Mickey Fulp: Garimpeiros de ouro podem atenuar a volatilidade?

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Mickey Fulp: Can Gold Prospectors Cushion Volatility?

Source: Karen Roche of The Gold Report  (6/22/11)

The Gold Report: Is there a danger of food shortages starving emerging economies and putting an end to the secular commodity bull market? In your March 21 Musing newsletter, you tracked the commodities market back to 1955, illustrating the worldwide food inflation problem crushing poor countries. You have also written about the important role of these same emerging economies in pushing the eighth year in a commodity bull market. So I have to ask, could food shortages choke growing commodity demand?

Mickey Fulp: I think yes. I am less concerned about food inflation now that oil is down to less than $95 a barrel than I was when it was $115. It eases the pain a bit. But, we saw in the early part of the year two Middle Eastern countries with oppressive regimes fall. In Tunisia, a government that reigned for 23 years was taken down because of food riots. In Egypt, the catalyst for the government's fall was food inflation. It is my opinion that if unrest were to spread to eastern Asia where a lot of the commodity demand growth is located, that could create another economic crisis and a collapse in the secular bull market for commodities-similar to what happened from mid-2007 to early-2009 when a U.S. banking crisis spread worldwide, bringing the global economic system to the verge of collapse. 

TGR: Didn't all commodities drop during that collapse, even gold at least for a short time?

MF: Absolutely. It went down to $680/oz.

TGR: I don't even think the U.S. dollar did that well. Everyone just pulled in. So, if we see a shortage of food in eastern Asia, would that instill a growth slowdown and thus inhibit commodities? Or would precious metals begin to soar?

MF: I think precious metals would shine. Let's use an analogy. In November of 2008, the gold price collapsed. It went down to $680/oz. and it hit a double bottom before it started rising. An amazing thing is that in the early part of 2009 gold and the dollar index increased at the same time. That's quite unusual. The reason for that, in my opinion, was a run to what were perceived as safe havens. In the scenario we're talking about right now, I would be very bullish on gold. That won't preclude a selloff like we saw in the early fourth quarter of 2008, but to be safe, I will always want to have 10% of my net wealth in gold.

TGR: Wasn't some of that 2008 decrease in gold due to massive deleveraging as people were forced to cash out to pay their calls?

MF: Yes and the reverse of that is happening now. The hedge funds and speculators pouring cash into gold paired with quantitative easing is a big reason for the run-up in the price of gold in the last year. We're printing more and more fiat currency. So, if a crash were to happen again, the hedge funds will pile out of the commodities, take profits and sit on the sidelines for a while. If stocks start to collapse and margin calls come, people will liquidate whatever is . . .

TGR:. . .liquid.

MF: Yes, and that could be the precious metals again. But, the long-term purchasing power of gold is going to remain the same. So, overall we would expect gold to do quite well in an economic crisis.

TGR: You mentioned QE2 and hedge funds. Quantitative easing usually increases the price of gold while hedge funds depend on numerous other variables.

MF: Right. Hedge funds rush to the next big thing. That's what we saw in early May when we experienced an across-the-board commodities correction. It didn't last very long and it was not very deep, but hedge funds en masse ran out of commodities. Now, for the most part, commodities have stabilized. In the meantime, the junior resource sector continues to slowly progress to the downside. 

TGR: That is my next question. You say the hedge funds will go to the next big opportunity. Since the junior precious metals market has underperformed compared to the gold price, do you see any probability that hedge funds will go into the junior market in the expectation of an equity catch up? 

MF: That's an interesting thought. Certainly, the junior sector looks downtrodden right now. There is always low liquidity during the summer doldrums. Toronto brokers summer in their cottages on the lake; Vancouver's sharks go to the mountains; Europeans take leave for six weeks; and everybody in New York City is in the Hamptons. The Toronto Venture Index valuation lost 30% since closing above 2,400 on February 28. A post-Prospectors & Developers Association Conference pro selloff started in March, then we had "sell in May and go away." Now we have a couple of months of summer doldrums looming. We generally see a seasonal uptick after everyone comes back to work in the first part of September. That is the time of year when we would expect higher volumes that could lead to higher junior valuations.

TGR: We started this conversation with agricultural intrigue. In the U.S., we've had an amazing amount of flooding, slicing into crop forecasts. As we move through the summer, do you expect more interest in "flight to safety" vehicles like gold for wealth preservation?

MF: Maybe. But here's another argument to that scenario. We are approaching the seasonal low for gold. In most years, precious metals dip in July and August. For me, this is one of the annual opportunities for buying gold. I'll get it for a better price than I will once the wedding, holiday and festival seasons start in the early fall in India and continue into China and the Muslim world. Low season's coming up. 

TGR: When you analyze companies, you review share structure, people and flagship projects. As you look at the juniors, are there some downtrodden companies that possess that unique combination of features that merit acquiring during the summer?

MF: I recently moved out of two gold companies because they experienced healthy run-ups and decided to move on to something else. That moved me out of the precious metals sector and more into the prospect-generator model. I cover Almaden Minerals Ltd. (TSX:AMM; NYSE:AAU), Avrupa Minerals (TSX.V.AVU), and Estrella Gold Corp. (TSX.V:EST) and am going to add another prospect generator soon. I have also added one new startup gold company called Brazil Resources Inc. (TSX.V:BRI). It's the same team that was successful with Uranium Energy Corp (NYSE.A:UEC).

TGR: But this is a gold play?

MF: Yes. The company's goal is to build a mid-tier gold mining company in Brazil in the near to midterm. I wrote about it in a recent Musing on my web site. It's available free to all email subscribers and it's an easy process to sign up and gain access. 

TGR: Mickey, you have done quite a bit of geology in Peru and Chile in your career. How does Brazil play in terms of geological wealth compared to Peru and Chile?

MF: The geology is very permissive and it has a phenomenal gold budget. In my opinion, Brazil has been underexplored because it's mostly in the Amazon with little outcrop and infrastructure; only about 15 juniors have active projects in Brazil and no major discoveries have occurred so we don't see as much competition there. Additionally, Brazil is fairly bureaucratic, making business startup difficult. I like the people involved in Brazil Resources because they have run a successful startup before, I have a positive working relationship with them, and I respect them. I think they will be successful. I also like the relative lack of competition in Brazil paired with a tight share structure in the company. 

TGR: Earlier, you said that on a macro-level you're moving your portfolio out of gold plays and into prospect-generator models. What is it about this type of company that intrigues you?

MF: Prospect generators spend someone else's money to advance projects. That means the company can avoid share dilution and preserve capital. The key is to find good prospects and good partners. It is an especially effective model in unsettled and down times in the market.

TGR: So, it is unsettled times that made you focus on the prospect-generator model? 

MF: Not necessarily. I have been in prospect generators for at least two years now. I've just moved out of some pure precious metal plays because they had very good run-ups so I took profits. Part of it is I need to be stimulated. I will move into and out of stocks and pick new things because I like to generate ideas and make speculative money work for me and my subscribers. So, when a company has a two- or three-time run-up and I don't see another double in the next year, then I take that money off the table and move it into another stock. If I pick a stock at $0.25 and it goes to $0.50, that's a two-bagger. The chances of it going to $2 and another two-bagger is a lot less than if I go find another $0.25 company and play it to go to $0.50. It's a matter of the power of two, of doubling your money. So, if you don't think something has potential to double from where it is right now and you already have your double, then take that money off the table and go find another cheaper one. 

TGR: In the prospect-generator model, you're talking about spending someone else's money to avoid dilution. But, it ultimately does need some good projects. You have often talked about a missing generation of geologists. In fact, in one of your Musings you talked about the importance of mentors. In a prospect-generator model, how important are the company geologists?

MF: They are of paramount importance. A prospect-generator model works only if the company has a cadre of excellent, field-savvy geologists with particular expertise in an area, a commodity or a deposit type. So, the geologist's skill set is the first and foremost key to making a prospect generator work. 

TGR: Tell me about the geologists and management at the three companies you mentioned earlier, Almaden, Estrella and Avrupa.

MF: Sure. Most of the time in these companies, the geologists and the management are one and the same. Almaden Minerals is run by geological engineer and Chairman Duane Poliquin. He founded the company in 1986 and it has been very successful. Almaden's recent discovery is high grade and looks like it could be a district-wide gold-silver play in eastern Mexico. His son, Morgan, is now the company president. They are both good geologist prospectors and they're the brains behind the outfit. Almaden really is a family-run organization. It is AMEX listed, has only 56M shares out and over $25M in working capital. 

Estrella Gold is a fairly new company run by geologist-CEO Keith Laskowski who was responsible for Eurasian Minerals Inc.'s (TSX.V:EMX) success in Haiti. He is working in Peru, where the country is becoming more left-leaning in the wake of the election of a former military man. Economic and social policies no doubt will swing left in the country. However, Peru is a great destination for major mineral deposits. And Estrella Gold has the right set of investors behind it, with a low number of shares. It's also a bit beaten up right now because of the political uncertainty. Avrupa Minerals is a relatively new prospect generator, less than a year old. It holds base metal plays in Kosovo and Portugal. The company announced recent success in vending four projects in Portugal, including a tungsten-gold play with potential. The company focus is on the Iberian Pyrite Belt and it just signed a joint venture agreement for three strategically-located properties with Antofagasta plc (LSE:ANTO). 

TGR: Who are the geos there?

MF: The geologist-CEO is Paul Kuhn, a man I've known for 25 years. He's spent a significant part of his career in eastern to southern Europe and western Asia-Avrupa Minerals' focus areas. The company has a very competent staff in Portugal and I expect continued success there. 

TGR: So, if we are looking at summer doldrums for the next several months and Rick Rule advises becoming accustomed to volatility, what is your favored investment strategy in the short term? 

MF: I have a "wait and see" attitude right now. I've been buying some uranium stocks on weakness. As a contrarian, I like to buy when other people are exiting. There will be other buying opportunities in the near term, but I'm not sure if this is the time to do it. I suggest finding some good, fundamentally strong companies that you like, that you think will be healthy for the long term and can survive a downturn, and put in some low bids-stink bids. If they get filled so be it. And, if they don't, oh well, they didn't get to the level that you thought was a good risk-reward price. Don't sell on emotion or panic. Develop a core speculating philosophy and stick with it. Modify it as market conditions require, but stick with what your basic investing philosophy demands. 

TGR: Mickey, I appreciate your time. 

Michael S. "Mickey" Fulp is author of The Mercenary Geologist. He is a certified professional geologist with a B.Sc. in earth sciences with honors from the University of Tulsa and M.Sc. in geology from the University of New Mexico. Mickey has more than 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, coal, uranium, oil and gas and water in North and South America, Europe and Asia. Mickey has worked for junior explorers, major mining companies, private companies and investors as a consulting economic geologist for the past 24 years, specializing in geological mapping, property evaluation and business development.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

DISCLOSURE: 
1) Karen Roche of The Gold Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: Eurasian and Almaden.
2) The following companies mentioned in the interview are sponsors of The Gold Report or The Energy Report:Estrella Gold and Uranium Energy.
3) Mickey Fulp: I personally own shares of the following companies mentioned in this interview: Almaden Minerals, Avrupa Minerals, Brazil Resources, Estrella Gold, Uranium Energy Corp. The following companies mentioned in this interview are sponsors of my website: Almaden Minerals, Avrupa Minerals, Brazil Resources, Estrella Gold, Uranium Energy Corp.

Streetwise - The Gold Report is Copyright © 2011 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

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Regra de Rick: capitalizar sobre a volatilidade do estoque de ouro

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Junior mining is a people game. In this Gold Report exclusive, an excerpt from his speech at the Casey Research Conference, Global Resource Investments Founder Rick Rule advises going for the big wins by betting on the best teams with the best chances of discovery using a global counterintuitive approach.

The developed societies of the West are descending and destabilizing. People have come to believe that they are entitled to live beyond their means. I'm not an economist or a political scientist, but that perception leads to some very hard math. How can you add a column of negative numbers and come up with a positive? It's not a uniquely American problem either. People in the old Western societies, Canada and Australia suffer from the same delusion. We are old; we are fat; we are white and we are rich. Our collective problem was described by my grandfather in the following diddy: "When your outgo exceeds your income, your upkeep becomes your downfall."

I'm not just talking about a problem of tax receipts or government spending or entitlements. It isn't that we're collectively stupid. It's that we're individually stupid. There seems to be a belief in the United States that a 55-year-old auto worker can make $55 an hour because he or she can employ technology better than a 22-year-old Indian auto worker. I don't think so.

Another problem is that the root causes of the liquidity crisis of 2008 have still not been addressed. If you have a big problem that manifested itself in a fairly dramatic fashion and you haven't addressed the causes, do you think it's reasonable to be afraid of the fact that that probability may reassert itself? I do.

So, what's the good news? The emerging and frontier markets-societies where people are un-free are becoming a bit more free. As they become a bit freer, they become richer. Remember Chinese Communist Party Leader Deng Xiaoping, who famously said, "To become rich is glorious." That phrase turned China loose. Make no mistake, we aren't talking about an unending upward linear spiral. There is plenty of room for negative surprises. We have seen in places like Libya, Yemen and California that the road to freedom is uneven. But it is an undeniable force.

So we have descending destabilization of Western societies, which is not good for commodities. It's not good for anything. But we also have ascending emerging markets. That is good for resources. When people get more money at the bottom of the economic pyramid, they buy things made of stuff. A poor person might trade a thatch roof for a metal roof. He might trade walking for a bicycle and eventually for a motor scooter. Old, fat, rich people buy a nice dinner. Maybe we buy an iPod for a grandchild and load it with virtual songs. All good things, but they are not made of stuff. Selling stuff is what makes investors rich.

Think about it as two great weather systems coming together. Old, spoiled, rich and stupid meets this amazing demand for resources. What happens when two big weather systems collide? Stormy weather, turbulence, volatility. I think we're going to see volatility on steroids. Volatility can cause strange things. There's a big up-move on silver right now. We believe in it. Silver pops up 30%. Then there's that other kind of volatility like in 2008 when things fell off a cliff. They got really cheap. So, you have to manage your expectations going forward. There will be more upward spikes and more down-spikes.

Now, volatility doesn't need to be a risk. It's up to you. Remember this. Perceptions of the future are set by immediate past experiences. That means in the near term, as the financial author Jim Dines famously says, a trend in motion stays in motion until it stops. Today, people buy gold and silver stocks. They make money and then they buy more gold and silver stocks. We often confuse a bull market with brains. Markets gain momentum and gain momentum and gain momentum and gain momentum. We buy a stock for $1.00. The stock goes to $2.00. What do we do? We double up. Think about this. Is this rational behavior? No, but it feels good. We're smart. The stock went up. The sector's good because the stock went up. The higher the prices go, the better we like it despite the fact that the value is eroding right in front of us. The contrarian thesis, of course, is to be brave when others are afraid and afraid when others are brave. It's a wonderful slogan, but it's damn hard. When a company is selling for half its worth, people complain that it never goes up. In other words, the fact that it's cheap becomes a curse; a wonderful curse, from my point of view. Unless, as occasionally happens, I'm wrong. What's the biggest investment risk out there? Obama? Debt? Nuclear arms? No. The biggest investment risk you have is to the left of your right ear and to the right of your left ear. All of my worst financial experiences were self-inflicted.

The reality is that volatility is good because it represents a series of 40% off sales. It's up to you whether you take advantage of volatility or whether volatility takes advantage of you. Common sense is the real determinant, over time, of whether you will do well. If something doesn't make sense, very often it's because it doesn't make sense. Financier George Soros made almost all of his money finding widely-held premises that were wrong and betting against them. He famously decided in the year 2000 that the United States society was hubris infected. You remember the spectacular bull market of 2000. We had vanquished the Soviet Union, and everyone thought nothing could go wrong with America. Soros bet against it. That's the kind of common sense that will allow you to deal with volatility.

My approach is very simple. It comes down to this: "Hit them where they ain't." Know this: A trade that's popular, a perception that's popular, an idea that's popular is very likely overpriced. I've come to prefer underpriced. That's why I concentrate on stuff that's unpopular. Fortunately for me, unpopular stocks are in fairly good supply. It's an orientation that has served me well over the long term. Over the short term, however, this approach can be inconvenient from time to time. One thing that happens with lonely trades is that when you make a mistake, you usually make a fairly serious mistake. Your speculative portfolio isn't trying hard enough if you don't have a couple of positions lose 30% or 40%. I know this is hard to stomach, but it is true.

So, how do you create a portfolio that flourishes in the face of volatility when the resource market is no longer cheap? First, create liquidity; have some cash. It's OK if your cash is bullion, but have some cash. You have to have cash. When volatility occurs, cash will do two wonderful things for you. It will give you the courage to act in down markets. It doesn't matter if stocks are cheap if you can't do anything about it. So, have some liquidity.

Second, remember that in small companies, people make the difference. Speculate based on ability. Don't be a gold investor or a silver investor. If you are speculating on exploration, buy Andy Wallace, Lukas Lundin or Ross Beaty. Find people who have proven track records. When it comes to the junior mining sector, 90% of these companies are worth nothing. All of the wealth creation occurs in a very small subset. And, the best determinant of success is the ability of the people running the company. Doug Casey famously said, "A lot of the guys in this market, if it weren't for the junior stock business, would wear a mask and a gun when they went into a 7-Eleven." I can't stress this enough; this is a people game.

Third, consider the true value of a company. I've heard people say that XYZ company is cheap because it has a $20M market cap. But the company might only have $1.98 in the treasury and it is spending $200,000 a month. It may have a piece of orangutan pasture in Indonesia and a piece of jackrabbit pasture in Nevada. It is considered cheap because similar scams are priced at $40M. It's truly insane.

The fourth thing that needs to be in a volatility-optimized portfolio is discovery. A lot of people right now are trying to bring back tired old properties. Occasionally they work. But, discovery is where the money is made. If you're going to speculate, swing for the fence. Betting only on small operations does nothing to limit risk. I've learned in 30 years that anything that can go wrong with a big mine can go wrong with a small mine. Only big mines can make you big money, however. If you're taking a chance where the most likely expectation is failure, your successes have to amortize your failures. So look for big successes because you're going to have lots of failures. That's the way it works.

Good luck.

You can hear even more from Rick, including his top investments right now, in the comfort of your home. Listen to 35 renowned economists, investment pros and resource experts who, at a just-concluded Casey Summit, shared their outlooks for the future of the U.S. economy, the dollar, and the markets along with their best investment advice and personal stock picks. Find out more.

Rick Rule, founder of Global Resource Investments (GRI), began his career in the securities business in 1974, and has been principally involved in natural resource security investments ever since. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. Rule's company has built a national reputation for its specialist expertise in taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry, and water industries.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

Streetwise Reports LLC
P.O. Box 1099
Kenwood, CA 95452
Tel.: (707) 282-5593
Fax: (707) 282-5592
Email: jmallin@streetwisereports.com

View the original article here

Regra de Rick: capitalizar sobre a volatilidade do estoque de ouro

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Junior mining is a people game. In this Gold Report exclusive, an excerpt from his speech at the Casey Research Conference, Global Resource Investments Founder Rick Rule advises going for the big wins by betting on the best teams with the best chances of discovery using a global counterintuitive approach.

The developed societies of the West are descending and destabilizing. People have come to believe that they are entitled to live beyond their means. I'm not an economist or a political scientist, but that perception leads to some very hard math. How can you add a column of negative numbers and come up with a positive? It's not a uniquely American problem either. People in the old Western societies, Canada and Australia suffer from the same delusion. We are old; we are fat; we are white and we are rich. Our collective problem was described by my grandfather in the following diddy: "When your outgo exceeds your income, your upkeep becomes your downfall."

I'm not just talking about a problem of tax receipts or government spending or entitlements. It isn't that we're collectively stupid. It's that we're individually stupid. There seems to be a belief in the United States that a 55-year-old auto worker can make $55 an hour because he or she can employ technology better than a 22-year-old Indian auto worker. I don't think so.

Another problem is that the root causes of the liquidity crisis of 2008 have still not been addressed. If you have a big problem that manifested itself in a fairly dramatic fashion and you haven't addressed the causes, do you think it's reasonable to be afraid of the fact that that probability may reassert itself? I do.

So, what's the good news? The emerging and frontier markets-societies where people are un-free are becoming a bit more free. As they become a bit freer, they become richer. Remember Chinese Communist Party Leader Deng Xiaoping, who famously said, "To become rich is glorious." That phrase turned China loose. Make no mistake, we aren't talking about an unending upward linear spiral. There is plenty of room for negative surprises. We have seen in places like Libya, Yemen and California that the road to freedom is uneven. But it is an undeniable force.

So we have descending destabilization of Western societies, which is not good for commodities. It's not good for anything. But we also have ascending emerging markets. That is good for resources. When people get more money at the bottom of the economic pyramid, they buy things made of stuff. A poor person might trade a thatch roof for a metal roof. He might trade walking for a bicycle and eventually for a motor scooter. Old, fat, rich people buy a nice dinner. Maybe we buy an iPod for a grandchild and load it with virtual songs. All good things, but they are not made of stuff. Selling stuff is what makes investors rich.

Think about it as two great weather systems coming together. Old, spoiled, rich and stupid meets this amazing demand for resources. What happens when two big weather systems collide? Stormy weather, turbulence, volatility. I think we're going to see volatility on steroids. Volatility can cause strange things. There's a big up-move on silver right now. We believe in it. Silver pops up 30%. Then there's that other kind of volatility like in 2008 when things fell off a cliff. They got really cheap. So, you have to manage your expectations going forward. There will be more upward spikes and more down-spikes.

Now, volatility doesn't need to be a risk. It's up to you. Remember this. Perceptions of the future are set by immediate past experiences. That means in the near term, as the financial author Jim Dines famously says, a trend in motion stays in motion until it stops. Today, people buy gold and silver stocks. They make money and then they buy more gold and silver stocks. We often confuse a bull market with brains. Markets gain momentum and gain momentum and gain momentum and gain momentum. We buy a stock for $1.00. The stock goes to $2.00. What do we do? We double up. Think about this. Is this rational behavior? No, but it feels good. We're smart. The stock went up. The sector's good because the stock went up. The higher the prices go, the better we like it despite the fact that the value is eroding right in front of us. The contrarian thesis, of course, is to be brave when others are afraid and afraid when others are brave. It's a wonderful slogan, but it's damn hard. When a company is selling for half its worth, people complain that it never goes up. In other words, the fact that it's cheap becomes a curse; a wonderful curse, from my point of view. Unless, as occasionally happens, I'm wrong. What's the biggest investment risk out there? Obama? Debt? Nuclear arms? No. The biggest investment risk you have is to the left of your right ear and to the right of your left ear. All of my worst financial experiences were self-inflicted.

The reality is that volatility is good because it represents a series of 40% off sales. It's up to you whether you take advantage of volatility or whether volatility takes advantage of you. Common sense is the real determinant, over time, of whether you will do well. If something doesn't make sense, very often it's because it doesn't make sense. Financier George Soros made almost all of his money finding widely-held premises that were wrong and betting against them. He famously decided in the year 2000 that the United States society was hubris infected. You remember the spectacular bull market of 2000. We had vanquished the Soviet Union, and everyone thought nothing could go wrong with America. Soros bet against it. That's the kind of common sense that will allow you to deal with volatility.

My approach is very simple. It comes down to this: "Hit them where they ain't." Know this: A trade that's popular, a perception that's popular, an idea that's popular is very likely overpriced. I've come to prefer underpriced. That's why I concentrate on stuff that's unpopular. Fortunately for me, unpopular stocks are in fairly good supply. It's an orientation that has served me well over the long term. Over the short term, however, this approach can be inconvenient from time to time. One thing that happens with lonely trades is that when you make a mistake, you usually make a fairly serious mistake. Your speculative portfolio isn't trying hard enough if you don't have a couple of positions lose 30% or 40%. I know this is hard to stomach, but it is true.

So, how do you create a portfolio that flourishes in the face of volatility when the resource market is no longer cheap? First, create liquidity; have some cash. It's OK if your cash is bullion, but have some cash. You have to have cash. When volatility occurs, cash will do two wonderful things for you. It will give you the courage to act in down markets. It doesn't matter if stocks are cheap if you can't do anything about it. So, have some liquidity.

Second, remember that in small companies, people make the difference. Speculate based on ability. Don't be a gold investor or a silver investor. If you are speculating on exploration, buy Andy Wallace, Lukas Lundin or Ross Beaty. Find people who have proven track records. When it comes to the junior mining sector, 90% of these companies are worth nothing. All of the wealth creation occurs in a very small subset. And, the best determinant of success is the ability of the people running the company. Doug Casey famously said, "A lot of the guys in this market, if it weren't for the junior stock business, would wear a mask and a gun when they went into a 7-Eleven." I can't stress this enough; this is a people game.

Third, consider the true value of a company. I've heard people say that XYZ company is cheap because it has a $20M market cap. But the company might only have $1.98 in the treasury and it is spending $200,000 a month. It may have a piece of orangutan pasture in Indonesia and a piece of jackrabbit pasture in Nevada. It is considered cheap because similar scams are priced at $40M. It's truly insane.

The fourth thing that needs to be in a volatility-optimized portfolio is discovery. A lot of people right now are trying to bring back tired old properties. Occasionally they work. But, discovery is where the money is made. If you're going to speculate, swing for the fence. Betting only on small operations does nothing to limit risk. I've learned in 30 years that anything that can go wrong with a big mine can go wrong with a small mine. Only big mines can make you big money, however. If you're taking a chance where the most likely expectation is failure, your successes have to amortize your failures. So look for big successes because you're going to have lots of failures. That's the way it works.

Good luck.

You can hear even more from Rick, including his top investments right now, in the comfort of your home. Listen to 35 renowned economists, investment pros and resource experts who, at a just-concluded Casey Summit, shared their outlooks for the future of the U.S. economy, the dollar, and the markets along with their best investment advice and personal stock picks. Find out more.

Rick Rule, founder of Global Resource Investments (GRI), began his career in the securities business in 1974, and has been principally involved in natural resource security investments ever since. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. Rule's company has built a national reputation for its specialist expertise in taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry, and water industries.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

Streetwise Reports LLC
P.O. Box 1099
Kenwood, CA 95452
Tel.: (707) 282-5593
Fax: (707) 282-5592
Email: jmallin@streetwisereports.com

View the original article here

Regra de Rick: capitalizar sobre a volatilidade do estoque de ouro

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Junior mining is a people game. In this Gold Report exclusive, an excerpt from his speech at the Casey Research Conference, Global Resource Investments Founder Rick Rule advises going for the big wins by betting on the best teams with the best chances of discovery using a global counterintuitive approach.

The developed societies of the West are descending and destabilizing. People have come to believe that they are entitled to live beyond their means. I'm not an economist or a political scientist, but that perception leads to some very hard math. How can you add a column of negative numbers and come up with a positive? It's not a uniquely American problem either. People in the old Western societies, Canada and Australia suffer from the same delusion. We are old; we are fat; we are white and we are rich. Our collective problem was described by my grandfather in the following diddy: "When your outgo exceeds your income, your upkeep becomes your downfall."

I'm not just talking about a problem of tax receipts or government spending or entitlements. It isn't that we're collectively stupid. It's that we're individually stupid. There seems to be a belief in the United States that a 55-year-old auto worker can make $55 an hour because he or she can employ technology better than a 22-year-old Indian auto worker. I don't think so.

Another problem is that the root causes of the liquidity crisis of 2008 have still not been addressed. If you have a big problem that manifested itself in a fairly dramatic fashion and you haven't addressed the causes, do you think it's reasonable to be afraid of the fact that that probability may reassert itself? I do.

So, what's the good news? The emerging and frontier markets-societies where people are un-free are becoming a bit more free. As they become a bit freer, they become richer. Remember Chinese Communist Party Leader Deng Xiaoping, who famously said, "To become rich is glorious." That phrase turned China loose. Make no mistake, we aren't talking about an unending upward linear spiral. There is plenty of room for negative surprises. We have seen in places like Libya, Yemen and California that the road to freedom is uneven. But it is an undeniable force.

So we have descending destabilization of Western societies, which is not good for commodities. It's not good for anything. But we also have ascending emerging markets. That is good for resources. When people get more money at the bottom of the economic pyramid, they buy things made of stuff. A poor person might trade a thatch roof for a metal roof. He might trade walking for a bicycle and eventually for a motor scooter. Old, fat, rich people buy a nice dinner. Maybe we buy an iPod for a grandchild and load it with virtual songs. All good things, but they are not made of stuff. Selling stuff is what makes investors rich.

Think about it as two great weather systems coming together. Old, spoiled, rich and stupid meets this amazing demand for resources. What happens when two big weather systems collide? Stormy weather, turbulence, volatility. I think we're going to see volatility on steroids. Volatility can cause strange things. There's a big up-move on silver right now. We believe in it. Silver pops up 30%. Then there's that other kind of volatility like in 2008 when things fell off a cliff. They got really cheap. So, you have to manage your expectations going forward. There will be more upward spikes and more down-spikes.

Now, volatility doesn't need to be a risk. It's up to you. Remember this. Perceptions of the future are set by immediate past experiences. That means in the near term, as the financial author Jim Dines famously says, a trend in motion stays in motion until it stops. Today, people buy gold and silver stocks. They make money and then they buy more gold and silver stocks. We often confuse a bull market with brains. Markets gain momentum and gain momentum and gain momentum and gain momentum. We buy a stock for $1.00. The stock goes to $2.00. What do we do? We double up. Think about this. Is this rational behavior? No, but it feels good. We're smart. The stock went up. The sector's good because the stock went up. The higher the prices go, the better we like it despite the fact that the value is eroding right in front of us. The contrarian thesis, of course, is to be brave when others are afraid and afraid when others are brave. It's a wonderful slogan, but it's damn hard. When a company is selling for half its worth, people complain that it never goes up. In other words, the fact that it's cheap becomes a curse; a wonderful curse, from my point of view. Unless, as occasionally happens, I'm wrong. What's the biggest investment risk out there? Obama? Debt? Nuclear arms? No. The biggest investment risk you have is to the left of your right ear and to the right of your left ear. All of my worst financial experiences were self-inflicted.

The reality is that volatility is good because it represents a series of 40% off sales. It's up to you whether you take advantage of volatility or whether volatility takes advantage of you. Common sense is the real determinant, over time, of whether you will do well. If something doesn't make sense, very often it's because it doesn't make sense. Financier George Soros made almost all of his money finding widely-held premises that were wrong and betting against them. He famously decided in the year 2000 that the United States society was hubris infected. You remember the spectacular bull market of 2000. We had vanquished the Soviet Union, and everyone thought nothing could go wrong with America. Soros bet against it. That's the kind of common sense that will allow you to deal with volatility.

My approach is very simple. It comes down to this: "Hit them where they ain't." Know this: A trade that's popular, a perception that's popular, an idea that's popular is very likely overpriced. I've come to prefer underpriced. That's why I concentrate on stuff that's unpopular. Fortunately for me, unpopular stocks are in fairly good supply. It's an orientation that has served me well over the long term. Over the short term, however, this approach can be inconvenient from time to time. One thing that happens with lonely trades is that when you make a mistake, you usually make a fairly serious mistake. Your speculative portfolio isn't trying hard enough if you don't have a couple of positions lose 30% or 40%. I know this is hard to stomach, but it is true.

So, how do you create a portfolio that flourishes in the face of volatility when the resource market is no longer cheap? First, create liquidity; have some cash. It's OK if your cash is bullion, but have some cash. You have to have cash. When volatility occurs, cash will do two wonderful things for you. It will give you the courage to act in down markets. It doesn't matter if stocks are cheap if you can't do anything about it. So, have some liquidity.

Second, remember that in small companies, people make the difference. Speculate based on ability. Don't be a gold investor or a silver investor. If you are speculating on exploration, buy Andy Wallace, Lukas Lundin or Ross Beaty. Find people who have proven track records. When it comes to the junior mining sector, 90% of these companies are worth nothing. All of the wealth creation occurs in a very small subset. And, the best determinant of success is the ability of the people running the company. Doug Casey famously said, "A lot of the guys in this market, if it weren't for the junior stock business, would wear a mask and a gun when they went into a 7-Eleven." I can't stress this enough; this is a people game.

Third, consider the true value of a company. I've heard people say that XYZ company is cheap because it has a $20M market cap. But the company might only have $1.98 in the treasury and it is spending $200,000 a month. It may have a piece of orangutan pasture in Indonesia and a piece of jackrabbit pasture in Nevada. It is considered cheap because similar scams are priced at $40M. It's truly insane.

The fourth thing that needs to be in a volatility-optimized portfolio is discovery. A lot of people right now are trying to bring back tired old properties. Occasionally they work. But, discovery is where the money is made. If you're going to speculate, swing for the fence. Betting only on small operations does nothing to limit risk. I've learned in 30 years that anything that can go wrong with a big mine can go wrong with a small mine. Only big mines can make you big money, however. If you're taking a chance where the most likely expectation is failure, your successes have to amortize your failures. So look for big successes because you're going to have lots of failures. That's the way it works.

Good luck.

You can hear even more from Rick, including his top investments right now, in the comfort of your home. Listen to 35 renowned economists, investment pros and resource experts who, at a just-concluded Casey Summit, shared their outlooks for the future of the U.S. economy, the dollar, and the markets along with their best investment advice and personal stock picks. Find out more.

Rick Rule, founder of Global Resource Investments (GRI), began his career in the securities business in 1974, and has been principally involved in natural resource security investments ever since. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. Rule's company has built a national reputation for its specialist expertise in taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry, and water industries.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

Streetwise Reports LLC
P.O. Box 1099
Kenwood, CA 95452
Tel.: (707) 282-5593
Fax: (707) 282-5592
Email: jmallin@streetwisereports.com

View the original article here