I know that TV is not real life, but just the same, the old M.A.S.H. sitcom left an impression on me when I was a boy. It was the way all the squabbling and horsing around stopped the moment the choppers came up on Radar’s radar. The doctors dropped everything and ran to triage the patients.
This meant identifying the critical cases and getting them in for surgery in the least amount of time possible. That meant setting noncritical patients aside for the nurses to care for. It also meant setting the ones who had no chance further aside… for the priest.
Because seconds counted, that seemingly coldhearted calculus maximized the number of lives saved.
The same logic applies in many walks of life—including researching investments.
Our decisions regarding our speculations may not be matters of life and death (though they may turn out to be if our world gets any crazier), but they are very important to us. And the time it takes to make them does matter.
That’s only in part because of opportunities that may slip away. It’s also because there are a practically infinite number of possible investments. We need to be able to find and focus on the best ones, or we’ll never get anywhere.
This is, of course, exactly what My Take is all about. Its growing database of 300+ companies requested by readers is like a consulting service for resource speculators.
The value of research time is also why, despite my use of the medical triage metaphor, I separate stocks into two categories (thumbs-up and thumbs-down), and not three.
Real due diligence takes a lot of time.
Banks financing mine construction projects and larger companies buying smaller ones spend months on it—and they hire whole teams of experts to help in the evaluation.
When I invest, myself, I prefer to get my boots on the ground to verify the story first.
Imagine spending all that time and effort on an investment you end up not making. That’s better than not spending the effort and making a bad investment, but it’s still a significant cost.
This is why the most important aspect of triage for resource investors is to find good reasons to disqualify a potential speculation as quickly as possible.
That leaves us with more time to spend on better opportunities.
The more the investment idea survives disproof, the more of our time it deserves.
So, how do I go about my triage?
Actually, I’d back up and say that the very first thing is to think hard about your investment goals:
- On which metals or other resources do you have high conviction regarding their future price trajectories?
- Can your own personal risk tolerance hand the volatility of the junior mining stocks, or would you be better off sticking with the major producers?
- What time horizon do you have for your speculative investments?
Once you have these things clear in your mind, it’s easy to scratch everything that doesn’t fit your criteria off the list of candidates. And be firm about it; don’t look any further once you realize something doesn’t fit.
Then, as you begin researching investments that might be a good fit for you, look for obvious disqualifiers. Among the easiest to identify are:
- People. Google searches are great for spotting track records of destroying value for shareholders, frequent litigation, or other signs of trouble. I have a long memory for people who failed me—or flat-out lied to me—in the past.
- No-fly zones. There are some countries I don’t invest in. For me, these currently include Venezuela, Bolivia, Argentina, South Africa, China, and any country with a recent coup d’état.
- Incompetence. Outdated websites, late regulatory filings, CEOs who can’t tell you basic things like approximately how much money the company has in the bank, and so forth are good reasons not to invest in a company.
- Blatant BS. Ridiculous claims or verbiage that treats what companies hope to have as though they actually have it are big red flags. Examples include equating a surface anomaly to a deposit, valuing ounces or pounds in the ground (gross metal value) as though they were refined ingots in a warehouse, or any invitation to “just imagine” or “you gotta believe” how much a stock would be worth if some wonderful scenario played out.
If an opportunity survives disqualification on the above grounds, then we start digging in, in earnest. Starting with the people, we can work through all the “Ps,” as Doug Casey taught me:
- People. Remember that even the best rocks can be messed up by the wrong people. That doesn’t just mean avoiding crooks. It means backing people with experience delivering exactly what they currently propose to deliver.
- Property. Technical merits of the exploration or mining in question. This is what most investors focus on, as it’s the easiest to quantify. It’s important, but far from the only thing that matters.
- Politics. Local, national, and regulatory risks in the given jurisdiction. “Country risk.”
- Paper. The company’s capital structure, which is a great forensic tool.
- (Ph)inancing. Does the company have enough money to deliver whatever the value proposition may be? Or are we looking at the death of 1,000 financial cuts?
- Promotion. This is often seen as a dirty word, but the rocks aren’t going to tell their own stories, so the ability to get the word out is important.
- Pitfalls. What might go wrong? The key here is to be objective and unflinching.
- Price. This refers not just to the share price and valuation of the company, but how these things relate to the underlying metal or resource.
As above, all this due diligence takes time.
This brings us back to the importance of good triage. We don’t want to spend a minute more on investments we’re not going to make than the minimum necessary.
Caveat emptor,
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