Serious Advice For Resource Investors
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair.”
A Tale of Two Cities, Charles Dickens.
“This is worse than a divorce. I’ve lost half my net worth and I still have a wife.”
Anonymous Stock Trader.
Some things are inevitable. Death. Taxes. Sagging testicles. Gout. And market downturns: 4 of the last 19 years have seen hefty declines on the big boards.
The junior resource markets are mired in the absolute worst of times. It’s hard to remember when raising money was so difficult. First-time resource investors could be forgiven for thinking that losing money is the new normal. Nose pressed to the glass of the fancy restaurant windows, they stare wistfully at the caviar-gobbling wealthy inside who avoided mining stocks and bought cannabis instead.
It’s been a painful decade for us. We believe, God knows we believe, that things MUST turn around. Prices HAVE to go back up eventually, and when they do the mountains will ring once again with the pingy sound of geologists’ hammers. It’s only logical right? Copper, zinc, gold, lead.. they have to run out eventually as the big mines are depleted. Or perhaps one of the major producing countries will succumb to the next Chavista revolution and cut off base metal supplies in a deliberate act of economic revenge against the Great Satan.
Except. Except.
When’s it actually going to happen? How much longer must we wait to see profits again? Sure, there are a few companies out there that have potential discoveries on their hands, and the mid-tiers are looking more acquisitive, but the Venture Composite index is still rolling anemically along the bottom of the sewer pipe.
So the urbancrows blog asks the 6-million dollar question that nobody else will dare to ask: what can you, the investor, do to protect yourself from the downturn? What strategies can you put in place to protect your nest-egg? I’ve polled a few friends, experienced mining investors all, and we’ve come up with some ideas for you to chew over as you enjoy your cannabis edibles.
(And wouldn’t you know? The moment I decided to publish this piece, the gold price decided to pop, although the junior stocks haven’t really responded yet.)
Get Drunk.
Buy a lot of your favourite tipple, get gooned and stay gooned until its all over. Not so easy, because you do have to wake up sometime to feed the dog. At which point the grim reality of the festering markets PLUS the debilitating effects of a Chernobyl-sized hangover will inevitably come crashing through your bedroom door and take a large dump all over your head. And if you’re drunk all the time, how will you know when it’s all over? The devil’s in the details.
Buy Chocolate and Booze Stocks (see above)
Markets are down, global insecurity has rocketed, everyone’s frigging miserable, so what do miserable people do to cheer themselves up? They drink booze and eat chocolate (see above). So the solution is obvious. Find a booze-and-chocolate stock and buy shed-loads of it when things look like they’re going south. Always remember: yes, you CAN profit from societal misery.
Move To A Cabin In Alaska
Hibernating is a sure-fire winner when it comes to steering clear of bad news, so pack up your troubles in the trusty old pick up truck, and fuck off to a small rat-infested shack in the Alaskan woods for 10 years. All you need is half a ton of beans, 20 sides of bacon, and a swiss army knife. Don’t worry about toilet paper, just use your old mining stock certs. Your diet will be so bad you’ll be plugged up like the US senate anyway.
Who knows, when you emerge, squint-eyed, and toothless from the ravages of scurvy, you may well have a 20-bagger in your portfollio, something to fund the extensive physical rehabilitation and counselling you’re going to need. And think of the stories you’ll have to post on your new blog www.iwasnormalonce.com
Sell Everything. Hold Cash.
This is the simplest survival strategy of all. Sell all of your mining stocks, withdraw the cash from the brokers and hide it. It’s true, you’ll miss out on the dead-cat-bounce gains when the market briefly rallies, but hey, what price peace of mind?
Whatever happens, DON’T PUT YOUR MONEY IN A BANK because as we all know, Fiat currency is doomed and Bit-gold-crypto is the future. Hide it in your shed, behind your car door panels, in the toilet tank, under the mattress, in your kid’s teddy bear, grandma’s copious bra. Wherever you find space, hide the cash.
When the market comes back, think of the fun you can have as a family trying to find all the hidden bundles. After an enjoyable 2-week game of “for-fuck’s-sake-find-my-money”, you can look forward to a relaxing month of family craft nights with the kids, scotch-taping back together the notes that the rats chewed and ironing out the wet ones.
Pay Off Your Debts
Instead of investing, focus all of your efforts on paying down your enormous mountain of credit card and mortgage debt. Market downturns will simply pass you by. When you retire, you’ll have no investments to speak of but you’ll be debt free with a nice wardrobe of slightly tatty clothes. And you’ll be able to live off the 16 hours a week at minimum wage you make frying chicken nuggets at MacDonalds, topped up with your generous $700/mth Canada pension. Retirement’s over rated anyway. Is that grease I smell?
Be A Contrarian
Buy what everyone else is avoiding. Like mining and exploration stocks, for instance. Oh wait… hang on…er….
Blame Your Broker
You bet the farm and lost it all to the fickle markets; pigs, sheep, hay -it all turned into stinking manure. But if you want to come out the other side of the downturn smiling, sue your broker. They got you in to the stocks, right? It’s THEIR fault not yours, so accuse them of unauthorised trades, churning your account, extending you too much leverage, putting you into unsuitable stocks, not answering your calls, starting World War 2. In fact, accuse them of everything and see what sticks. Sooner or later the brokerage house will settle and you’ll get your hard-earned money back, 30c on the dollar. Winning.
Buy Gold
Ah yes, that old chestnut. Let’s see if I can remember why some folks think gold is a safe haven: it’s immortal, it’s divisible, it doesn’t tarnish or rot. It’s… it’s… ah.. fuck it… let’s face it, it’s going to be totally useless when the zombie apocalypse comes. Try buying a sack of brussel sprouts with a bar of gold when all around you is satanic, flesh-eating shitness:
You (starving owner of gold bar): “Psst. Swap you my heavy gold bar for your large bag of tasty food.”
Fat owner of tasty food but not gold. “Fuck off. I’m eating.”
You (more-starving, still owner of gold bar): “But it’s got inherent value. Look, it’s shiny and divisible. That’s useful, right?”
Fatter owner of tasty food but not gold. “Nom, nom, nom. Burp.”
Due Diligence / Do Your Research
You spend long, dark, lonely hours in front of the computer screen trawling through Sedar for information on your favourite stock. The management team has top-notch credentials. The share structure hasn’t been blown up, and the insiders own a butt-load of their own company stock. There’s a great history of discovery in their chosen jurisdiction, and to cap it all off, the company has the cash to fund a 1-year program of drilling. You buy a LOT of stock.
Then geology gets in the way, and all 14 holes miss. The company blows its treasury on its only project. Management spend the next 12 months trying to raise money as the share price hits 2c. Then the board resigns. The shares are suspended. You wake up and it’s all a bad dream. One of these things won’t happen.
Wait it out.
On the big boards, the average stock market decline lasts less than 2 years and is inevitably followed by a recovery period where investors can once more fall alseep at the wheel. The Motley Fool helpfully opines “that you shouldn’t worry too much about occasional stock market crashes. An exception would be if you plan to take your money out of the stock market in the next five or so years. The stock market is for long-term investments.”
Except in the resource sector, you could realistically change “in the next five or so years” to a single word “ever”. So fine, wait it out if you can. As John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.”
Double Down
My friend Rick Rule has said on many occasions, that if nothing has fundamentally changed about the investment proposition offered by your favourite stock, a downturn gives you a chance to buy more of it at a reduced price. Assuming, that is, you have any cash, or can sell something –the children perhaps- to raise some. Not everyone has the luxury of Sprott-sized pots of liquidity. But still, it’s not a bad idea, plus it’s something to do. It’s a positive action you can take and actions are good, right?
Get on the phone to your broker, and once he’s stopped shouting at you, insist that “Yes, I do want to buy more fucking stock in Gloom Mines, so please do your job and stop calling me that.” Your first tranche was at 90c, the second at 50c and now you can get more at 15c and own 6.5% of the company. As Donald Trump says, so much whinning.
Become An Activist Investor
It works for Warren Buffet and John Paulson, so it can work for you. And here’s how to do it.
Buy small share positions in a lot of resource companies. Attend their AGMs and say nothing. Make sure to frown a lot and sit at the back of the room where you can unnerve management with your incessant scowling and coughing. If the scrutineer asks who you are, mumble something cryptic about representing a major shareholder.
At the end of the meeting, fill your bag with free Chicken Caeser wraps, cookies and muffins from the Continental Health Buffet, thus avoiding the need to spend any money on food that week. Remember, it’s about surviving; activism gets you share price upside AND a free high-fat, high-sugar diet to build up those all-important blubber reserves.
Time The Market
This method assumes 1) you are better than 99.9% of investors, and 2) you can spot the coming crash and 3) you are able to convert your holdings to cash seconds before Satan presses the big red button marked “Down The Gurgler”. Good luck.
Lie To Yourself and Others
Self-delusionment is an age-old strategy. Simply repeat the words below.
“Nope, I’m up… in fact I’m so up on my junior portfolio that I don’t know what to do with all the spare cash I have.”
Friends and relatives will inevitably notice that you traded your car in for a used hipster scooter, and have developed significant sartorial issues that you never used to have –you smell. Remember, rich people don’t smell because they can afford soap.
Bet On Good Results
Back in the day… exploration results used to drive a stock up. Before the arrival of the internet, we’d wait patiently for the Northern Miner to arrive at the corner smoke shop. After thumbing through it for news on our latest company, we’d turn to the stock price pages to see how the shares reacted that week. Chances are they’d be up nicely on good assays.
Alas, alack, those days are gone. Information arrives too fast today. In the first minutes or hours after the news hits the wires, your stock will still react positively, but then heavy selling comes in as short-term traders unload their positions onto suckers like you. Unless you’re really lucky, two days after the big hit, your stock is trading below where it was before and you’re still holding. As my old boss used to say, you never get poor taking a profit.
Buy Defensive Stocks
Copper and gold are the only metals to be in at the moment. Every time Trump opens his fat mouth gold goes up, and the long term fundamentals for copper all point to supply deficit. You could make an argument then, that the copper and gold producers are good defensive stocks if you insist on buying resource equities. I could also argue that measles is better than chickenpox. It’s just degrees of pain until the bottom is reached when, it’s true, the producers will move up ahead of the explorers.
Avoid Leverage
For peace of mind, don’t borrow to invest. As Warren Buffet said: “Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions”
Use Leverage
For peace of mind, if you’ve found the perfect mining stock, don’t just invest your money. Borrow and invest somebody else’s too. Makes sense right? As Warren Buffet said: “”When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbors get envious.”
We’re All Mugs
So there you have it. An abridged list of tried-and-tested strategies to preserve your wealth during resource market downturns. For my next article, I’ll be taking a long, hard look at something more positive; the joys of catching and surviving infectious diseases.
Don’t Forget
As ever, I welcome gifts of cash, cash, and more cash donations. If you like what you’re reading, you can subscribe to urbancrows.com via the insultingly small subscription box that I somehow managed to place near the top of the page even if I haven’t worked out how to format it yet. I’ll be sure to email you every time I post another 1,500 words of cynical drivel.
