The following lines from Sun Tzu has stuck with me when I think about investing:

13. “He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated.”

14. “Hence the skillful fighter puts himself into a position which makes defeat impossible, and does not miss the moment for defeating the enemy.” 

If I apply it to investing I consider winning a “battle” to be getting an out sized return on my purchase of whatever security.

When it comes to “mistakes” it essentially boils down to overpaying.

Maybe I overestimated the chance of success?

Maybe I overestimated the value of X, Y and Z?

Maybe I underestimated the risk?

Obviously the higher something is valued the more bullish scenarios are priced in and/or at least a greater part of some bullish scenarios.

Since I am not a geologist or mining engineer there are endless facets of the mining business that I will not be able to judge anywhere near as good as I might have hoped.

Any single thing might be very hard to judge but at the end of the day the most important thing is what the sum of an investments parts are worth.

One might be a mining expert who strongly believes that the consensus is underestimating the technical risks of taking a given project to production.

At the same time said mining expert might be underestimating the exploration potential for the project which might more than offset the “real” risk of taking the project to production.

Novo is probably the best example that I know where I think a lot of people are putting too much weight on the details and do not see the combined risk adjusted value proposition.

Some give it up for dead just because the mineralization tends to be very nuggety and don’t consider what the actual chance for success is and what it would be worth in case it is successful.

Anyway, the way to put oneself “into a position which makes defeat impossible”, ought to be buying something where nothing is priced in.


Because if there are pretty much no success priced in it becomes almost impossible for even an amateur to be too bullish and overpay for scenarios that are a lot riskier than said amateur can see.

When you have to ask yourself what possibly could go right instead of everything that could go wrong then you are probably on to something.

This is when even some of the juniors that most would consider to be extremely risky by default (because they are juniors or even micro caps) can turn into something akin to a “no brainer” with very attractive risk/reward.

Intrinsic value is of course only part of the story for better or for worse. Some things can be extremely undervalued but also stay that way unless more people start to agree with you and starts bidding it up.

Lets also not forget that some management teams are so bad and corrupt that they have no interest of taking any projects forward or do anything other than paying themselves salaries from the company’s treasury.

But, there are a few examples of micro caps where no success is priced in even though they got a good management team and have very prospective projects.

In such cases I would theoretically prepared to put in 50% of my portfolio just because it’s almost impossible for me to make a mistake (overpaying) if it were not for lack of liquidity etc.

I guess the point of the article is to point out that the less you think you know about mining, the more important it becomes to try and buy companies with little expectations and where you pretty much can’t be making a mistake by overestimating the value and underestimating the risk of X, Y and Z.

Oh and always make sure that you buy into a management team that is good to great or else you will probably regret it no matter how good their projects might look.

Buying something that is not priced in at all means you are not taking any risk which basically makes it impossible to make a mistake.




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