at our castles every day (I’m doing better with Lithium Americas, however). And I like where you’re going with “Groovy Traders.” I joked during my castle run that I should have started a hedge fund. But thankfully I came to the realization that I was just a lucky boob. Glad I got out without losing any money.

  20. Way to go Mrs. Groovy!

    Congratulations on those castles that are touching the sky! This is actually a really cool way to break down stocks that you believe are currently extremely undervalued, and you believe they have the potential to take off.

    The best point you make though is “If you have anything beyond 2% of your portfolio invested in castles, you’re a mental case.” You discussed how the first step is to essentially assure that your main investments are in safer investments AND are built up to where they hold a significant weight of your portfolio before you do any type of “castle” investing.

    Great post!

    • Mr. Groovy

      Hey, Sean. Thank you. Couldn’t agree more. Castle-in-the-sky investing/speculation is no different than going to Vegas. As long as you realize it’s for fun and the odds are high that you’re not going to win, then it’s perfectly okay once in a blue moon.

  21. Yes!!!! New talking trash!!!!

    Interesting ideas about investing. I just don’t think I’m that interested in trying to find them.

    On a side note, this is exactly why all those people say that active investing is dying are wrong. People will always do something like this.

    I think its good to do. Good for the world. These companies have to get off the ground and change the world, and ty need investment to make it happen.

  22. I’m not sure if my husband’s hoarding of Amazon and Google counts… those are already in outerspace.

    For play money, I hold onto a few individual stocks I pick for one year and see who the winners and losers are. If they are in the red, I sell them off just before the year is up. If they’re up I sell after one year.

    • Mr. Groovy

      Haha! I love it, Lily. I’m a total index fund investor, but I always feel the urge to be a little more daring. Gambling on individual stocks, providing it’s done infrequently and only in amounts you can afford to lose, is a harmless way to bring some excitement to your investing life. “Play money” is a very apt description. Perhaps you can do a round up every year on how your individual stocks did. I think that would be a lot of fun.

  23. I think most would be interested in castle-in-the-sky investing but it is one of those things that if you aren’t doing your due diligence you WILL get burned and burned hard. I think I will be in the keep it simple phase for a while longer (read: Index funds ftw).

    Who knows when/if I will get the confidence to do anything beyond index funds but when I do I’ll be researching the crap out of it. Of course, hind-sight is 20/20 and I wish I had gotten into some of those stocks like Tesla. Maybe then I could use those gains to buy a Tesla :D.
    Budget On a Stick recently posted…Simply Put Recipes: ChiliMy Profile

    • Mr. Groovy

      Agreed, BOAS. This strategy is total speculation and should be avoided with extreme prejudice. Mrs. Groovy and I did for a very brief while and where extremely lucky. We’re down to one castle, and once we sell that, we’re done. Thanks for stopping by, my friend.

  24. You seem to have a knack for it so go for it. I’ve tried a few before and it never worked out for me. I don’t have the eye for those kind of companies.
    Now, I invest in conservative companies and just focus on investing as much as I can.
    Good luck!

    • Mr. Groovy

      Thanks, Joe. But I’m walking away from castle-in-the-sky investing with my net worth and pride intact. I know my fabulous run was all about dumb luck and I no longer want to tempt the financial gods. I’ll let Lithium Americas run its course (it’s on target for actually producing some battery-grade lithium in 2019) and stick with VTSAX and VBTLX. Cheers, my friend.