Good Opportunity This Week In Base Metal Companies
This week started with capitulation in the mining stocks. This was great news for OWI since we were able to get further invested during the early week sell off. The decision to buy more on the way down was not an easy one. Losing money in your portfolio and still being aggressive is very difficult to do. But its also usually where the best buying opportunities present themselves.
A couple years ago my girl friend and I were walking through San Francisco and stopped at a little free library. Tony Robbins book Unshakable was part of the collection and I suggested she take it. She never got around to reading it, but I picked it up one day when I was at her house and had nothing to read. 99% of the book was basic personal finance stuff, but there were two pages in that book which made it invaluable. In those two pages Tony went into detail about Paul Tudor Jones trading principles. And one of them was “is the trade hard to do”. On Tuesday this week the base metal trade was indeed hard to do. My stomach and body hurt from losing money in the markets. But instead of standing still and do nothing, I’ve made it a habit to act when I start feeling sick and highly uncomfortable.
Having this principle and about a dozen others should serves us well when making investment decisions. But also makes finding investments difficult to do. The last time we got fully invested was when Bitcoin had an unexpected leg down in 2019. We were almost fully invested at that time and we lost a lot of money on that correction but instead of sitting on my hands I got to buying, cause its one of my principles. But the point is, this was three years ago, which is a long time frame for finding a good investment.
Here is my complete list of principles. Some of these I’ve taken from the great investors of our time and of the past and others have been from trial and error over the past 20 years:
Understand (understand what the economics of the business are likely to look like 10 years from now. What they do and the competitive landscape)
Durable Competitive advantage
Honest and capable Management
At the right Price
Consistent High Returns on total assets or ROE for financial companies over a long period of time
End markets with positive long term macro Economic fundamentals
Low Leverage
Innovative
Focus on Operational excellence
Delight Customer
Human Resource (employee) focused
Opportunities to reinvest (Growth) retained earnings at high rates of return
Do it with size
What’s the risk/reward ratio is it 5 to 1?
Psychology (is the trade Tough To Do)
Is it in line with current Money Flows
Is there opportunity for hysteria
Like I said, its hard to find an investment that meets all the above principles, but I believe we have found a candidate with base metal companies. And this last week was a good buying opportunity.
There are still risk to this trade but we are definitely happy with the valuations and competitive positions of the companies we are invested in.
Disclaimer: It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Past performance is not necessarily indicative of future results.
