The Wide World of Investing: Kung Fu Girl Interviews Rick Rule

“Spanning the globe to bring you the constant variety of sport… the thrill of victory… and the agony of defeat… the human drama of athletic competition… This is ABC’s Wide World of Sports!”

So began the intro to a famous ABC show during my childhood years, ABC’s Wide World of Sports. It was broadcast on Saturday afternoons when I was growing up (I believe it officially folded in 1997).

Here’s a 30-second clip of the intro…

This show was *awesome*, yes, even to a girl, because it wasn’t “boring old sports” (my apologies to you football-loving meat heads out there! And M Go Blue! But ahem, I digress…).   🙂

What was so cool about the Wide World of Sports was that it gave you a glimpse into really exotic sports you had never seen nor heard of before, like

  • Jai-alai (Spain, Mexico, Brazil)
  • Surfing
  • Demolition derby
  • Rodeo
  • Olympic sports,
  • and much, much more!

This show rocked because it exposed you to much more than just “the usual” sports and gave you a glimpse into many other exciting and fun sports you could try (or at least watch, if you were not the rodeo type, per se).   🙂

And because I am one of those “voracious to collect absolutely every possible experience I can get my hands on before I die” type of people, I loved the Wide World of Sports!

So…I am very excited to report to you that there is ALSO a very wide world of investing available to you!

YES! There is more to life than just the U.S. stock market. (Awesome!)

Just for starters, there is gold, and silver, and oil, and soy, and corn, and foreign currencies, and foreign stocks, and bonds, and real estate (timber, anyone? Uruguayan farmland? tax liens?), and businesses, and private lending, and SO MUCH MORE…a veritable Wide World of Investing!

And it’s all available to you.

Pretty awesome, no?

But as you begin to discover these options and decide which is best for YOU, you need to take a sort of “survey” class in investing and speculating opportunities…you need to watch the Wide World of Investing (ahem, here on Kung Fu Finance!) each week and determine WHICH of these fun, exotic, exciting, potentially lucrative investments is best for YOU.

Which do YOU think are fun? (and potentially lucrative…) Which ones resonate with YOU? Do you think YOU could make money at it? What does it truly take to make money in a specific exotic investment? Do you think you could do it successfully, or at least learn enough about it to speak intelligently with a trusted advisor / expert in that area?

Let’s find out!

Today, I bring you a recent interview that I did with the amazing Rick Rule, Chairman of Sprott USA, who is an A#1 resource speculator and savvy investor as well. Rick has many areas of expertise, but he is most well-known (actually famous) for being an incredible expert in the exciting, exotic, and potentially extremely lucrative (although HIGHLY SPECULATIVE) area of natural resource speculation.

Rick was gracious to sit down with me a week or so ago and talk with me about all things resource speculating, including:

  • The difference between investing and speculating
  • How speculating is like smart shopping (and how to be a great shopper)
  • An overview of the natural resources markets and how they work
  • A concise explanation of how to separate the wheat from the chaff with junior mining companies
  • Mining basics…what is the difference between a resource and a reserve and why should you care? And what do “measured”, “indicated”, and “inferred” mean (and again, why should you care)?
  • When in those above processes are takeovers most likely to happen, and how can you spot potential targets?
  • What is a “bankable feasibility study” and a “preliminary economic assessment” and all of the other tools and documents that mining companies use to “prove” their worth?
  • The importance of understanding price vs. value, and how to determine value in the resource sector
  • Why you shouldn’t get all of your information from the mob
  • The qualities you must (and must not) possess to be a competent natural resources speculator
  • His opinion of oil & gas investing and markets
  • His opinion of and how to buy and store (yes, store…) physical uranium(!)
  • …and much more…
  • (Did you know Rick used to be a boxer? Find out what he says about learning to take a punch…)

I hope you enjoy our interview as much as I enjoyed sitting down with Rick! He is truly a wealth of knowledge and if you ever get a chance to meet him and talk with him in person, I highly recommend you do so. Not only is he a “wicked smart” guy (as we say here in Northern California) and of course an extremely savvy investor and speculator, but he’s also a great man to boot.

Have a fantastic weekend, and please let me know what you think in the comments!

And thank you very much for reading and being an awesome Kung Fu Finance subscriber and community member!

To your financial success,

— Kung Fu Girl

KFG Interviews Rick Rule, Chairman of Sprott USA, Inc.

Susan Fujii:

Hello. This is Susan Fujii with Kung Fu Finance, and I’m here today with Rick Rule, Chairman of Sprott USA and a very knowledgeable and experienced resource investor.

I’m grateful to be here with you, Rick. Thank you.

Rick Rule:

Thanks for the opportunity, Susan.


Thank you. So we last sat down together about two months ago, and we talked about the Junior Resource Investing Market and how we did as a whole. Right now I am introducing my subscribers to what I term the “wide world of investing and speculating.”

We have been talking about all the different options you have as an investor when you’re just starting out– you can do real estate, commodities, currencies, resources, stocks, bonds, et cetera.

So, as you are an expert resource investor, I’m hoping you can share with us a little bit about why resource investing or speculating. Who is it good for and who is it not?


I guess we should begin by segregating between investing and speculating.

Investment, from my point of view, is the allocation of capital with the expectation of a certain return on capital employed.

Speculating involves taking more risk. You’re trying to generate higher rates of return, but you’re not talking about expected rates of return: you’re talking about speculative rates of return. So an investor may be a person or an entity with a risk tolerance that’s substantially lower than a speculator.

A speculator is somebody who’s taking substantially more risk in anticipation of substantially higher returns. There is room in the resource business for both investors and speculators. We’re at a conference here that is clearly speculative, and so I’m assuming that from the point of view of most of your listeners, that we should confine ourselves, if you will, to the speculative ghetto.


Yes! Let’s do so.


Fine, fine. So the first thing about speculating and resources to understand is that the business itself is capital intensive and extremely cyclical. I think I told you in the prior discussion that we had that my slogan for that in resources is that you are either a contrarian or you are a victim.

Because the business is capital intensive and cyclical, when things are very bad in the business and you are in a bear market, you are setting up a bull market. The low pricing begets high pricing. Markets work and markets are more important to understand in resources than in other sectors, precisely because they’re so capital intensive.

As an example, if the copper price goes up because it takes a long time to bring additional copper supplies online, and because there is a lot of capital involved in bringing copper resources online, it takes longer than in other industries for the supply to react to demand, and you have these protracted booms.

But the boom itself begets a bust because over time the high price of copper causes consumers of copper to conserve and causes producers of copper to expand supply, and after the boom has turned into bust, it takes a longer time to liquidate the bust because of the enormous amount of capital already employed in the business.

Producers will produce for substantial periods of time below the total cost of production, in hopes of recouping some of the capital employed. So the system goes from boom to bust, to boom to bust. To be successful as a natural resource investor, you have to make your brain overwhelm your heart. You have to buy on the bust and sell on the booms.

When you feel smart, when you have been successful as an investor, it’s a key to you. It’s the market’s way of saying “sell.” When you feel confident, hit bids. When you are terrified, get out your checkbook. That’s the first thing that speculators need to know about natural resources, and this is a lesson that’s probably suitable to speculators across many, many, many market sectors.

The truth is that people are terrified, of course, of bear markets, but if you have speculated over time, as I have 35 years now, what you come to learn is that bear markets are simply sales. We’re having this discussion in San Francisco two blocks from Union Square, one of the greatest retail shopping districts in the United States.

And the metaphor that I used in my speech yesterday before this body was, if the better shoppers in this audience — who were invariably, of course, women — were walking down Union Street or Market Street and there were two different stores, each side-by-side, and one had a big sign in the window.

If it said, “Full Price All the Time, Never a Discount,” and the next store had a sign on the window that said, “Spectacular Spring Sale, All Goods 50% Off,” which store would you normally go into?

Susan: Half off.

Rick: The store with the sale is the bear market store.

Susan: Yes!


The other one is the bull market store. So you have to make up your own mind — would you rather buy goods on sale or would you rather pay full price? The reason why investors or speculators don’t do this is fairly simple to understand during — well, in all investing environments your expectation of the future is set by your experience in the immediate past.

And in a bull market, a wonderful thing happens, except that it’s pernicious: you confuse a bull market with brains, when even your mistakes make you money. When you sell a stock, you are eager to redeploy the money first of all, because you want to make money but also because you have the psychological ratification for having won.

In bear markets, a different set of situations takes place. You sold some stock, you lost the money, you’re nervous about redeploying the money even though the assets are cheaper. Another parable that I use to describe this — and this is apocryphal — but I talk about a traditional California couple that comes into our old office complex, which was set in a regional shopping center.

And because this is a traditional shop center, when the couple comes into the center, the wife would go in one direction to the super market, and the husband would go in the other direction to the stock brokerage, and I realize that this is sort of sexist story but bear with me because the women win in the end.

The wife goes into the super market and she finds a brand of tuna on sale that she’s familiar with, and her family likes tuna. The tuna is $2.00 a can, and so she’s reasonably happy with that price and she buys three or four cans of tuna.

The husband comes into the brokerage firm, and he hears about a stock that’s selling for $2.00 a share and he’s reasonably familiar with it. He read it in one of his investment newsletters, and so he buys himself a thousand shares at $2.00 a share. Both of them return home reasonably happy, but not ecstatic with regards to their purchases.

Two weeks later the couple comes back, and the wife goes in the store. Her family has consumed the tuna. She’s looking to replenish her supplies of tuna, as well as other things, and she notices that the same tuna has been marked up to $4.00 a can; nothing has changed — there’s no more tuna. It’s not a different brand, but the $2.00 tuna is now $4.00 tuna.

She’s outraged. After giving the store manager a piece of her mind about price gouging, she, under protest, buys some canned chicken. The husband, meanwhile, has come to the brokerage firm and sees that his $2.00 share, with no change of the fundamentals of the company, is now selling for $4.00 a share.

He’s ecstatic! You buy stocks that go up. He buys himself another thousand shares at $4.00, happy that the stock went up. Both go home, him ecstatic with his good fortune and her furious as to the price gouging that she experienced at the hands of these merchants. Two weeks later they both come back, she having exhausted the chicken, and he powered by greed.

And they come back, and she goes into the store under protest and she notices that other housewives have reacted to the high price of tuna fish the same way the she has. They’ve boycotted, and the store is packed pillar-to-post with tuna fish: “Special, $1.00 a Can.”

Susan: Aha!


Nothing has changed. She’s delighted. She buys so much tuna fish that her car is dragging at the back in the trunk where all the tuna fish is, and the husband comes from the stock brokerage firm and sees that this $2.00 stock, now $4.00 stock has become a $1.00 stock and he sells his entire holding in disgust.

My point is simply that if we bought financial assets the same way that we buy clothes or cars or other assets, we would all be better speculators. What bear markets are, are sales, plain and simple. Bull markets are for selling, bear markets are for buying, just like tuna fish.

Susan: And so right now, we are in a bear market.


Right now I would suggest that we’re in a bear market. If you compare and contrast the market capitalizations and certainly the psychology of the crowd in this conference between 2010, which was the bull market, and today, you’ll see that goods are on a 50% off sale.

People who were desperate to buy stocks at $2.00 are beginning to want to unload them at $1.00. Completely irrational activity. Wonderful from my point of view — I love taking the backside of that trade, but I feel sorry for them.

Susan: Right. So continuing with our shopping analogy…

Rick: Yes, ma’am.

Susan: If we are looking at this, say there are what, 4,000 junior explorers? There are at least, maybe 300 here?

Rick: Yes, ma’am.

Susan: How does one go about distinguishing which brand, shall we say, is better than another? What are some good questions we could ask or what do we need to do to educate ourselves and pick the best ones?

Rick: That’s a very long discussion, but I’ll try and short circuit it as much as I can.

Susan: Thank you.


The first thing involved in speculative exploration is to understand that it’s not an asset-intensive business actually. It’s like a research and development business. A management team is answering unanswered questions associated with a piece of ground that may or may not hold a mineral deposit, so the most important thing, initially, is not the property. It’s the people.

What you need to determine when you speculate is, first of all, you want to do business with people who have been successful, hopefully serially successful in the past, and importantly, you want the disciplines that their training is in and that their successes have occurred in to be very, very, very similar to the undertakings that they’re proposing that you finance today.

An example would be someone who comes to you and says, “I have been a success in mining because I operated a gold mine in Archean two-billion-year-old rock terrain in French-speaking Quebec,” but this person proposes to explore for gold in tertiary volcanic, 15-million-year-old young rock in Spanish speaking Peru.

Although both endeavors have a lot to do with mining, they are so completely unrelated to each other that the skill sets that this gentleman boasts about achieving success in are completely unrelated to the activity that he proposes to engage in.

You have to have the common sense to understand that just because someone has been successful in some endeavor related to mining, that doesn’t mean that this person has any of the capabilities and education that would cause he or she to be successful in this particular endeavor.

So the first thing that one must do is, in interviewing management, attempt to ascertain from the management what unanswered question they are trying to answer, and then match the skill sets of the management team to answering that question.

It’s very, very important when you analyze a junior exploration company to look at the key personnel, the management and the directors, and ask them why they were chosen, what role they play in the company, how the board interacts with management, and why that management team — both members of the board and members of the executive team — believe that they are the right team to answer the unanswered question.

The second thing we do is we examine the question itself. If the proposal is, as an example, that there is a smallish, sort of high-grade copper or gold deposit, in other words where a “yes” answer is of limited value, avoid it. This is a high-risk business. If somebody is engaged in a high-risk business for a low internal rate of return, why should you trouble your wallet?

Many of these companies are engaged in activities that, even if they got a yes answer, would not make anybody any money. You want to know that, relative to the risk you take, if you got a yes answer, which is improbable, that you would get a disproportionate reward.

With regards to the question, what happens in exploration is that the management team has a piece of ground, and they propose a thesis. They say this piece of ground might have a — let’s call it “porphyry copper potential” — and their belief is that, based on the existing data that they have, that there’s a reasonable probability that with some more work, they can prove this thing to a higher degree of certainty.

In — and this is in very rough fashion — in the beginning of the discussion, you have to say, “What evidence do you have? Explain to me, as a layperson, why I should believe that this property has porphyry copper potential?

Susan: Yes!


“Do you have a surface geo chem anomaly? It would be nice, in a copper porphyry, if you could show me some grab samples that had copper in it. You know, a wonderful indication of copper is copper. Is there copper mineralization or indications of porphyry in the district? Are there technical analogs?”

And if you are reasonably certain, if the management team is skillful enough that they can explain to you as a layperson, in English, why the thesis that they have is supported by data on the ground, as opposed to, by their wish to get you to buy stock, then you can proceed. You say,

“So, how do you propose to test this thesis? Explain to me what the first unanswered question associated with validating this thesis is. Tell me how you propose to get that answer. And tell me two more things: tell me what happens if you get a ‘no’ answer. Does that sterilize the whole property?

“Or, if you get a ‘yes’ answer, what is the next question that is proposed? In other words, what is your business plan?” You will learn, when you ask companies at a conference like this, that fully half of them have no business plan. It is though they were here in San Francisco, they were attempting to go to Marin, and they set off walking south.

Susan: Right. [laughs]

Rick: They have no hope in hell of getting somewhere without a plan, which is a map.

Susan: Right!


But assuming that you like the people and that the people’s skills are appropriate to the task at hand — and that the thesis that they propose is supported by facts on the ground and that the plan that they propose to utilize to test the thesis is all okay — the third thing that you have to do is apply common sense in a financial sense.

You have to apply a little bit of mathematics. What you say next is, “So, I’m with you so far, and you propose to do X, Y, Z, in a preliminary sense to test your thesis. How long do you suppose this will take?”

Maybe the answer is, “Twelve months.”

“How much money will this take?” Let’s suppose they’re going to drill some drill holes.

“This will take five million dollars.”

“What are your general administrative expenditures like, on an annual basis?”

Let’s say the number comes back “a million and a half dollars.” Say, “Okay, so to get the answer that’s going to add some value to me, you need to spend six and a half million dollars. If you don’t have six and a half million dollars, I’d never get my answer, right?”

Susan: Right.


“How much money do you have in the treasury?”

“A million and a half dollars.”

“Oh. Well, you have to spend six and a half million dollars and you only have a million and a half dollars. That means the probability of you answering my question is zero. Why would I buy a stock, if I have a zero probability the ‘yes’ answer?

“Oh! You’re going to raise another five million dollars. How much dilution are you going to give up? Who are you going to sell that stock to, and how are you going to convince me today that, that money is going to come into the treasury tomorrow?

“Because if you can’t convince me that you have enough money to get me a yes answer, you aren’t going to get me a yes answer, and I’m not going to make any money.”

Susan: I had a conversation like that just an hour or so ago [Laughter] with someone who shall remain nameless.

Rick: Right.

Susan: But it was very interesting. Another thing that was interesting about this discussion is the man mentioned something about they had found or they had thought they had found, based on a few drill holes, some metal underneath the ground, very exciting, that was inferred, and I was wondering if you could talk about the difference between inferred and these different classifications.

Rick: Sure.

Susan: I thought, “It’s inferred? You mean, you don’t know?” [Laughter]

Rick: No, well. No, inferred… inferred is a very, very, very accurate phrase.

Susan: Okay.

Rick: There are accepted words to mean things, in terms of resources and reserves.

Susan: Okay.

Rick: And the first differentiation that we should have is probably between resource and reserve.

A resource is an indication of mineralization that may or may not be economic. A reserve is an indication of mineralization that you believe can be exploited economically. In other words, a reserve is something that you have reasonable expectation of making money on.

Susan: Yes!

Rick: A resource is something that you hope to upgrade to a reserve. Resources are generally classified as, first of all: measured, then indicated, then inferred.

A measured resource is a resource that’s been drilled off on tight enough centers that you can tie together the mineralization between your data points between these drill holes with a high degree of certainty.

And you measure the depth of the hole by the distance between the holes, and you understand roughly how many cubic meters or how many tonnes of mineralization you have that has been measured.

“Indicated” may mean that you stepped out rather than 20 meters, 50 meters, and so you have mineralization in hole one, and you have mineralization in hole two.

But the distance between the holes is broad enough that you only have indicated mineralization. You haven’t measured the mineralization because there could be a blank spot in between the holes, both of which are mineralized.

Susan: Ah.

Rick: “Inferred” is a lesser degree, entirely. It might be all the way outside of the ellipsoid. You might be — imagining is the wrong phrase — but you might be supposing that the mineralization extends beyond the extent of the furthest drill hole from the center.

Part of the goal of exploration is to take inferred mineralization and make it indicated, and take indicated mineralization and make it measured, and after you have measured it, do the requisite economic studies to take your resource into a reserve category.

Susan: Got it!

Rick: That is a very, very, very preliminary discussion, so don’t take this one to the bank.

Susan: Okay, okay. No, that’s interesting, though. Now is there a general rule of thumb, or two or three, about when in the cycle is a good versus not so good time to speculate?

Rick: I don’t understand the question.

Susan: Say we’ve got all the way to measured. Is that a good time? Should we wait for the feasibility study? We hear talk about these bankable feasibility studies. Could you explain a little bit about the difference in the…?

Rick: Rules of thumb are very dangerous. One thing that happens is, as a style of investing proves itself and becomes popular, companies that fall into the categories established by that style of investing become overpriced.

And so you may be in a market cycle like we were in — in the mid-80s, in the last discovery cycle that we were in — where grassroots exploration was solidly in favor. If grassroots exploration is in favor for a year or a year and a half, the price of companies engaged in grassroots exploration gets so high as a consequence of their popularity that the thesis loses its value.

Susan: Okay.

Rick: So as an example, as we speak, one of the things that we think is particularly attractive in this market are companies that have early stage indications of being reserves.

Companies that have completed a document called a Preliminary Economic Evaluation, this is the first of the third-party documents that are required to really understand the deposit. It goes from there to Pre-Feasibility Study and from there to Bankable Feasibility Study, and this process may take two years or three years.

The arbitrage between the values established in the Preliminary Economic Assessments and the Bankable Feasibility Studies — or put in different fashion — in a different fashion, the discounts from the valuations established in the Preliminary Economic Assessment are the deepest that I’ve seen in 30 years in this business.

Susan: Wow.

Rick: Which tells me that in the next 18-24 months, some of these companies will be taken over. The reason for this is, as time progresses between the Preliminary Economic Assessment and the Bankable Feasibility Study, two good things happen.

The supplemental exploration work that takes place in the two or three-year period between the publication of these two documents usually makes the deposit bigger. In other words, they usually find more mineralization through additional drilling, and as they do internal infill drilling, more and more and more mineralization gets upgraded from inferred, to indicated, to measured.

And the market pays much more for measured than they do for inferred, so two wonderful things happen in the course of this. But the most wonderful thing happens after the feasibility study because the feasibility study is the final third-party document and this is when the takeovers happen.

They happen because the independent directors of the acquirers lose a lot of legal liability because if a mistake happens, they say, “We didn’t make the mistake. The third-party engineers and the Bankable Feasibility Study made the mistake.”

Susan: Ah!

Rick: So the arbitrage that we see in place now is buying preliminary economic assessment companies that fit fairly rigorous economic models at substantial discounts to the values established in the early studies, and we intend to hold these things through the upgrade in value, expecting them to be taken over at fairly substantial premiums in the final Feasibility Study.

Now this is a very suitable style of speculation for me, because I’ve done this for so many years that I’m completely unconcerned by the prospect of having to hold the stock for two years or three years through various market cycles. Many speculators that have less confidence in their analytical ability have trauma holding stock over a long weekend.

Susan: [Laughter]

Rick: From my point of view, when we have established economic mineralization and we can buy this mineralization at a discount, the outcome that we’re looking for is a win outcome, and I have come, in my declining years, to prefer “when” outcomes to “if” outcomes.

I am much more willing to take the time risk than I am the existence risk that most people take in speculation. If this thesis is right and if I make a lot of money with this thesis, in 18 months or two years everybody will be doing what I’m doing now and the valuation arbitrage that I’m taking advantage of now won’t exist.

There will be some other technique that is then unpopular in the market, which will expose me to the values that I believe are present in the arbitrage that I see today.

Susan: Okay. That makes a lot of sense. How about speaking from the investor or speculator persona, him or herself? What qualities do you think someone should acquire if he or she is to be a successful natural resource speculator? I am imagining that not everyone may be perfectly suited for this…

Rick: Most people are not.

Susan: Okay.

Rick: It requires a lot of discipline.

Susan: Okay.

Rick: Most people aren’t disciplined.

Susan: Right. [Laughter]

Rick: It requires a pathological dislike for the term “hope.”

Susan: Okay.

Rick: This is a data centric business, and it’s a probability centric business. It requires intense curiosity. You are competing against a whole bunch of other investors, and you have to work hard, and the only way you can work that hard is if you like it a lot.

And it requires a certain cynicism. One of the charming things about the exploration business is that the probabilities of success are fairly low, so that the population of people who engage in it are incurably optimistic.

When I was in university 30-some odd years ago, we learned that the probability of any mineralized anomaly, meaning any prospect becoming a mine, was about one in 5,000, and so a geologist may go through his or her career 20 years, 30 years, 35 years drilling holes and never finding a mine.

Susan: Wow!

Rick: This type of person, in order to continue in this business, has to be really, really, really optimistic, and when you are interviewing this type of person and you are questioning them about the possibilities or probabilities associated with their current mineral exploration theory, it is very difficult not to be swept up in their enthusiasm.

Because if they weren’t enthusiastic, they’d be pumping gas or doing something else.

Susan: Okay.

Rick: So I would say that a “degree of cynicism” may be the wrong phrase, but certainly an intellectual discipline that doesn’t allow you to become emotional with regards to your decision.

The most important thing that’s required, however, is a high personal tolerance for failure, because the nature of the exploration business is that if you buy 20 exploration stocks over a two-year period, you will lose money on 10 or 12, depending on whether you bought them in bull markets or bear markets.

You’ll break even on a couple and you’ll make money on a couple, but if you’ve chosen wisely, one stock or two stocks out of 20 will go 10:1, or 15:1, or 20:1. So what happens, of course, is that your winners have to amortize your losers, and they have to leave enough money made left over to make a profit.

Many people can’t stomach the preponderance of losses: they don’t have the personal tolerance for loss to understand that accepting small losses is the price that one pays to enjoy a big gain.

And people who aren’t temperamentally suited to this — in other words, people who aren’t dispassionate enough to want to make money as opposed to have the ego gratification association with being “right” on a more frequent basis — would do well to avoid speculation.

When I was young, I boxed and I boxed a lot, and one of the things I learned in my own style is, I had to take some punches to give some punches. That was the nature of what I did, and that’s precisely the way you have to be in speculation. You have to take some punches to land some punches. That’s the way it works.

Susan: Okay, and it sounds like…

Rick: In Kung Fu, you might not have had to do that, but…

Susan: Oh no, definitely. [Laughter]

Rick: In my style…

Susan: It’s lesson number one! [Laughter]

Rick: In my style… [Laughter]

Susan: Learn how to take a punch! [Laughter]

Rick: Yup.

Susan: Oh, that’s great. And it also sounds like one must probably have a high tolerance for risk. I mean, you took it even a step further: a high tolerance for loss, right?

Rick: Yes, of course. A tolerance for failure.

Susan: Because there’s lots of it. Okay.

Rick: Warren Buffet teaches famously not on the speculative side, but the investment side, that in order to be a successful investor you have to work hard enough and learn well enough, that you are delighted to see the price of a stock that you bought fall 25% or 30% in a week, so you can buy more cheaply.

Now, for better or for worse, I’ve been tested by that sort of circumstances dozens of times in my career, but what he says is in fact true. What you will notice over time, if you’re going to be successful, is that the market is not a source of information. The information associated with price is only valuable if you have some sense of the value of the stock.

It’s the sense of arbitrage between price and value that is where you make your money, and the fact that the market took a stock down in price is only information that is valuable to you if you think that the market has more information associated with that stock than you do.

One of the things that’s always amused me when I hired geologists — and I have very good taste in geologists, I’ve hired good geologists — has been that my geologists, when they first come to work for me, let the market attempt to tell them what their stocks are worth.

These are geologists who know so much more about the exploration business than the market does, because what the market is, is a mob.

Susan: Right!

Rick: And so they would get price information from 10,000 people who were completely uninformed about what they were doing, and they would get information from a market that only can deliver misinformation in the near term, and in order to be a successful speculator, you need to understand the difference between value and price.

You need to understand a market, not as a source of information, but merely as a facility for buying and selling fractional ownership in businesses as represented by share certificates.

Susan: Right. Thank you! Do you have any other words of advice on how to determine value in these Junior Exploration companies?

Rick: Long, long topic subject for another interview.

Susan: Okay, no problem.

Rick: That’s the Holy Grail.

Susan: Experience, right? [Laughter]

Rick: That’s the Holy Grail.

Susan: Experience.

Rick: And remember, you don’t have to get it right. You just have to get closer than other people do.

Susan: Right.

Rick: The nature of this business is that nobody is ever going to get the right answer. You just have to get closer than any other person, faster.

Susan: Right. Okay. Well, thank you.

Rick: Pleasure.

Susan: If you have a moment, I have actually two last questions from subscribers.

Rick: Sure.

Susan: But they’re somewhat unrelated.

Rick: Okay.

Susan: One person wanted to know your opinion of oil and gas.

Rick: I grew up in the oil and gas business. It’s how I got into the mining business. The oil and gas business is a better business than the mining business, so I’m extremely attracted to it.

Susan: Okay.

Rick: It is a still high risk, but lower risk — lower reward business than the mining business — but it’s a better business.

Susan: Okay, and does Sprott or do you invest in oil and gas, too?

Rick: Oh yeah.

Susan: Okay. Fantastic.

Rick: We manage a lot of money in the oil and gas space, publicly and privately.

Susan: Wonderful. Okay, and if people want to find out more about that, they can go to…?

Rick: or if they live in North America: 800-477-7853.

Susan: Great! Thank you, and then someone else wanted to know — and this is a little out there — about buying and holding physical uranium. This is Winston. He said I could call him out by name. [Laughter] He said he had talked to you about this.

Rick: Well, buying and holding physical uranium is not something that people normally want to do.

Susan: Right.

Rick: It isn’t the type of substance that one would want to put in a spare bedroom.

Susan: Right!

Rick: The easiest way for most speculators to do this is to buy shares in a Toronto entity called Uranium Participation Corp. There was an entity formed in Canada about 10 years ago to buy physical uranium and store it in a bonded warehouse, and you can buy shares that represent ownership in this store of uranium.

Susan: Wow.

Rick: It’s very interesting because as of today, the stock is selling at about a 22% discount to the spot price of uranium.

Susan: What?

Rick: And the spot price of uranium is about a 35% discount to the term price of uranium. Eighty percent of the uranium on the market trades on the term market, but investors’ perceptions are set by the spot market, so Uranium Participation Corp offers you a 22% discount on a 30% discount on a commodity that’s undervalued all by itself.

Susan: That sounds like a fantastic buy.

Rick: By the way, that’s not a recommendation. I’m not allowed to do recommendations. It’s a disclosure of a conflict of interest.

Susan: Right. Absolutely. Well, thank you so much for your time. I really appreciate it. It’s always fun to talk with you.

Rick: Pleasure!

Susan: Thank you so much!

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