The Assay: Having the Courage of Your Convictions
Q&A with Rick Rule, Sprott Inc, Sprott U.S. Holdings, Inc.
2020 has been a very challenging year for everybody. You’ve been in the equities game for 46 years now, so when it comes to financial crises and market meltdowns, this isn’t your first rodeo. What would be your key piece of advice For investors as they survey the debris of 2020?
The correct way to react to a crisis is to prepare for it for a very long time. For most of my adult life, I have maintained higher cash balances than most people. That is to say, more liquidity than many people deemed prudent. The consequence of which is that when a liquidity crisis or a crash happens, I have both the means (the cash) and the courage to take advantage of it rather than being taken advantage of. So, one thing is to carry more liquidity than some people think is prudent. Although the purchasing power of your cash declines more rapidly than you think over time, the option value of cash is extraordinary when other people don’t have any.
The second thing is to know enough about your investments that you have the courage of your convictions. If a stock is priced at $10 and nothing fundamentally changes with the company, but the price declines to $5, it is arithmetically twice as attractive at the same time that you’re uncomfortable holding it. The more courage that you have in your conviction, the more knowledge that you have, the more likely you are to use that knowledge and to acquire more of a good asset cheaply, which has worked very, very well for me over time.
With specific regards to precious metals, understand that the big thinkers, the central bankers and the governments, their policy response to a crisis is always the same: to debase the currency. So currency-related crises, liquidity crises, things like that, have a policy response which is invariably good for precious metals. That is not to say that in the middle of the liquidity crisis, the price of precious metals doesn’t go lower, but the policy response from the big thinkers is always the same and always good for precious metals.
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