Rick Rule’s Strategies on How to Make Money (Casey Summit Interivew Part 2)

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FutureMoneyTrends.com: The 10 baggers and the occasional 100 baggers you’ve had in your life, do they happen overnight or are you having to hold these things for like a year?…

Rick Rule: For a long time.

FutureMoneyTrends.com: Ok, I know you’re holding it for a long time, but when the actual run-up happens, does it usually happen immediate, the run up. So you’ve had it for say five years does the run-up all of a sudden just happen, or does it take months?

Rick Rule: Part of it. A hundred bagger, which is very rare. A century we call it.

FutureMoneyTrends.com: I would need to be in a coma for that to happen.

Rick Rule: A hundredfold gain. If you have intermediate success getting a ‘yes answer’, a hundred fold gain means that you’ve held the stock through several unanswered questions. A ‘yes answer’ has setup a second question. And the second ‘yes answer’ has setup another question, and you get another ‘yes answer.’ It’s a series of yes answers. So as an example; Paladin Resources which was a great 100 bagger effect for me. In fact it was better; it was a penny to $10. That involved a series of ‘yes answers’. I believed that the uranium price had to go up, and I believed it might take six or seven years for that to happen. So one great thing, so I began that sequence with a question that began with when, not if, because the uranium price had to go up. But there was a series of implementation challenges that the Paladin people had to meet to take advantage of that one situation. They believed, like I believed, that uranium projects that made no money at $10 but could make money at $25 would have value, because uranium would go through $25. So the unanswered question was, could they buy these deposits when the price was low, cheaply. And could they fund their working capital long enough, could they hang on to these deposits until the uranium price ran. The second unanswered question was: ‘was there a way to discover more uranium in and about these deposits?, because these deposits hadn’t been explored.’ We took the point of view that the best indicator mineral for uranium was uranium and the fact that you had a uranium deposit meant that you were better off exploring for uranium in the head frame of a uranium mine than you would be other places. So we had three unanswered questions. Was I right, would uranium prices go up? The second unanswered question is can we take advantage of this market downturn and buy uranium deposits in anticipation that the increased uranium price would make the deposit more value. The third unanswered question is ‘can we use the baseline discovery that has been made to increase the size of the deposit?’, and the fourth unanswered question is ‘Can we then finance these mines to production?’ The consequence of four sequential ‘yes answers’ was to take a stock from a penny to ten dollars. Truly a spectacular set of circumstances. I’m not saying this merely in the context of Paladin, I’m saying it in the context of the answer to your question. Doubles or triples can be the consequence of one unanswered question and that can be 18 months to two years. But ten baggers, fifteen baggers, or a 100 baggers, are normally the consequence of a series of ‘yes’ unanswered questions. I have found true back testing in the exploration capital partnership series, which is where I have the most experience garnering 20 baggers, that the median holding period for me, for a 20 bagger is in excess of four years. Still a relatively short period of time to enjoy that type of appreciation.

FutureMoneyTrends.com: Yeah, most people don’t have that kind of patience.

Rick Rule: Most people your age, what you find with the successful investors my age is odd is that you have less time on earth biologically you become more patient as a consequence of your experience.

FutureMoneyTrends.com: That is interesting. You touched on uranium in the past. How about right now? I know we talked about it before, now this Russian nuclear warhead treaty is now going to expire next month. Is there a catalyst that is going to increase uranium price?

Rick Rule: As an example the supply of highly enriched uranium from Russian sources won’t end. It’s just that the Russians will supply it, the U.S. won’t supply it. The Russians have decided that they’re going to be full cycle vendors in uranium, which is very smart. It is what I would do if I was them. The catalysts for uranium are simply that at $36 a pound, the current spot price, the uranium industry on a global basis doesn’t earn the cost of capital. So if this price exists for too much longer the supply of uranium will decrease to the point where the price has to increase or else the light will go out. Does this have to happen immediately? No. Could it take two years or three years for the price of uranium to go from $36 to what we believe is a market clearing price which is $75? Yes. Think about that, however. Let’s think for example that you bought a surrogate for the uranium price, which is Uranium Participation Corp on the Toronto Stock Exchange, and think that you bought it based on $36. And think that the price of uranium then over three years went to $75. What you’re facing is a three year triple. Is the idea of a three year triple that’s a probability, a probability, not a possibility, a bad outcome? To me it’s a wonderful outcome.

FutureMoneyTrends.com: Yeah. Have you ever looked in to how much does it cost them to convert these warheads? Is it, is that, $100 a pound or…

Rick Rule: I don’t know, it’s much lower.

FutureMoneyTrends.com: Ok, I’m just curious if Russia was losing money or if the US was losing money when they did it.

Rick Rule: No, the US and Russia both made a lot of money. And it was enormously beneficial to mankind.

FutureMoneyTrends.com: But how many more nukes do they have?

Rick Rule: A lot, a lot.

FutureMoneyTrends.com: But there was 10,000 was under that treaty right?

Rick Rule: Oh those were finished warheads. But what was much more important was that in both countries the amount of highly enriched material which could be converted to warheads… there’s a very very very strange phrase in the uranium business called overkill. And overkill is something that appeals to big thinkers, presidents, generals; thugs like that. And overkill is enough radioactivity generated by explosion to kill everybody on Earth once. And my understanding was that in the United States we thought ourselves to be secure if we had enough ability to kill everybody on Earth 6,000 times or 7,000 times. The Russians, as a consequence of not understanding the inventory that they had, as I understand they had something like 10,000 overkill. I think that you and I would be comfortable with the capability of killing everyone on earth two times or three times or something like that. The idea that we’ve gone through this whole conversion, even in noneconomic terms, is extremely important.

FutureMoneyTrends.com: Next question from subscribers, are you good on time?

Rick Rule: Absolutely.

FutureMoneyTrends.com: Ok. Who do you read or listen to?

Rick Rule: Oh, I read a lot. I’m extremely lucky that my job requires me to absorb information, which is something that I love to do. I ask all young investors to begin their education by reading “The Intelligent Investor” by Ben Graham. That book, relative to the effort required to read it, is the best investment book ever written. There are two chapters, I forget the chapter numbers, but the chapters that have to do with definable margin of safety in investment, and another chapter about ‘Mr. Market’, about the fact that the market itself is a manic-depressive, are the two best sectors on investment that are ever written. Period, full stop. You don’t have to buy the book, you can get it at the library or you can download it very very very cheaply. It’s not enough to acquire the book, you have to read it. And after you read it you have to employ the lessons in the book. If that book is of interest to you, then you proceed to read “Security Analysis”, also by Ben Graham, which is simply put the best investment book ever written, but not the easiest to read. If you employ the lessons in “Security Analysis”, you will become rich. Not that you might become rich.

FutureMoneyTrends.com: How many times have you read it?

Rick Rule: I never stop reading it.

FutureMoneyTrends.com: So you, you’re kind of.

Rick Rule: When I finish it, I begin reading it again. Because the lessons in it are lessons that you need to reacquaint yourself with. There are people as an example who never stop reading the Quran, who never stop reading the Bible. I’m not a person of faith, but I think the process by which I read “Security’s Analysis” is probably similar to the process that they employ to reading the Quran and the Bible. These are a series of scriptures that part of my life is governed by. So I never stop reading them.

FutureMoneyTrends.com: How about listening? Do you have anybody on the radio that you like, or?

Rick Rule: Not the radio so much. Despite the fact that I’m 60, I really enjoy the plethora of independent internet channels like your own. And I quite enjoy, I’ve got a small informal network of friends that share with each other interviews on the internet. The plethora of channels to me is much more interesting than the major media channels. The idea that the internet diffuses information, and rather than broadcast, in fact narrowcasts, is of much more use to me. What I find with regards to broadcast media is that the job of broadcast media is to disseminate information that’s so non-threatening that it adds credibility to the bank deposits or mutual funds or annuities being sold by the major advertisers. Whereas the more narrowcasted products like your own, service the needs of niche consumers more. And as I get older I’m more interested in what I’m interested in. So I find that I’m better served by products such as yours.

FutureMoneyTrends.com: Thank you. Are you concerned about wealth confiscation?

Rick Rule: I am, but I’m less concerned about the form of wealth confiscation that would take place than most commentators. As an example, I get a call every day from clients saying “I think the governments going to steal my IRA, what should I do?” And what I try and tell that client is that I think there are easier places for the government to steal. They government has manipulated interest rates down, so they pay you 25% of what they ought to be paying you for your savings. It’s easier for the government to raise marginal tax rates, which is theft, or for them to manipulate interest rates, which is theft. It’s easier for them to counterfeit, which is what quantitative easing is, it’s easier for them to steal your money on the instalment plan, than to steal your money honestly by confiscating your IRA. This is going to sound glib, and I don’t mean it to sound glib. I don’t believe that congress will come after IRA’s with 400 million guns in private circulation in the United States. I believe that congress will continue to steal your money by manipulating interest rates, by substituting long term treasuries for short term treasuries, by counterfeiting. By those means, which are subtle, as opposed to directly stealing your money.

FutureMoneyTrends.com: If you could only make one investment over the next ten years, what would it be?

Rick Rule: At my age you mean, or as a young person?

FutureMoneyTrends.com: Yeah, one right now.

Rick Rule: Personally the thing looks to me like an absolute no brainer investment right now is platinum and palladium; physical platinum and palladium. I understand the supply-demand characteristics. I understand how I could be wrong but I think the probability of my being wrong is low. I have a lot of sense of humour for something I’m almost certain is going to come true, but I’m not certain what time frame it’s going to come true over. I like that a lot. If I was a younger person, I would invest in my own education. I don’t necessarily mean a formal education. I’d invest in my own education, I’d invest in my own business. My business right now is over capitalized; I don’t need to invest in it. You know, I’m in the harvest phase, I’m in the reap phase not the sow phase. But certainly a young person should invest in their own business, be that their portfolio or some other business.

FutureMoneyTrends.com: With your business, touched on it, is Obamacare affecting you at all?

Rick Rule: Obamacare will affect it because it will make the nation poorer. Obamacare subsidizes poor behaviour and penalizes good behaviour. And if you’re in the financial services business anything that adds to the general wealth is good for your business and anything that detracts from the general wealth is bad for your business. In our particular business, Obamacare in terms of like our healthcare costs, it will become problematic over time because it will raise healthcare costs by increasing demand for healthcare and by subsidizing poor behaviour. There’s no provision in Obamacare and there’s no provision in subsidized medicine generally that has to do with individual behaviour. There’s no penalty for becoming a drug addict, there’s no penalty for becoming an alcoholic. There’s no penalty for becoming obese, there’s no penalty for not exercising. And the idea that you excise individual responsibility from the most fundamental of all human performance characteristics, which is your own health, is absolutely idiotic. And in that sense Obamacare is bad for the country. It’s bad for society and that’ll mean it’s bad for me.

FutureMoneyTrends.com: Final question, did you have a mentor in your youth? And if so, how did you meet them?

Rick Rule: I had many mentors in my youth. One of the reasons that I so enjoy, as an example mentoring people myself through the Casey Cycle education programs in Eastern Europe, is the amount of benefit that I got from mentors in my youth. My most important early mentor was a guy unfortunately who is dead now named Peter Cundill who was one of the great value investors of all times. And I met Peter Cundill when I was a young university student when I was sort of thinking that I was going to be a resource taxation lawyer. And Peter Cundill said that “I think you’d be absolutely miserable doing that and I think you should be an investor.” And Peter Cundill gave me a copy when I was 19 or 20 years old of “The Intelligent Investor” by Ben Graham. And in that one act, that one lunch, changed my life immeasurably for the better.

FutureMoneyTrends.com: Wow, that’s amazing. If somebody would like to reach out to you guys, where is the best place for them to go and can they still get a portfolio review with you?

Rick Rule: Absolutely, I’m happy to do a no obligation portfolio ranking. The easiest way to reach me is by emailing me personally at RRule@SprottGlobal.com. Another way to reach us is on our website, www.SprottGlobal.com. I would encourage all of you who are listeners, and all of you are readers, to subscribe to Sprott’s Thoughts, which is our three times a week blog. Not just by Rick Rule and Eric Sprott, but by 26 different Thought leaders of Sprott. And you can get that by going to SprottGlobal.com and clicking on subscribe, or else going to SprottsThoughts.com and clicking on subscribe.

FutureMoneyTrends.com: And do you get an email three times a week with that?

Rick Rule: Yes, you do. It’s a wonderful blog.

FutureMoneyTrends.com: Yeah, sounds great. Ok thanks so much Rick

Rick Rule: It’s a pleasure, thank you

FutureMoneyTrends.com: Appreciate it.

 

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