Stealing Risk Free Value

In a good market positive news release will be discounted.

In a really good market positive news releases will be overly discounted (overvalued).

I remember Garibaldi Resources reaching a Market Cap of something like >C$400 M before the first assay results were in.

I think I remember some gold juniors reaching C$100 M in Market Cap before first assay results.

Today the sentiment is so bad that good news seldom lead to instantaneous revaluation.

So what does that mean you ask…

Well how do you steal value?

You “steal” value by buying something you are not paying for.

Lets say a C$30 M Market Cap company releases a positive news release which logically slaps on C$15 M in implied value.

Lets say the market is so poor that this news gets sold along with almost every other miner and the company ends the news release day with a Market Cap of C$25 M.

Lets pretend that the company was fairly priced the day before the news release…

The next day one can buy C$45 M in Value for a Price of C$25 M…

In other words an opportunity presented itself for a value investor simply due to Mr Market being so depressed/fearful that he/she just wants to sell the stock no matter what.

Magic…

In a good market, where positive news gets reflected, there is no way to steal value like this because stocks tend to revalue higher ASAP. The only ones who will gain the C$15 M in added value are the investors who took the RISK of being in the stock prior to news coming out. If the news would have been negative said shareholders would instead have been punished. Thus an investor going into a catalyst like drill results takes on risk for a typically slim chance of already being on board if the news is positive and the stocks revalues ASAP.

In a bad market, like we are seeing now, one is able to buy positive news AFTER the fact. In other words one can be a bystander, not take any catalyst risk, and simply observe the results. If the results are good and the market does NOT DISCOUNT it then an opportunity to “steal” value without taking risk has presented itself.

I think most people have no friggin idea what a luxury it is to be a value investor at times like this.

One can buy proven success for pennies on the dollar and pick up “risk free” value left and right.

The thing is that we want the market to agree with us LATER.

For outsized returns one must first buy assets that are irrationally undervalued.

Yet when the time comes, like now, I still see everyone and their mother talking about selling because “the miners might go lower”.

I mean are you a value investor or not?

When was the goal to buy an asset that literally could not go down in Price for a while?

The goal is to steal value from Mr Market when Mr Market is on the bottle and is fearful as hell and then sell it back to Mr Market when Mr Market is partying and is greedy like hell.

Right now Mr Market is brain dead and fearful.

That does NOT mean that Mr Market can’t become more brain dead and more fearful.

But if that happens it just means that cheap got cheaper.

If I buy something today with an Expected Return of 100% over 2 years and it drops by 40% first it does not mean that I made a mistake. I will still get 100% on purchase within 2 years. It only means that an opportunity to make 233% presented itself. Do you think I would complain over a 100% return in 2 years if the only price was to be able to stomach a 40% correction first? No, I would happily accept because I have  strong stomach. Many people would unfortunately not be able to stomach it and would likely sell after being down 40% and thus not only giving away a 100% return but would now instead be giving away a 233% return within 2 years to the buyer…. A tragic result.

Best regards,

The Hedgeless Horseman