THH – Things to ponder for 2023 and beyond

Some musings on investing in miners that I think is valuable to keep in mind…

• I will own very few or no pre-discovery plays until confirmed success (beta) becomes more expensive in this sector
  • With sunk costs being high in the wake of inflation I know that a $100 M company can still be a lot cheaper and a better investment than a $5 M company
• I will not waste a sector buying opportunity like this by buying a lot of bad projects or bad management teams where time is the enemy
• Buy companies that I expect to be WORTH considerably more in 1-2 years
• Only buy companies with the assumptions that metals will be neutral or down over the next 1-2 years
• I will see daily PRICE movements in stocks as nothing but VOLATILITY and keep in mind that USING short term volatility can have great long term impact
  • An intact case that goes up in PRICE means less returns in the future all else equal
  • An intact case that goes down un PRICE means more returns in the future all else equal
• I know that RESULTS in any particular case in any particular time frame doesn’t necessarily say anything about the quality of the decision to buy or sell in a past since the future is always unknowable.
  • You can and will make money on some bad cases and lose money on some good cases.
  • It is all about probabilities, price, expected value and thus Risk/Reward.
• I know that buying something cheap is both the best OFFENSE and DEFENSE
• I know that companies in this sector can go up >200% and down >50% every other year without much having changed for the company
• I will focus on cases that I think have a high probability of going up 100% within 24 months.
• I will not have the mind set that I am actively hunting “ten baggers” and know that “ten baggers” are just companies that lets say doubles every 12-24 months for a few years forward.
• I know that two companies might be “buys” but one company might still be a 500% better buy than the other which should be reflected in position sizing.
• I know that value creation requires time by default
• I know that a good company will not pay for many losers by holding it 1 month but can pay for a lot of losers if I let it blossom over several years
• I know that maybe >70% of cases will not be successful but the <30% that are successful should pay for the unsuccessful
• I will remind myself that >95% of people do not outperform an index and know that almost every opinion I read is aired by someone who underperforms and index over the long term
• I know that the probable 50% return is much better than the potential 200% return with risk of a permanent >50% loss because a permanent loss cannot be compounded

CHECK LIST

• Is this a pre-discovery play where I am mistakenly thinking it can go up 1,000% on a discovery hole while I should know by now that many discovery holes “just” reprices the stock by 50%-100% while the risk of not making a discovery hole is >95%.
• Do I have a base case what the company will have done and look like in 12 months and I am buying it because the CURRENT PRICE to FUTURE VALUE gap provides good Expected Returns?
  • Make sure you are not excited about what the stock price will do tomorrow but what you think the stock price will be in 12 months versus today based on significant value creation that leads to a Price to Future Value gap that expands with time.
• Do I know the companies well enough that I can somewhat predict what will have happened in a year and front run >10 news releases ,which no one is paying attention to, and that I am not paying for today?
• Know that if my “case” for a company is that it will go “swoosh” IF silver or gold go swoosh then I am purely gambling.
  • If you are bullish on a company even when you assume a neutral metal price for the next two years then that is a very good sign that you are not just gambling.