Gold investors are prone to making common mistakes that can be detrimental to a portfolio, including excessive diversification, picking companies that don’t adhere to an investment objective, and not sticking with management teams with proven track records, said Rick Rule, president of Sprott U.S. “If I had just hung out with the Ross Beatys, the Bob Quartermains, the Robert Friedlands, the Lukas Lundins, all of them I’ve done business with, by the time I was 35 and not bothered with the rest of the universe, I would have worked less hard and made more money,” Rule said.
The gold sector under bought or over bought are people making the correct investment choices today, and most importantly is gold, still a safe Haven asset. These are the main themes we'll be discussing with none other than Rick rule of spot us. Rick, it's always a pleasure speaking with you. I do enjoy our conversation.
So welcome back to Kitco. Thank you for having me back. And it sounds like a great topic lounge. Uh, you and I have spoken several times before. I know you like to talk about the, um, the, the great service that you offer to viewers and subscribers to spot, which is a portfolio review. Uh, usually talk about this at the end.
I like to bring this forward to our conversation and it started the conversation today and sort of discuss. What you've been noticing in terms of investment trends from the hundreds, if not thousands of submissions you've received over the last year, what trends have you been noticing in terms of what people have liked to invest in what they don't like?
Can you comment on this? Thank you for the opportunity to discuss that. Uh, I'd like to preface it by, uh, Sort of causing your listeners to understand the offer, uh, which is that we will on a no obligations basis, review, uh, listeners and subscribers, natural resource portfolios, uh, to do that, you simply go to a website.
Uh, Sprott usa.com forward slash ranking and enter the names and symbols of your natural resource portfolios. Please. No cannabis Alex, please move banks, please. No businesses that we don't understand. I will personally rank close one to 10, one being best, 10 being worst and enclose. A couple of stock charts that we'll talk about later in this interview.
Uh, on a no obligations basis, also comment on individual issues where I think my comments might have value. So framing that, uh, we've done almost 20,000 portfolio reviews since the inception of this project. And I think it's fair to say that we've taught people a lot. Uh, the easiest way to teach somebody a lesson just to make it relevant to them.
And there are very few topics, more relevant to people than their own fortunes. So by ranking people's portfolios, of course, uh, we get their attention to me lately. It's worthwhile to note that my rankings are quite harsh. Uh, one, uh, which is my top ranking is a ranking that I've awarded only nine times in 35 years.
I've been so much more generous with my tins, uh, which are absolute shorts. Um, Some of the lessons I've learned. I think, uh, particularly when I combine the rankings with looking at the questions that people ask on the rankings forum, uh, is that many people's goals and techniques are disconnected, uh, which is to say that many people's understanding of how to construct an equities portfolio is inconsistent with the goals that they express.
A second thing that I've learned is that by and large people are too speculative. Uh, and they have too high, a time preference, which is to say in my expense, and I can document this with the barons gold mining stock index. My favorite gold equities chart, gold bull markets, precious metals bull markets are of much longer duration than most people realize they're afraid of.
They're six months late that they are terminally late when actually gold bull markets tend to be of 10 year duration. And they're also a much greater dimension. Uh, the last one, 2000 to 2011, uh, saw a six fold increase in gold and more like a 12 fold increase in the gold equities. The consequence of that is that taking undue portfolio risk and speculative issues, uh, and exposing yourself to company failure.
Means that most people would be better served having 60 or 70% of their gold equities portfolio in very high quality gold stocks. So they just capture the market move with less risk of company failure. The third thing that I have found with regards to speculative portfolios is that most speculators own way, too many stocks.
I believe that the number of shares that a person should have in their portfolio, You should correspond to the number of hours per month that the speculator is willing to work, understanding the portfolio and by work, I mean, read the annual reports, read the proxies, read the 43. One-on-ones. Uh, I I've seen many portfolios where speculators owned 45 or 50 stocks.
Uh, and did it remember on questioning why they own them, what it was that attracted them to them? What sort of internal price target one they had and what sort of timeframes they had in mind? Uh, and this is very damaging. Indeed. If I had a fourth criticism, it would be that speculators are too narrative oriented, a narrative being probably the easiest thing to assimilate emotionally.
Uh, and less willing to pay attention to technical and financial data. So those would be the four conclusions that we have learned. Uh, we have also learned, however, the people are very, very responsible to rankings and very responsive to our, uh, answers to their questions, which has been in fact, heartening people take.
Um, both praise, uh, and constructive criticism better than I would have believed. I've always believed that communication is an affirmative process. And if one attracts the questionnaires core value too hard, one loses, uh, the listener. It turns out that's not true. Uh, one of the comments on our last video, uh, I read through all the comments by the way, but one of the comments was I would love to see an entire program with brick, just talking about the mistakes that people make and you've addressed these mistakes just now the four, uh, commonly, uh, commonly held mistakes.
Uh, I wonder Rick, how. Somebody in a retail investor can overcome these mistakes specifically in regards to having too many stocks in their portfolio. I think you and I briefly discussed this last time. The issue is people don't know how to pick stocks. And so they diversify as a form of safety. Uh, is this the correct incorrect approach?
How should they overcome this? Well, in fact, I do believe, uh, that it's possible for, uh, amateur investors to work hard, to compete with professional investors. Uh, professional investors often have a quarter by quarter focus, uh, and the mining business doesn't operate in a quarterly basis. The fact that an individual investor can have an 18 month timeframe competing with a professional who has a 90 day timeframe, immediately assigns an advantage.
To the amateur investor and information is more broadly available now than it's ever been. Uh Kitco to be sure, but other sources too, the truth is that I can get as much information online by the way. I'm a 67 year old. Ludite. Uh, not too competent online, but I can get as much information online in three hours as I used to be able to, to obtain through six or seven weeks of trying to obtain printed information from say the Ontario securities commission or company, uh, what one really needs to do is limit one's exposure to stocks.
Uh, two, uh, uh, number concurrent with the number of hours per month that somebody is willing to work. If they're willing to work 10 hours a month, really work 10 hours a month, then 10 stocks is plenty. Absolutely plenty. It's important to David. I think to understand that in the, uh, junior. Public stocks.
There's probably 2000 companies that at least purport to be in the mining or minerals, exploration, worldwide that are public. There's probably only two or 300 that have any value whatsoever. So the most important thing that you can do as a speculator, looking at a stock that you don't own is find the really obvious reason not to own it so that you don't have to waste any time on it whatsoever.
Uh, if you understand that there are 300 real opportunities in a 2000 company universe, the most important initial exercise that you can do is the screening exercise, which throws companies away so that you don't have to waste time on them. People are afraid of missing opportunity when they should be afraid of accepting risks.
I think the, uh, the issue of information that you brought up is a double-edged sword. Yes, we do have more information available at our fingertips, but now we have. Almost too much information. The issue now is narrowing down what to look for in a very limited given amount of time. And so, you know, can you, can you just very, very briefly point us in the right direction here for brick?
Well, I would suggest, I mean, yes, the answer is I can briefly, but I would suggest at a later date that we delve into this extensively, because this is our long discussion. What I have found with regards to junior resource stocks in particular is that the most important factor is people. Uh, there are some management teams and some individuals that have been serially successful, and many more that have been serial failure failures.
But in bull markets, the investors don't seem to segregate between the born losers and the board and winners and hanging out with the board winner. The born winners is really the first thing you do. In fact, David. Looking back at my own career over 45 years, focusing on my mistakes rather than other people's mistakes.
Had I merely concentrated on the 10 or 15 management teams that I had had the best success with up to the age 35 I'm 67 now. So that's what, 30 something years ago. Uh, I would have done half as much work and made. Twice as much money. Uh, if I had just hung out with the Ross BDS, the Bob Quartermaine is the Robert Friedland's Lucas.
Lundeen's all of them I'd done business with by the time I was 35 and not bothered with the rest of the universe, I would have worked less hard and made more money. So the first thing is the prior track record of success of the management teams and whether or not that success was specifically related to the task.
But investors must be contrarian or they will be a victim. You need to buy something. Not when the price action is justifying the narrative, but rather when everybody is either bored at something or hates something, you must be forward thinking, think about this. If the price of the stock has doubled in six months, but nothing.
Of underlying, uh, fundamental value is changed. The stock is precisely arithmetically, half as attractive, but the fact that it's up a hundred percent means more people are attracted to it. If you think about buying other kinds of goods, like say your suit, uh, if you went to a store and saw that suit selling for twice, the price that you had paid for it, six months ago, you'd be furious.
If you went to buy it, buy it and saw it selling for half the price, you would be delighted, but people aren't as smart when they buy stocks as when they buy suits. So it's important to buy these things when they're out of favor, when they're on scale. The third thing I would suggest is that scale is important.
If you're going to take risk. Don't take risk for small rewards in gold equivalent terms, if the target size or the target or the resource, whatever the number is, uh, doesn't exceed a million gold equivalent ounces, which is to say there isn't sort of 1,000,000,008 in, in C2 value. Where I don't believe that the deposit to could be produced at a hundred thousand ounces a year or more, which is to say $180 million in gross revenues a year or more.
I don't care. Uh, there is, uh, as much risk of the small mind is a big mind, but a small mind can never make you big money. And the idea of negative async asynchrony, which is to say taking big risks for small money. Is not attractive. Taking big risks for big money is somewhat more attractive. So I would say, look at those things also, uh, adjust your time preference.
To the task at hand, if you buy a small speculative stock, because you believe that the drilling campaign that's underway will change the market's understanding of the deposit and hence increase the value of your shareholdings, understand how long it will take for that drill campaign to add value.
Let's say as an example, that the, uh, Company under questioned is drilling a deposit in Northwestern, BC, and the golden triangle where the drilling season is short. You might reasonably suspect that it will take two drilling seasons to answer the unanswered question. In other words, you will need to own that stock for 18 months.
If you have a three month time horizon owning a stock where 18 months is required to get the answer that changes the value. It's your time horizon. That's the problem, not the company's thesis. So understanding the necessary time horizon, I think is very important for people to. Uh, the one thing you were telling me offline is that, uh, there is now sufficient data to analyze certain trends and investor behavior.
Could you comment on some of these trends in particular regarding, uh, age, maybe Paki, patien, uh, you know, uh, Baca backgrounds, you know, what are some interesting trends that you've noticed that you could share? Well, the first thing with regards to this and you'll have a laugh at my expense is that we it's brought, uh, we're trying to figure out for seven or eight years, how we could reach younger, uh, and millennial investors.
Yeah, well, what we did is we began to make ourselves ubiquitously available online and the young investors found us by the thousands. Uh, so when people say, when will the millennial investor be attracted to precious metals and precious metals equities, the answer is not in the future. In fact, it's in the past, uh, thousands of millennial investors, sophisticated investors, by the way, or at least sophisticated speculators, uh, have already found us.
So the answer to that is they're here. The second thing that we're beginning to see is the presence of female investors and speculators, which is something that's never happened in my career. The truth is that the Goldbug, uh, pardon the racial stereotyping, but the gold bug going back 30 years all look like me, old, bald fat, white guys.
You know, grumpy old white guys, uh, and that's all changed. A bunch of inquiries are coming now from women, including younger women, which is probably the biggest change that I've noticed. The other thing that one notices is that interest in precious metals is beginning to correspond demographically, uh, with data.
Coming with regards to success by ethnicity, economic success by ethnicity in North America, this shouldn't surprise anybody, uh, cultures that have an emphasis on savings and on education tend to do better in at least the economic aspects of society. And. Uh, whether or not there are cultural biases in those same group in favor of fair, precious metals or not.
Is a different question, but what we see is an incredible amount of interest in North America and internet nationally by the East Asian diaspora, uh, by the South Asian diaspora, uh, and by the Lebanese and Palestinian diaspora three, uh, socio ethnic groups that tend to punch way, way, way above their weight.
In the broad economy at any rate. It's interesting, particularly with regards to the South Asian diaspora in the United States. Which are really almost, uh, statistically insignificant except in their individual demographic, um, achievement relative to the broader population, the extraordinary level of interest among the South Asian diaspora in the United States with regards to precious metals is the one thing that really stands out.
I would suspect that in the United States, Of the responses that we have received in the last year, 12 to 15% are from people with South Asian or middle Eastern ancestry, where I suspect that their percentage of the general population is more like one to one and a half percent. Yeah. I would find that to be very interesting in terms of broad trends.