Announcer: Live from PDAC 2015, it’s the SmallCapPower expert interview. Featuring, Rick Rule.
Smallcappower: Today we’re at PDAC 2015 with Rick Rule. Welcome Rick.
Rick: Thank you.
Smallcappower: Rick if you could define capitulation and tell us your thoughts on capitulation in the resource sector.
Rick: My experience with capitulation has been a sort of tumultuous end to a bear Smallcappoweret where buyers and sellers just both absolutely quit. Sort of a three-week period where the Smallcappoweret was almost laughably no bid. I realize that you listeners and readers won’t think of it as laughable. The other part of capitulation is when the issuers capitulate. When the issuers say we need to raise equity, we need to do the Smallcappoweret clearing price, I think those two things are prerequisites for calling the cycle capitulation.
Smallcappower: In a recent interview you said the guys that bothered to show up at PDAC are probably the best of a bad lot. What did you mean by that?
Rick: That was probably a mistake. It was probably too demeaning. But the truth is that the TSX venture exchange, at least the parts that had to do with resources, there’s too many listings and many of the listings were, in effect, paper creations in the last decade. That needs to stop. There are a whole bunch of companies that are non-viable. There are a whole bunch of employees in the industry who don’t add any value. And that needs to get flushed out before the Smallcappoweret can go higher. The general administrative burden on the industry overall is unacceptably high. If there were five or six hundred fewer listings the capital that had been deployed in those companies could be redeployed in better companies with better managers to the betterment of all.
Smallcappower: Just to switch gears if you could choose one resource sub-sector to invest in this year what would it be?
Rick: I suspect that the commodities will do the best in terms of equities will probably be gold, but I’d like to answer the question differently. If you are going to invest in explorations and juniors, the prospect generator joint venture business model, irrespective of commodity, is statistically over time, the most successful way to deliver value to investors in exploration. So I would suggest that I would answer the question by way of saying I would provide working capital to established and successful prospect generators.
Smallcappower: Do you think that junior resource stocks still have a place in a retail investor’s portfolio?
Rick: In a speculative portfolio I suspect they have more of a place now than they have for the last 10 years. The truth is arithmetically that a Smallcappoweret that is down by 83% in real terms like the TSXV, is arithmetically 83% cheaper, therefore 83% more attractive. The sector has more of a place in a portfolio today than it had in 2010 or 2011 when it was popular for precisely that reason, its unpopular so it’s attractive.
Smallcappower: So what do you think are the biggest mistakes people make when speculating on junior resource stocks?
Rick: I think people don’t understand that they’re speculating, first of all, and I think that people don’t take enough time to understand their investments. I tell clients of mine that they can have as many stocks in their portfolio that they are willing to spend one hour a month in hard study per stock. So if you’re willing to spend 25 hours per month you can have 25 stocks. If you are willing to spend no hours per month, you can have no stocks. The truth is that the nature of speculations competing against other speculators, and if you don’t show up to compete and you don’t do the work, you aren’t going to win.
Smallcappower: Great. Thank you for taking the time for today’s interview.
Rick: Always a pleasure, thank you for the questions.
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