What’s The Worst That Could Happen?
We know commodities and stocks go up and down.
We know commodities are cheap.
We know that mining stocks are very cheap in absolute and relative terms.
What’s the worst that could happen?
Either they go down some more and you suffer a paper loss for a period of time
or…
They soon stop going down and go up a few hundred percent.
The (only) important thing is knowing that you bought something that is worth more than its priced at.
What is not as important is WHEN price converges with VALUE.
All a value investor can do is pay a lot less than what something is worth and then wait for it to revalue.
It might start revaluing tomorrow or it might go down >30% before it revalues 300% higher.
When you know you are right about price/value mismatch you will be calm and see the market for what it is…
A voting machine in the short term and a weighing machine in the long term.
The real DANGER is overpaying for something, NOT to underpay for something that becomes cheaper before it becomes more expensive.
What am I doing?
I’m buying the best R/R I can find whenever I have some dry powder and will continue to do so because I KNOW the tide always turns and I have the finish in mind.
If I KNOW a company should easily have 100% upside from here without even being expensive then I pretty much know I will get a 100% return one day.
If the company goes down 50% it simply means it will go up 300% later.
KNOWING and being CONVINCED that the pendulum ALWAYS swings and that the mining stocks WILL become much more expensive some day should make you calm.
If the valuations we see today in the juniors made any sense then the whole mining business would disappear one day because the valuations simply does not reflect the underlying value of the business.
No one would spend years, millions of money and require to be a bit lucky if the prize at the end of the day was less than the sunk costs.
Again, these valuations cannot continue forever because no one would be “dumb” enough to go looking for gold/silver if there was no reward for it.
It should not come as a surprise to see M&A heating up recently because the producers can sure tell that the sector is on sale.
Worst case is many of these go to zero in a depression and portfolio goes down 80%. I don’t see it though because the bubble hype isn’t there and the stocks aren’t in a bubble.
The right gold/silver stocks are a matter of when, not if. Nobody knows the when part. A good example are the uranium stocks. They moved and only the long termers who were in benefited. They were and are some of the most hated stocks. Even Rick Rule could not predict the when. You have to be able to sit and wait with good gold stocks that have good management. I will never be able to predict when they will move. They will move when you least expect it.