Price and Value: Keep it Simple
- Infromation such as news releases, presentations, technical reports, interviews and other due diligence should be used to come up with assessment of a company’s fair VALUE .
- Then you look at what the market is selling a piece of the company for, and sell if it’s above fair value and buy if it’s below fair value.
- A change in (stock) price does not change the intrinsic value of the company.
Simple Cases Are Good
Take Lion One Metals for example…
Simple case: It has the potential for 10Moz or more of high grade gold which should be worth billions.
Latest news releases are confirming the potential. Meaning that the case is intact and is getting de-risked.
What’s it selling for?
At C$1.25/share it has an Enterprise Value of US$96.6 M.
What if they drill up 3Moz in the coming two years and show that there probably are a many millions of ounces left of potential?
Then it will probably be worth US$500 M+ in that case and would be a multi bagger from today.
Would that base case make it a buy today in my eyes?
Yes. Even if it missed by 50% it would lead to a very good return from today’s levels. Thus, I see it as a buy.
Or Irving Resources…
Simple case: Omu is a Newmont sized project with a great business plan that could be worth billions.
Latest news releases are confirming the potential. Meaning that the case is intact and is getting de-risked as evidenced by Newmont increasing it’s stake in the company.
What’s it selling for?
At C$2.83/share it has an Enterprise Value of US$106.8 M.
What if they drill up an inferred resources of 3Moz AuEQ in the coming two years and show that there probably are a many millions of ounces left of potential?
Then it will probably be worth US$500 M+ in that case and would be a multi bagger from today.
Would that base case make it a buy today in my eyes?
Yes. Even if it missed by 50% it would lead to a very good return from today’s levels. Thus, I see it as a buy.
Or Novo Resources…
Simple case: Novo controls thousands of km2 of a mineralized basin that could last for a 100 years and could be unlocked by cheap and efficient ore sorting technology.
Latest news releases are confirming the potential. Meaning that the case is intact and is getting de-risked as evidenced by Sumitomo Corporation joining the board.
What’s it selling for?
At C$2.59/share it has an Enterprise Value of US$319.8 M.
What if they are producing high-margin gold from Beaton’s Creek and Egina within two years while proving there are many more such deposits?
Then it will probably be worth at least US$1.5 B+ in that case and would be a multi bagger from today.
Would that base case make it a buy today in my eyes?
Yes. Even if it missed by 50% it would lead to a very good return from today’s levels. Thus, I see it as a buy.
Or Prime Mining…
Simple Case: If they are successful in what they are trying to do it should be a multi bagger within two years.
Latest news release is another positive step in that direction. Thus Expected Value has increased.
Or TriStar Gold…
Simple Case: Pre-Feasibility study will confirm that the value of the project is multiple times higher than the current Enterprise Value and that there is much more gold within the project.
Work is ongoing and my recent site visit left me with a good impression. I think there is quite a lot of gold left to be found and that the total value of Castelo De Sonhos will be higher than what the coming PFS will say at the end of the day.
Unless these cases changes materially for the worse, or the price of each company goes up substantially, I don’t want to sell my % in these ventures.
I could go on but I think you get the picture. The important thing is to use all available INFORMATION to get a sense of VALUE and THEN go and see what the PRICE is for a given company and act accordingly. The share price should NOT be used as due diligence. If you use share price as a guide then you will probably end up buying when the opportunity is almost gone and selling when the opportunity is exceptional (along with future returns). A stock can be at 52w highs and still be undervalued and it can be at 52w lows while also being overvalued.
Price does not equal value.
If price equaled value all the time then no one would be able to outperform the market and it would be hard to explain how a stock can go up or down 30% within a week on no news or even have 10% intra day swings… Did the long term Expected Value for the company change that much in one or even five trading days? Not very likely.
You buy when it is cheap and sell when it is expensive. Thankfully, there are few overvalued gold juniors out there today and I think one could pretty much throw darts and still have good returns when sentiment changes for the better, which it will at some point.
Keep it simple. Pay attention to the NEWS which affects the VALUE of the company. The SHARE PRICE is just there to serve you, not guide you. Spending hours each day looking at the price is a total waste of time. Your time would be better spent on refining your case and thus what intrinsic VALUE you see in a company. Then you simply buy when PRICE is a lot lower than said value and sell when it is a lot higher than said value. Or how about just trying to become a better investor. Or how about getting better at golf. Or how about learning spanish. Any of those things is more productive than looking at what the god damn stock price is doing on a day to day or even week to week basis. If you think you have a good case and you think a company should be worth twice as much as it is selling for then put in a sell order at twice the price and go play some frisbee gold or something. Then when you get more INFORMATION, such as a news release, you can update your case accordingly. If you think the VALUE of the company went down 20% then lower the sell order by 20%. If you think it went up by 20% then increase the sell order. If you think the company is now worth less than PRICE, then sell out immediately and go find another case.
… And for the love of god, stop listening to other peoples baseless OPINIONS, since most investors suck at investing anyway. Crappy arguments will always lead to crappy conclusions. Learn to judge what is important and what is not important and THINK FOR YOURSELF. If I for example make whatever argument that you don’t think is rational then go with your gut feeling. If you don’t know WHY you are invested in a stock you will probably end up making mistakes… Like panic selling when you should be buying. The case should be crystal clear in your mind before you invest in a company. You should know what IS important and what IS NOT important. You should know what you are looking for in terms of news in order to judge if your investment case is on track or not. If you don’t know what your investment case is, then sell and go find a company where you can form a high conviction investment case. I personally want to find “no brainers”, where I think the investment case is simple and where there is some margin of safety (aka room for error). Thus, I invest in few companies but when I do, I usually go big.
Don’t waste your life looking at stock prices.
(Note: This is not a buy or sell recommendation. This is not investment advice and I am not a geologist. This article is highly speculative, forward looking and I can’t guarantee accuracy. Always do your own due diligence. I own shares of all companies mentioned which I have bought in the open market and am thus biased. Novo Resources, TriStar Gold, Prime Mining and Lion One Resources are passive banner sponsor on my site. )
Best regards,
The Hedgeless Horseman
Follow me on twitter: https://twitter.com/Comm_Invest
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