Doug
Casey likes to say that his three greatest successes as a speculator were
results of an accident, a psychotic break, and a fraud—not his, of course,
but in the events that drove those three stocks to incredible highs. We’re
talking about gains 50-100 times initial investment here.
The
speculations in question were:
- The Accident: Diamondfields.
This was a company exploring for diamonds in various places around the
world. Just as its last geologists working a prospect in Newfoundland
were leaving for the last time, empty-handed, they happened to see some
altered rocks that led to the discovery of the Voisey’s Bay nickel mine,
one of the largest and richest in the world.
- The Psychotic Break: Nevsun.
This same company operates a highly profitable copper mine in Eritrea
today, but the discovery is decades old, and at the time, a broker in
Chicago—for no reason that anyone has ever been able to determine—wiped
himself and his clients out driving the stock to the moon.
- The Fraud: BreX.
This is a lurid story, replete with faked drill results and persons of
interest falling out of helicopters. The fallout from fraud is credited
with the “nuclear winter” for mining and mining stocks in the late
1990s, as well as Canada’s 43-101 regulations intended to prevent more
such frauds.
I bring
this up because many investors and industry experts get hung up on the
technical details of a project, thinking only about the technical merits of
the project to extract the gold, copper, lithium, dysprosium, uranium, or
whathaveyoum. They forget about an absolutely critical element for successful
speculation: “storyum.”
I am not suggesting that a good story
can or should replace technical merit.
I am saying that technical merit
alone does not ensure success, and as Doug’s examples show, a good story can
sometimes succeed when there is no technical merit—or even outright fraud, if
you get out on time.
This is
why Promotion is one of our “Eight Ps”
of resource stock speculation.
Note
that in Vancouver, “Promoter” is a dirty word, implying a person who promotes
a worthless stock in a company that will never go anywhere. And it’s true:
that’s a danger we see often in the junior resource sector. However, we also
see cases wherein companies with projects of genuine merit go nowhere because
management has zero ability to promote the story—which is necessary to raise the money needed to
develop the project.
For
example, True Gold Mining’s (TGM.V) Karma project in Burkina Faso is the real
deal. It’s a bulk gold project with tremendous production advantages that
make for excellent margins, with plenty of exploration upside that could make
it even bigger and richer. Mine construction is underway now and fully
funded. The fly in the ointment is that it’s in Burkina Faso, a country where
the government recently collapsed—albeit with miraculously little violence.
However
one feels about investing in Burkina Faso, West Africa, or Africa in general,
the point is that the People (another of the Eight Ps) behind True Gold not
only know what they’re doing technically, but they’re outstanding at getting
the “storyum” out there in the marketplace, which is how they raised more
than enough money to build Karma. (That last sentence is worth reading
twice.)
I like
this specific example because the same project was previously held by a team
of great geologists with solid reputations—but no gift at all for getting a
compelling story out to the market. The company was called Riverstone. They
made the Karma discovery and did preliminary work showing that it was
amenable to low-cost mining methods, potentially making it a real cash cow.
But no one was listening.
A key
point is that we can’t just blame Riverstone’s struggles on a weak market.
When Riverstone was merged into what became True Gold, the market went from
bad to worse. And yet the True Gold team hit the ground running, raised
money, proved the project up, found more gold, raised more money, and are now
a-building—in the middle of the most bearish period our sector has seen since
the crash of 2008.
I’ll go
even further and say that it isn’t my job to figure out which mineral
exploration projects have the best technical merit and chances of actually
becoming a mine. It’s my job to figure out which stocks are most likely to
“pull a hockey stick”—that is to say, what my readers really want is to know
which stocks in our sector are most likely to soar suddenly, for whatever reason.
I sleep
better at night when the technical merit is as strong as the storyum, of
course. Happily, when the sector becomes a beaten-down “bargain hunter’s
market” as it is today, we have the luxury of buying stocks in companies that
are among the best of both categories at prices that offer us the potential
for terrific gains.
On the
other hand, when the bulls are charging and the market becomes frothy, stocks
like this no longer sell cheap, and we have to look further afield for picks
that can offer the kind of extraordinary returns Doug made on his top three
picks.
So yes,
there have been times when I saw projects that I wasn’t sure would ever
become mines, but had such great storyum I was sure they would do well in a
bull market, and I recommended them. That’s one reason why my newsletter is
called the Casey
International Speculator and not the Casey Safe Investor.
I’ve
been criticized for this—but I made money for readers more often than not,
and that’s the bottom line.
Everything
changes when the market turns bearish, of course, but that’s a good thing for
those with cash earmarked for speculation to deploy. That goes double for those
new to the sector. Ironically, for good companies with great people and
projects plus plenty of cash to push ahead, the upside is less speculative
during a pronounced bear.
And
after the bear comes the bull, as always, when high-grade storyum really shines.
So
don’t forget the storyum. Bull or bear, it really is an essential element for
profitable speculation.
