What people focus on will get priced in.
Majority Looks at Daily Swings in Gold And Silver
Lets face it. Most of us are in this sector because we are bullish on gold and silver.
The mining business itself is levered to gold and silver priced.
When metals are rising, or people expect metals to rise, people become greedy and want to buy miners in order to get rich.
When metals are falling, or people expect metals to fall, people become scared and want to sell miners as they fear losing money.
While the business itself is levered to metals, sentiment is leverage on top of this, hence why we see Price sometimes way overshooting value and Price sometimes way undercutting value.
Volatility is hard for people to endure but it is also where the biggest opportunities lie.
I would say the mining sector is the hardest to beat but one of the most profitable if one is actually able to beat it simply due to the volatility
Unlike say cryptos, where we also see huge volatility, miners thankfully have intrinsic value in different shapes (this is a very big deal obviously).
What 95% Focus on And Where Opportunity is NOT
- Daily swings in metals and sentiment around metals
- People push up or down PRICES of companies depending on if Greed or Fear is the impulse of the day
- Opportunity for people who buy/sell today in light of expectations of business value months or years ahead
- The next news release (Short Term Focus)
- If expectations are high then many companies will get over-PRICED going into an expected positive NR that 95% bought shares in order to “front run”
- Opportunity for people to take money off the table if expectations are high and company overpriced
- Opportunity for people to buy expected net positive NRs that no one is focusing on, thus not priced in, on lets say a 6-24 month time frame
95% of people do not beat and index over the long term because they focus on the same things
If you don’t believe me then browse twitter and some forums for a while. I will almost guarantee you that 90% of the content will be about either where gold/silver is heading in the short term and/or what the next news release might be and why one should buy/sell based on that.
Focusing on what everyone else is focusing on makes sense from a herd perspective…
“They can’t all be wrong can they?”
“If everyone focuses on where they think gold/silver is going in the short term and the next NR then I should be too right?”
It’s the masses that make up the perceived keys (rules) to investing.
Why does Warren Buffett live in Omaha and claims he doesn’t even have a computer in his office?
Because he doesn’t want to be affected by what everyone else is thinking of course.
When 90% of your twitter feed is made up of people guessing if gold will go up/down in the short term then you will start to focus on that as well and automatically start thinking it is important because that is what everyone else seems busy focusing on… Like it is THE KEY to investing success in the mining space.
I’m certainly not immune to it either. Whenever I see someone post a positive chart on gold it makes me feel good and my appetite for risk (buying shares of miners) goes up on the margin. If I see someone post a negative chart and comments it has the opposite affect. It’s an impulse that is hard to fight. But we must fight it because the big bucks are not made via short term thinking or short term investing.
Besides, if you own a company which you think will grow 30% per year for the coming years, but will not be even close to being an operating mine in the coming ten years, then what does it matter what price did on say December 20, 2021? Does a 1% drop in gold on that very day change the current value, multi-year growth trajectory, supply/demand picture in the space or the long term outlook for gold?
Think about it.
It’s all noise from short term oriented investors or traders that should have little to no impact on ones decision to buy or sell a long term investment.
Yet, it affects us all every day because 95% of opinions will be made up of this stuff.
When I spend “too much time” reading forums and twitter I tend to get off track. I find myself getting sucked into the short term thinking and after seeing 20 negative tweets about gold in a short span of time it’s hard not to get the “I feel like I should get out of juniors” impulse. Then I remind myself of the very important fact that a) Juniors are dirt cheap and b) I should make very good money on a 12-24 month basis from here by simply sitting on my hands. Again, to do what everyone else is doing is not a good strategy. And one can be sure that when the metals go down, and there are negative charts being spammed on twitter/forums, 100% of people will get the same impulse…
To SELL. Regardless of undervaluation…
This is also why times like this when we have Tax Loss Silly Season provide outrageous long term opportunities.
Because the worse the recent experience is, the worse the chart looks, the worse the sentiment is, everyone and their mother will want to sell even more the cheaper it gets.
So step back and:
- Imagine what the company could be WORTH in 12-24 months in your Base Case.
- Imagine what the company could be PRICED at if sentiment alone was great instead of terrible.
- Keep in mind that we will ALWAYS swing to good sentiment one day regardless if it currently feels like it would be easier to move a mountain than to make a mining stock move up.
Literally do not allow yourself to make ANY BUY OR SELL DECISIONS based on a time horizon less than at least 6 months forward. Reflect on any decision you think on making and ask yourself if you do this because of SHORT TERM expectations. If the answer is YES then remind yourself that you hold yourself to a higher standard than the 95% and re-process your cased but with preferably a 12-24 month horizon. If you think you are overpaying TODAY for what you think the base case if for company X in 12-24 months then sell.
Ps. Isn’t it ironic that most market participants are hunting “ten baggers” while also being extremely short term focused?
Have you seen many ten baggers materialize in less than under 1-2 or more years?
Have you seen any junior become a ten bagger the day after a news release?
The Cost of Beating The Market?
- Boredome (sitting on your hands for months/years)
- Being in constant war within since you are fighting off 95% of peoples opinions/impulses on a daily basis
- The more exposure to forums/twitter = more opinions to fight off
“The patient long term investor is at constant war within” – Sun THH Tzu
The Hedgeless Horseman