Friday, May 27, 2016

Altius Minerals CEO letter to shareholders and some of the best advice I have ever seen on resource investing


My favorite excerpt from the letter and some of the greatest free wisdom on resource markets I have seen. Read and heed:

At the heart of our operating strategy lies a recognition that the entire minerals sector is highly cyclical and will likely always remain so. It is characterized by wonderfully alternating periods of mass investment euphoria (which leads to production growth and oversupply) and then by complete sector disdain (which shuts off production growth and causes undersupply).

We believe that the secret to success is to take the opposite course of action to most companies in the sector ‐ meaning that we don't stick our heads in the sand when it's "ugly out there" and that we don't become over confident when the sentiment is strong.

And that folks is how you get rich in the resource sector. The problem for most people is they cannot overcome the psychological hurdles in their reptilian brains. Our brains are programmed and our survival instinct is to stay with the herd as there is safety in numbers, at least in prehistoric times. It is easier for a saber-tooth tiger to attack and kill one person than a group of people. However, we are not living in prehistoric times. When speculating and investing we have to be contrarian and that means deviating from the herd. Many people cannot do this and want affirmation of their actions. That is why they buy at the tops and sell at the bottoms. People want to feel good about their actions so they rationalize new highs in a market and the fact that everyone else is buying as confirmation of their actions. It is also why most people do not make money investing and speculating in the markets. As the billionaire Rick Rule says, "You are either a contrarian or a victim". 

I had to learn this lesson the hard way and it has cost me a ton of money. You can listen to this advice a hundred times but you have to train yourself to swim upstream. You have to overcome the doubt and the feeling that you could be wrong and suffer a loss. This is especially difficult when everyone else is on the other side of the canoe. Most people I have found cannot do it and therefore should not be in the markets speculating. They worry and cant sleep because of an investment or speculation they have made. One of the ways I helped myself overcome this is to spread out my risk. Use position sizing and appropriate stop loss strategies. Another technique is education and studying those that have accumulated great wealth in the markets. Last but not least seek out and research people that have been successful in doing what you want to do. You do not have to reinvent the wheel. 

A perfect example is Rick Rule. If you watch his videos and interviews he will talk about the cyclical nature of these resource markets. They are inevitable and reoccurring. If you whiff on a speculation there will always be another chance down the line if you are patient.

"People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices." - Ray Dalio, Bridgewater Associates

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