The year was 1982 and I was nine years old. As residents of the state of Alaska, the state issued its first disbursement of the Alaskan Permanent fund of $1,000 to each resident. My father gave me a distribution to do whatever I wanted. I asked him what he was going to do with his money, and he was buying silver coins which were going for less than $10 a coin at the time. I decided to do the same and placed my first investment. My investing career had started.
Fast forward to my early college years. I would read books like The Investment Biker, by Jim Rogers, The Great Reckoning By James Dale Davidson (whose overall thesis of deflation was wrong, but a great read none the less, and I would later subscribe to his newsletter Strategic Investment which was insightful and well written, but not particularly accurate from an investment point of view) and Doug Casey’s book Crisis Investing (whose thesis was also wrong but a fantastic read. A few months after the read, subscribed to his newsletter which I also found to be fantastic).
I met Doug in 1994 at the New Orleans investment conference and he signed my book, which was at the same conference that I met Rick Rule. I followed Rick around like a puppy dog. I took notes on what companies he was talking to and what questions he was asking. He was there to teach and to grill the CEO’s of mining companies. I jumped in headfirst to junior mining stock investing.
I bought several companies at the mining conference, and later on in early 1995, I bought the infamous mining stock Bre-X Minerals. I put a couple thousand dollars in, rode it from under $1.00 to and cashed out when it hit over $20. You can see my interview with Warren Irwin about Bre-X here: https://youtu.be/LxqIoQ0fdg0
We all know what happened to Bre-X. Fortunately for myself, I cashed out and took with me a few valuable lessons. These lessons helped me construct a portfolio that beat Goldman Sachs (I wrote about this previously).
Lesson 1
There is no substitute for physical gold or silver. Bre-X turned out to be a fraud. Most of my investments in junior resource stocks I never made money. There has only been one thing that has been consistent gain – gold and silver (either in digital form or physical). Take the Buffett principle of compounding, (and yes, I know he is not a fan of physical gold and silver), and let it compound over time, your wealth will not only be safe but it is a generational wealth builder.
Lesson 2
Start with a basket of major producers and work your way down. Granted, not all producers are the same. But if you pick a handful of the top producers, you will more than likely have significant leverage when there is an upside (and downside) move in the physical market. Most (if not all) of them also pay dividends. Going again with the Buffett principle of compounding.
Lesson 3
Most of my picks in juniors have failed. But the ones that have worked out, have greatly outperformed all of my losses. In my mind, it is very important to go wide on juniors. Depending on the size of your portfolio have anywhere from ten to forty of them at a time.
I try to think of junior miners like a tech start up in Silicon Valley. Most if not all these companies will never go into production. One of three things will happen: 1. They will go bankrupt. Highly likely. 2. They will get bought out. Highly likely for good companies and good projects. If and when this happens, your investment will more than likely be in the grand of 2x to 10x of your original capital (obviously, this varies greatly). 3. They will go into production. Highly unlikely but it does happen. When/if this happens, the upside is huge. If we are in a bull market with the underlying asset, the upside is mind blowing.
The launching of a fund
With all of this, my previous hedge fund partner Dennis Leontyev and I have launched a natural resource stock fund. I have known Dennis for well over twenty years and has a great track record as a high-end portfolio manager and hedge fund trader. Through the years, not only has he become a close friend and confidant, but I have developed an immense respect for his discipline and expertise in the markets. Over the next few months, I am happy to make most (if not all) of our purchase’s public. I will also always provide full disclosure: when we interview a company or when we discuss a company, we will ALWAYS disclose if we are investors in the company or not, or if they are a sponsor of NaturalResourceStocks.net.
Tax season opportunities and companies that we have added
During the fourth quarter, Dennis and I have strategically waited to add any additions until the middle of this past month. The past week, we started buying. Some of these are majors and some of these are sponsors. I will indicate the sponsors. Next week, I will go into our entry points, strategy, and then why of each company.
What we bought:
Mag Silver (MAG)
First Majestic (AG)
Hecla Mining (HL)
Newmont (NEM)
Contango Ore (CTGO): Sponsor and added to existing positions
Abra Silver (ABBRF)
Cassiar Gold (CGLCF)
Defiance Silver (DEF)
Luca Mining (LUCMF)
