September 10, 2014
Santiago, Chile
Jim Rogers is easily one of the smartest and most successful investors I know.
And one of his seemingly endless pearls of wisdom about investing is that sometimes the best thing to do is absolutely nothing.
Sit on the sidelines, and wait until the opportunity is so obvious the money is just lying there in the corner waiting to be picked up.
You don’t become really successful (in investing or otherwise in life) by doing what everyone else is doing. Following the herd is a sure-fire way to mediocrity.
It’s important to keep this in mind as the stock markets keep on hitting new all-time highs almost on cue, week in, week out.
It’s perverse what investing in public markets has largely become—gambling whether stock prices will go up or down based on what a cabal of unelected central bankers is going to do, say, or merely whisper.
That’s why fundamentals don’t seem to matter anymore when it comes to stock prices.
If GDP growth slows down (or even collapses), the stock market goes up because investors are predicting lower interest rates.
Yet if GDP goes up, investors will hail “The Economy is Coming Back!” and send stocks even higher.
The euphoria is so painfully obvious.
Even the Bank of International Settlements – that little known “central bank of central bankers” – warned that the world economy as vulnerable now to a major crisis as it was in 2007, with the added danger that debt is even higher.
As perhaps the biggest proof of how irrationally broken public markets are, European stocks have risen 15% in the last year, despite growth being zero and expected earnings declining by 3%.
That’s why I largely avoid putting my money in the stock market. I prefer investments where I have much greater control on the outcome—private businesses, real estate etc.
That said, sometimes great opportunities do present themselves in public markets as well.
Thanks in large part to China’s slowdown, junior mining / exploration companies are one of the most degraded asset classes in the market right now.
Case in point: exploration spending in Australia has declined by 40% in Q1 2014 compared to just a year earlier.
And as many as 20% of geologists in Australia have lost their jobs in the last few months. Companies are trimming down their exploration activities and focusing on extracting value out of their existing mines.
Even some of the major mining companies are starting to search for profits elsewhere; Rio Tinto is one of many large firms turning to agriculture, specifically selling cattle to the Chinese.
The whole industry has been hit to the point where some companies are being valued at less than the cash they have in the bank.
In other words, the market is valuing their assets – management expertise, land leases, exploration licenses, equipment etc. – at zero, while also giving a discount to their cash bank balance.
This means investors can buy a dollar’s worth of assets for just pennies.
And it’s entirely possible that one day, perhaps even very soon, the market will wake up and value these assets more favorably.
Our Chief Investment Strategist recently made some recommendations to our premium members for a small portfolio of junior miners trading for less than cash.
Australia’s KGL resources shot up by 66.7% in about six weeks. Another, Paringa Resources, rose by 400% in a few months’ time.
Bear in mind, though, even when you buy a company for less than the cash it has in the bank, it’s still possible to lose money. It’s very hard… but possible.
There’s no such thing as risk-free, no such thing as ‘free profit’. An investor always has to take risks.
That said, chasing new all-time highs is not the way to make money.
Look for assets and industries that everyone hates, that people think you’re crazy for even considering investing in, and find value in those.
