I Was a Rare Earths Day Trader
Source: Boston Globe, Josh Rothman (2/1/11)
"REE names are a mouthful, but everyone knows how to spell 'opportunity.'"
The name pretty much says it all with rare earth elements: they're hard-to-find metals that don't form themselves into easy-to-find deposits but are instead sprinkled over vast tracts of land. They must be gathered up at great cost, often through environmentally destructive open-pit mining. Finally, they're a key part of our industrial infrastructure—especially vital in electronic devices like the iPhone.
The combination of high tech, environmental destruction and Old-West-style prospecting seems to make rare earths especially seductive for bored guys who want to feel like evil investment geniuses. "The REE names—dysprosium, neodymium, yttrium—may be a mouthful," Miklian writes, "but everyone knows how to spell 'opportunity.'"
Miklian was introduced to the REE trade while researching a story about Indian mines and civil unrest. When he learned that China had a near-monopoly on rare earth elements, he sensed an investment opportunity: "Acting on the hunch, I dumped my meager life savings—about $9,000—into the rare earths sector and waited for the payoff." Sure enough, a few months later a small showdown between China and Japan over a fishing boat sent prices soaring. Miklian was transformed from a productive member of society into a day-trading cave dweller; he says he suffered "leg and arm cramps from remaining motionless save for my mouse-clicking hand." He made a huge sum of money, but sold too soon, assuming that the bubble would burst before it did.
It almost goes without saying that most rare earth elements stocks are long shots. (That's the whole point.) But you'll be surprised at just how long the shots are. Rare earth elements are hard to find; over-eager investors, however, are everywhere.