Alliance of Elite Investors Hits Rare MilestoneWritten by Louis James Subject: Casey Research Articles
This week Casey Investment Alert issued the 500th alert in its near 20-year history of publication. To commemorate the milestone, Casey Investment Alert Editor Louis James is providing select financial publications and their subscribers with access to the alert, a special edition that celebrates the history and accomplishments of this unique precious-metals advisory.
James said it's his hope that the alert will wake investors up to the outsized potential of the junior mining sector.
"The best profit opportunities I've seen in years are available right now because junior mining companies are severely beaten down," he said. "When no one wants something of value, that's the best time to buy low."
He added that junior miners are long overdue for a significant rebound.
"It's been our experience that the most money in junior resource exploration is made right after significant corrections – much like the one we're in now," he said. "Sooner or later – and we think sooner – this situation will reverse."
He added that in 2009 and 2010, in the aftermath of the financial crash of 2008, the Casey Investment Alert portfolio gained 117.3% and 81%, respectively.
"And over the years, we've had quite a few 5- to 10-baggers," he said. "These are stocks that made early investors 500% to 1,000% profits."
For more information about Casey Investment Alert, please read this alert:CASEY INVESTMENT ALERT
Crash, Cash, and Contrarianism
Realizing that we were about to put out our 500th alert, we decided to pause in company recommendations and reflect on the almost 20 years of this service.
Doug Casey was traveling the world, spending time in Spain and Hong Kong, building equity positions, real estate holdings and, of course, buying gold stocks as the mid-1990s gold bull was well underway. As always, there was a lot going on in the world then, and Doug was active in many fields, speculating on the TED spread, more typical Wall Street picks, and even some government bonds.
Originally, before he got his first portable computer with a telephone modem, Doug would take notes in the field with a pad and pen, and write up his reports by hand on the plane on the way home, or back at his desk if it wasn't urgent. These would be typed up and faxed out to alert service subscribers.
The paper-only nature of the service back then is why we do not have older alerts in our online archive - many of those editions didn't survive, even on paper (so we haven't been able to scan them). But Doug remembers many of the picks he made back then, including his famous +5,000% gain recommendation on Bre-X - and his all-important call to cash out before that stock went to zero as a result of one of the worst scandals to rock the mining industry.
It was 2004. I was sitting in some exploration company's office with Doug and the company's management team, which was diligently going through its corporate presentation. I don't remember which company it was, but I remember I was there with Doug, learning the ropes, seeing how he did things. Doug was looking distracted, not quite staring out the window, but looking more than a bit bored.
There was a pause in the sales pitch, and Doug said: "That's $300 rock, at today's prices. How much do you think you have?"
With this single point and question, Doug showed that he followed and understood everything we were hearing. He mentally applied the grade of the several metals there were in the ore (it was a polymetallic deposit) and came up with a value that was great enough that it made matters of recovery rates and strip ratios less pressing, so he skipped those questions and went right to the chase. What was going to move that stock was how big a deposit the company might be able to report, and that's what Doug asked about.
I was so impressed; while I don't remember the details of the company, I remember Doug's face perfectly, as he put his finger on the critical question.
Today, your analyst hits the road in much the same fashion Doug did 20 years ago. I use my smartphone to take notes, instead of a pad and a pen (the phone works in the dark, which is cool, but doesn't much like the dripping water and mud I often encounter underground), and type up my own reports on my laptop, but the MO is the same. We go, we kick the rocks, evaluate the results, and write them up - or not, if they don't make the 8 Ps grade.
Every day, I apply what I learned from Doug, some of which I'd summarize this way:
People are the critical element. Even the best rocks can be screwed up by the wrong people, and great people can squeeze stellar performance out of a modest deposit. Same goes for a new technology, a farm - absolutely anything and everything.
We are Casey Research; we do analysis. We are not just reporters. The most stinging criticism Doug ever gave me was a simple dismissal of one of the first things I wrote for him: "Reads like a magazine article." Couldn't sink any lower in Doug's view. But I got better.
Prudence is the reason to own gold. Come economic hell or high water, an ounce of gold is an ounce of gold. We may seem to profit on rising gold, but that's mostly a sign that everything else is getting more expensive in paper money. That may not count as profit, but our gold is doing what it's supposed to do: protect our wealth. For profit, we speculate on volatile stocks when the trend is our friend.
Cut to the chase. Determine what you need to know, don't beat around the bush, get answers.
Pioneers get hit with the most arrows. First movers in a new area get to discover hidden problems. It's often the second or third one to try an idea that makes the most money. We may support pioneers because that's what they are, but we invest for profit only in things that are known to work. I can't count all the companies that have come to me over the years with some new mining technology that have yet to make any money - if they still even exist at all.
Internationalization is critical. Not only does this spread one's political risk, it broadens one's awareness and perspective. It allows us to see things others do not, to avoid traps that capture those who cannot see the familiar lies that surround them and give them comfort. "Most people think and live like medieval serfs," Doug says, and he's right. There's nothing wrong with being fond of one's homeland, but when patriotism blinds us to the truth, it is a vice, not a virtue.
It's perverse. The usual outcome of public policy is not just the wrong thing, but the exact opposite of the right thing - and the victim gets the blame. The government interferes in the economy, for example, and businesses fail, so the government uses this as justification for more intervention, saying that the market has failed. Same thing with social programs, foreign aid, and an endless list of failures that the public have been bamboozled into thinking they need more government to fix. This is such a reliable trend, you get to place bets on the government doing the wrong thing ahead of time (as we did betting the Fed would destroy the US dollar) and almost always win.
It's good to be lucky. It's great to be smart. But nothing replaces doing the work that needs to be done. Whether that be my due diligence on the ground or the companies I cover applying boot leather to the countryside, there are no shortcuts to creating value. There are, however, times when the market fails to recognize value immediately, or we can get ahead of a trend that will add value.
Contrarianism is the key. There was once a great distinction between reasonably solid and low-risk investment, and speculation. Graham & Dodd state from the start that their whole method of looking for value is for investment only, not speculation. But post-2008, there is no such thing as a low-risk investment. When the dollar itself is shaky, nothing on Wall Street, Main Street, or anywhere else can be counted upon. We are all speculators now - it's just that some people don't know it yet. And when it comes to speculation, you are either a contrarian or you are road kill waiting to happen. This is no exaggeration. Being a contrarian is absolutely the only way to predictably, repeatedly, buy low and sell high. Going with the herd feels far more comfortable, so that's what most people will always do, and that's why contrarians can make so much money.
The results of applying these ideas - Doug before me, and I, now - can be seen clearly in our track record. This record is familiar to most of our readers, but for the newcomers among us, below are some of the biggest winners subscribers to this service have been able to take advantage of over the years:
|Rare Element Resources||860%|
|Northern Peru Copper||510.3%|
Of these sixteen big winners, yours truly picked five, and did the due diligence on another two of them. (I didn't pick or do the original research on Altius, but the call to exit was mine, and I just about top-ticked that one.) Note that these gains are the actual price appreciation figures from when we opened and closed positions; they do not include calls to average down, take profits, participate in private placements (which we did not keep track of in the past, as we do now). They also do not include the opportunities subscribers had to exit at higher prices when these stocks reached their respective peaks.
We have crunched the numbers for this service in 2012. Last year, as we are all painfully aware, the TSX-V (our main market) was down 18.9%. Our stocks were slightly more volatile, losing 20.2% for the year, though mostly on paper, as we only realized a few losses on companies that ran out of money. Most have rebounded since then (GPO being a recent example of the wisdom of not selling unless you have a good reason to sell).
Over the longer term, since the beginning of Casey Research in 2004, this alert service has returned 388.5% gains, if you bought all of our picks on an annual basis. The equivalent number for the International Speculator would be 227.9%, and if you just bought the TSX-V index every year, you'd actually be looking at a loss of 35.2%. We're working on better reporting and should have more on this soon.
Applying Doug's method of evaluation has resulted in numerous big wins, as above. One of our greatest was our speculation on AuEx Ventures. AuEx was a gold explorer focused on Nevada, where CEO and Explorers' League honoree Ron Parratt was at his strongest. It was actually David Galland who spotted this one, but I did the research and wrote up the recommendation for Doug's approval. We went long in a Casey Investment Alert on October 25, 2005, based on the first fence of exceptional drill holes Ron's company put into Long Canyon. This was the spectacular "off trend" discovery that major gold producer Newmont Mining (NEM) is now making into a mine. Due to a title screw up on the part of the authorities (not AuEx) the company ended up with an extremely well-funded JV partner, Fronteer Gold, which was run by our most recent Explorers' League honoree, Mark O'Dea.
As usual, I went to see the project myself and, applying Doug's methods, came away with a very clear sense of the potential. So we held on through the ups and downs, took profits when shares were up, and bought more when the shares were cheap, especially when offered a private placement (PP) opportunity. Fronteer eventually bought AuEx out, providing us a big win and free shares of Renaissance Gold (T.REN), a new company run by the AuEx team to explore AuEx's non-Long Canyon assets. But we still liked Long Canyon and Fronteer's other assets, so we held on. Fronteer was later bought out by Newmont, handing us another big win - and free spin-out shares in Pilot Gold (T.PLG).
By the way, Fronteer had been another speculation of ours, recommended at C$4.96 in April of 2006. We were able to take profits exactly one year later at C$14.81, buy back in with gusto in December of 2008 at C$2.38, and eventually get cashed out by NEM back up at C$14.78 - a truly terrific ride.
Pilot Gold was the subject of a the Casey Investment Alert of November 12, 2012, after I visited the company's projects in Turkey (I had already seen the projects in Nevada, and had written about them favorably). Pilot was trading at C$1.62 and subsequently rose to C$2.40 (last month), based on exactly the sort of outstanding drill results my site visit led me to expect from the company.
Here's how the transaction history has gone so far:
|Oct. 5, 2005||C$0.55||Casey Investment Alert Buy rec.|
|June 1, 2006||C$1.32||International Speculator rec.|
|Jan. 10, 2008||C$3.00||Great opportunity to take profits|
|Nov. 5, 2008||C$1.39||Market crash, rec. to watch for PP|
|Nov. 11, 2008||C$1.06||Opportunity to Buy or Buy PP|
|Feb. 26, 2009||C$2.58||Took profits|
|Nov. 5, 2010||C$6.47||Acquired by FRG|
|Apr. 8, 2011||C$14.78||FRG acquired, +83% from Nov/10|
PLG and REN are still trading, and we're still expect good things from both, so there's no closing transaction there, but they are currently trading for C$1.96 and C$0.57, respectively.
One more note on this story; back in 2008, when AuEx and Fronteer were still exploring Long Canyon together, it became obvious that Fronteer was going to try to outspend AuEx and dilute its share of the project. That meant AuEx would have to finance in the midst of the worst liquidity crunch to hit the market for decades.
On November 5, 2008, we advised readers to watch for a PP coming up, and sure enough, on November 11, AuEx announced a financing at $1.10 per unit. Each unit consisted of one common share and half a warrant, with each whole warrant good for another share at $1.38 per share for the first year and $1.65 for the second year. Our comment at the time:
"As expected. We've asked management if there's a seat at the table for retail investors, and they are checking. We do recommend participating to those of you with Haywood accounts or who have brokers with good connections. That's what we'll be trying to do."
Our gains in the International Speculator at the time of the FRG deal without the PP were 380.6%, but they were 478.7% with the PP. By the time of the NEM deal, they were 886.3% without and 1,034.9% with. Ten-bagger achieved. But Casey Investment Alert subscribers chalked up much larger gains: 1,053.5% at the time of the FRG deal and 2,267.1% by the time NEM took over Fronteer - and that's not counting the PP warrants.
So much for memory lane. The point of all these numbers and stories is to give you some insight on what it is I do, and what I plan to deliver, going forward: the next in a long string of spectacular wins, like AuEx. Last year was, frankly, a disappointing year for the Casey Investment Alert, but true speculators know that the biggest returns are made buying during and selling after corrections. Buy low, sell high. If Doug Casey is right about this year being the break-out year, we could be reminiscing about the next big success in the future, based on any of the companies in our portfolio today, or those to come.
I've got my rock hammer and my smartphone, and I'm headed out soon to hunt for the next 10-bagger candidate, so keep your powder dry and hold some back for the next picks.
Senior Metals Investment Strategist
Casey Investment Alert is published by Casey Research, a Vermont-based publisher of investor advisory services that specializes in precious metal, energy, and technology stocks. Louis James, in addition to serving as Casey Investment Alert editor, is also the chief metals and mining investment strategist for Casey Research.
Casey Investment Alert is usually closed to new members, but is currently accepting membership applications through February 15, 2013. More information is available here.