Lobo Tiggre | I Want Ten-Bagger Potential In My Investments
Lobo Tiggre is the editor of The Independent Speculator which focuses on natural resource speculation and investing. Before launching his own publication, Lobo was known by his pen name Louis James when he wrote for Casey Research. Having 15 years’ experience as a mining stock speculator and newsletter writer, Lobo applies a very rational and well-thought out approach to speculation which he describes in this interview. Also discussed are Lobo’s thoughts on timing the bottom of a trend, his approach to exploration stocks and why he focuses on development companies.
0:05 Introduction
2:05 Meaning of the name ‘Independent Speculator’
7:20 Portfolio percentage breakdown of speculative stocks vs. safer assets
11:40 Human psychology and successful speculation
15:36 Timing the bottom of a trend
17:45 Investing in exploration stocks
21:45 Investing in late-stage development companies
26:15 Discussing why mine-builders fail
31:07 Opportunities in resource stocks today
TRANSCRIPT:
Bill: Well let’s start with your moniker, the Independent Speculator. What does that mean to you? What does independent mean? And, how do you define a speculator?
Lobo: Well, that’s a great question. I appreciate you asking that, because I think it’s actually quite important. First, it’s obviously a riff off of Doug Casey’s International Speculator, which I wrote for almost 14 years. Working with Doug really cut my teeth in the business, taught me everything I … I won’t say everything I know because Rick Rule is another one of my mentors. A lot of people, Bob Bishop, another newsletter writer who’s retired is talking a lot, on some of the company geologists and things. It’s been a fantastic learning experience for me, but Doug started it all, right? He gave me my first job in the business, took me on as a writer who knew nothing about rocks or stocks, and taught me so much. I’m very grateful to Doug. Really, it’s a homage to him that his International Speculator and I’m independent, so I have my Independent Speculator.
But there’s also a double entendre there. If you recall from reading, I don’t know, the 19th century romances and so on, there is an expression means to say that if somebody was wealthy, we call them a person of independent means. It was not just filthy, stinking rich or whatever epithets you might want to throw at them, but I always like that, a person of independent means. It meant that they didn’t have to worry about the day to day struggles, they didn’t have to worry about, how much to pay for the baloney in the supermarket or, which gas station was cheaper. No gas stations back then, which horse buggy station. But, it reflected the quality of life a person of independent means had. That wasn’t just about being rich, it was about being able to live your life the way you wanted. I really liked that idea.
There is a triple entendre, because a person who’s judgment is independent, a person like me who is hopefully not just saying they’re independent but actually is independent, is a person that you can trust, and you can do business with. I’m trying to communicate to the audience out there that I’m not for sale to the companies. They can’t pay me any amount of money to write them up in a favorable way, and that’s true. Of course, it’s easy to say but people who’ve known me for many years can back me up on that. You can look at my track record, I think it speaks for itself. And so three reasons why I am the Independent Speculator and I encourage everybody to become one.
Bill: I got into resource investing out of my interest in gold as a safe haven asset, and then I saw the multi-bagger, and the outsize gain potential in mining stocks. I got into this as a speculator. When you started writing, when Doug asked you to write for him those years ago, 15 or so years ago, if I understand your story correctly, were you a speculator at that point?
Lobo: Not at all. I knew Doug because we’re both libertarians, rabble-rousers. I was the black sheep of the family, and it’s quite ironic that being the black sheep of the family with my crazy political views, is what got me this fantastic job that was the best job I ever had. Not only immediately increased my income, but taught me how to get out of the rat race, put my money to work for me instead of working for my money as Kiyosaki teaches. All of that came with Doug taking me under his wing. I am one of those annoying people who slows down on the highway when I go through a road cutting, and there’s interesting geology exposed. Because I’ve always loved the idea of geology and looking at the rocks and the earth, and the amazing things they do has always fascinated me.
I collected rocks as a little boy, but I never studied it. I am not a professional geologist. My geologists friends tell me I deserve an honorary degree, having kicked so many rocks for so many years, but I try to make sure that I’m clear out there. I don’t want to pretend to be anything that I’m not. It all came with Doug. He got me started, he taught me, and maybe threw me in the deep end a little early, but that forced me to sink or swim, and learn to swim I did. My teachers were world-class geologists and not just theoretically talking in the blackboard about something, but looking at the rocks in the field and showing me what did the earth do here? What happened to billion years ago? What happened afterwards? How do you try to unravel that puzzle to look for more gold or whatever you’re looking for? It’s a fascinating process. I love it. I’d probably pay to do what I get paid to do, if I could. I’m very fortunate in that regard. There you go.
Bill: You’ve achieved the financial independence that comes from successful speculation, but you are a current speculator. In your personal finances, what percentage of your liquid assets do you have in actual speculative stocks, and then what percentage do you have in cash and safer investments?
Lobo: Well, I’m going to answer you honestly, but I have to put the caveat in there. Not Hedging my answer, but just to tell people I would not necessarily do as I do in this. I’m willing to take a very high level risk at this point in my life. I’m more about wealth creation than wealth preservation. I’m not a retiree on a fixed income, and I have a very supportive significant other. My wife gets it, she’s with me in there ready to swing for the bleachers. We have a very high risk portfolio, I would say. I have real assets, real estate, that sort of thing. That’s where my solidity is. But in terms of safe investments, I have none. I don’t believe there is such a thing as a safe investment in the post Lehman world anyway.
Bill: Not even, physical gold?
Lobo: I don’t consider that investment. That’s savings. My savings is … Longterm savings or my net worth is in real estate, and my savings, my cash savings is in gold. I don’t keep any more cash in the bank than I need to pay my bills for a month or two. Because that exposes me to I think counterparty risk, and no, I don’t think the dollar’s going to explode tomorrow. But when it does, when that house of cards comes down, it will be, I think with surprising [inaudible 00:07:55]. Plus putting savings in gold … Again, this is another Doug Casey thing. He taught me you don’t buy gold as a speculation, you buy it for prudence. You buy it because it’s physical wealth, for which there is no short, no counterparty risk. You can hold it in your hand and it is liquid value everywhere in the world, and that makes it a very safe place. You don’t worry about the price fluctuations. It is physical congeal wealth. That’s where I put my savings.
But in terms of investing, I’m all speculum. I don’t even own at the moment any of the larger mining companies as volatile as they are, they’re not volatile enough for me. I want 10-bagger potential in my investments, otherwise I don’t go there. So this gets me back to my first point. This is not necessarily a recipe I recommend for everybody. It’s just where I am right now. One thing I do in my newsletter, in addition to cover where I’m investing is, I have a column where I give my take on other companies. I don’t invest, I don’t write them up, they’re not part of the portfolio. But I understand that there’s companies, out there of interest, like some of these better majors that I’m not involved in that people want to know about.
I help people out with non-individual advice but just general guidance on companies of interest for subscribers to the letter. But the nature of the letter is not just that I disclose when I’ve invested, it’s all about covering the stocks I invest in. I strongly believe in skin in the game. Why should you buy anything or risk your own money if I’m not willing to do the same? Every single stock in my portfolio, in the newsletter, it’s all about where I have put my own money. And as per your question, that is in the higher risk, higher reward end of the pool there.
Bill: I had a conversation and an interaction with an individual at PDAC this past year, and we were talking about resource investing in more early stage companies, and this person has been successful. But as they spoke to me about their investments, which were very speculative investments, it was this emotionally-charged conversation. After I was done with that interaction, I had to kind of just debrief and I had to get my own emotions under control just to process what we talked about. As I get older and as I do this more and more, I’ve come to appreciate the role of understanding human psychology to be a successful speculator. Can you talk about your development as a speculator and how your greater understanding of human psychology has helped you succeed?
Lobo: That is another excellent question. If you read Ben Graham’s book, The Intelligent Investor, it’s all about psychology. He goes to great lengths to discuss Mr. Market, his psychology, your own psychology, and he even understands that some people may think this is a bit strange. I thought I was reading a book about investing, and there’s so much psychology in here. He explains it at the beginning of the book, how important it is to understand your own psychology. This is something that I’ve taken home with me, I’ve really trunk it in, and when I do give a seminar or try to help people out, and people ask me, “How do I start out or what are the secrets to success in speculation or what did Doug teach you?” This is absolutely the starting point. I always tell people, “You have to know yourself.”, as they say. And be really honest with yourself.
You don’t just tell yourself, “Oh yeah, I want to make lots of money. I want to speculate.” You have to really look yourself in the mirror and say, “I’m willing to take risks. I’m willing to invest in something and take a 50% haircut on my way to a potential 10-bagger.” If you flinch when you do that in the mirror, it’s telling you something, you need to pay attention to that. The psychology, your own psychology is absolutely essential. It’s a fundamental building block, and if you are honest with yourself, and you say, “Look, I really can’t stand it. I know that my guts will turn into water, if I see that I’ve put $10000 or whatever amount of money is meaningful to me into this position, and now it’s only worth 5000.” If I can’t stand that, then I shouldn’t be in the high risk end of the spectrum here. I should be looking at the bigger, safer majors or maybe not even in mining stocks at all. Something that, as you say, safer investments out there. There’s always other gurus who can show you ways to pursue yield with less risks.
That having been said, I think it’s important to understand that speculation done well, can actually beat the market as it were. It sounds ironic. I want to say this because I can keep talking about the risk, I don’t want to scare everybody away. The average return on investments on a yearly basis during my years at Casey Research writing the International Speculator for Doug, was 18.5%. That included the wipeout of 2008, the terrible bear market after 2011. It also included my learning curve. I just want to throw that out there that yes, I talk about having the psychology clear in your mind what risk tolerance you have, but don’t let that scare you off entirely from what I’m talking about. Because, if you have the right stuff to see the trades through, this can actually work out if you’re methodical, if you’re disciplined. If that’s your psychology, this can work out better than buying a CD in the bank, I think.
Bill: Rick Rule, as you know, warns speculators not to confuse the inevitable with imminent. My question for you is, when you identify a trend that you expect will be an uptrend, but maybe it hasn’t bottomed yet, if you analyze your own speculative investments, how often do you invest before the bottom, and how often do you put your money in after that trend has bottomed and now is on its way upward?
Lobo: I don’t have a number I can give you because I haven’t specifically looked to measure that on a chart. I would say though, I’m pretty conservative. As a speculator, I am actually fairly risk averse. I do everything in my power. I just talked about being on the high risk end of the spectrum. But I do everything in my power to reduce that risk. One of the things is not trying to time the bottom. I am much more inclined to get on the bandwagon once I see that it’s clearly in motion, rather than try to get the cheapest possible price at the bottom. Timing the markets, everybody says, is a bad idea and I think that’s with good reason. Just because something is cheap, stupid cheap, doesn’t mean it can’t get cheaper. So rather than catch a falling knife, my philosophy has always been, just let it fall. Or switching metaphors, don’t catch a falling safe, let it smash and then look for what’s still a value there smashed on the sidewalk, and pick that up.
I would say this is actually an important difference between Doug and myself. You started the question with Rick, but Doug, well, A, he’s never going to have to work again in his life, and he can afford to swing for the bleachers every time. He has a very high, much higher than I do, risk appetite. Me, I’m still at a position where I don’t want to lose money. I hate losing money, and I’m much more willing to get on the bandwagon once I can see that the trend is solid, it’s headed upwards, even if I miss the opportunity to buy it the absolute cheapest, than to take the bigger chance and risk wiping out capital. I’m just not going there. Another way I have of saying this, and it applies to how do you pick the right exploration stocks because exploration is so very difficult. We can talk about that if you want.
But exploration is so difficult. Nobody knows who’s going to make a discovery. If you did, it would be priced in advance. So how do you mitigate that? My answer actually is, I don’t try to get in front of the discovery. Yes, I know that I miss out on potential 10-baggers that way, but the odds of those are so long. Even for the Rick Rules and the Doug Casey’s of the world, they don’t know who’s going to make a discovery, or they’d go, well … Right? I wait for the discovery and then when it’s clearly a discovery, like this has legs, this thing’s going somewhere, every round the drill goes boom, boom, boom, they keep hitting more high grade, whatever it is. I call that success in progress, and I’m very willing to speculate, take a chance on success in progress as opposed to trying to bet on who will be successful. That’s an order of magnitude harder.
Bill: We all know those of us that focus on the resource sector, that there is that share price curve. So after you invest, after that drill hole discovery is announced, and it’s confirmed in your mind, what is your exit strategy? Can you talk about that for those early-stage explorers that have those phenomenal results?
Lobo: Yes. Well, one thing to clarify is that if you look at the Larson curve, the famous spike up during the discovery, and then the boring engineering phase, and then the recovery as you ramp up to production, question mark after what happens after that, that ramp up in the discovery phase of that chart, that’s not an overnight event. That’s not the discovery drill hole. Yes, a stock can double overnight or more on a fantastic clear barn burner of a discovery hole. But that’s the beginning of a process. The subsequent drilling that shows, “Wow, we have something and it’s big and it’s amazing.” That’s what takes that early chart up to the 10-bagger status. I’ve never seen a 10-bagger just on a drill hole. A double? Yes. 10-bagger? No. I’m not sure. I’ve seen a triple one on a single drill either in 15 years.
It’s a part of a process. There is plenty of time to make money after the initial discovery, if it’s convincing enough. As far as getting out, one of the things Doug taught me was to scrape your money back off the table when you get your first double. If you recover half, then you’re risk-free in the trade after that. If it goes on to higher highs, great. If it plummets after that doesn’t matter, you’ve got your money back, you can’t lose. I do like that strategy, but I’ve modified it. Because I have left a lot of money on the table, and something just kept going and going and going. There are occasionally these discoveries that just keep delivering without missing for some time, and if you sell half right away on the first double, you take a 10-bagger and turn it into a five-bagger.
What I do now is, I put a trailing stop loss on that position instead, or I use that as a trigger instead of immediately taking that money off the table on the first double. That way if it keeps going, then I get higher returns. If it does correct, I’ll gauge my level of risk at that point. I may go risk-free or I may close the position entirely and just take the money and run, but I lock in the gains. It’s hard enough to get winners in this business. It is speculative. The reality is that you lose more often than you win, but the wins are so much bigger than the losses that they more than make up. The 18.5% figure I mentioned earlier, that’s not an … It’s only a conceptual average game. There were a lot more losers than winners, but there were 10-baggers and 20-baggers in there that made the average workout that well. Given the difficulty of the business, I’m all about locking in wins.
Bill: I’ve heard you speak about how you like to invest in the late-stage developers that are building a mine, and that’s one of the most predictable ways to get multi-baggers, albeit over several years. What percentage of your portfolio is invested in these type of companies?
Lobo: That is probably about one third.
Bill: Only one third? I was going to guess maybe 40% based on what I’ve heard you say.
Lobo: Yeah. Well, quality still matters. One of the things I’m doing here, even though I don’t know how much time we have to get into this, but I encourage people to come to the website and look for the pre-production sweet spot writings. You can search for material on that. But the case is extremely compelling. The conventional wisdom about this in the past was that, that rise at the end of the Larson curve, from the boring engineering phase to production, was quite modest. Everybody could see who was building a mine. It was priced in. So, maybe 10% or 20% was what Doug guessed, when I asked him what that gain was. Nobody really knew though. He didn’t know. Rick didn’t know. Anybody I asked, “Well, what is that gain from the boring engineering phase to first pour or first plight if you’re doing copper cathode?” Nobody had a number.
As far as I know, I was the first one to systematically go and scour the sources out there for cases of first time mine builders. When the numbers first came back, I sent my research assistant to go back and do it again because I didn’t believe it. He came back, and he doubled the sample size, and the numbers were very similar. To cut to the chase, we’ve now doubled the sample size again and again. Well now I’m on my own, and I’ve recreated this research. I have over 110 cases of first time mine builders in my database on this. The average gain from a construction decision to that first pour is about 100%. The average is about a double. That includes the wipeouts, the big winners. That’s just amazing because 95% of the first time mine builders, even little juniors, little cash in the bank, 95% of them that start building the mine succeed at doing so. At 70% of the overall cases, we have positive outcomes. Not wonderfully positive, but positive outcomes of any kind.
There are wipeouts still, they are negative, but the most amazing stat of all of these to me is that in a bear market, the average result was still a 30% positive gain for people who are building their mine. When you go from earning money to producing money, if your mine is successful, the change is so dramatic that even in a bear market, the average result is a 30% share price appreciation between a construction decision and first pour. So this is a very, very robust finding. It was vastly underappreciated before. Of all the work I’ve done in my career, it’s the one thing that Rick Rule asked me about. “What’s the latest data show?” It’s the one thing he gives me credit for, it’s perhaps my most significant discovery thus far.
All of that having been said, a double is nice, it takes about two years. It’s not quite the hockey stick that I’m looking for myself right now, but within that data set, there’s a handful of companies that delivered 600%, 700%, 800% up to 900% gains between construction decision and first pour. My mission right now, my number one mission in life is to figure out how to predict those. I have some ideas, but I’ll be honest with you, I don’t have a formula here. I don’t have a solid way to predict those. I think I have a good idea for some of the drivers for that, and that’s what I’m testing right now. That’s what’s in my portfolio right now.
Bill: As you acknowledged, there are some debacles even in that late stage developer that’s building the mine. We can think of Rubicon Minerals or Red Eagle Mining. When you look at the casualties, is it primarily geological? Or was it incompetent management teams that didn’t understand the rocks well enough? Have you done any autopsies in that regard?
Lobo: That’s very interesting that you bring those two examples up. Both of those are cases where they got underground, and the deposit wasn’t what they thought it was. Now, does that mean management was incompetent or corrupt? Not necessarily. Sometimes mother nature just throws you for a loop. My favorite counterexample to that is that if you look at Goldcorp when they built the Eleonore mine that they got from Virginia, and it’s cash cow now. It’s their flagship mine now. Well I guess I should say Newmont Goldcorp now. But it was Goldcorp at the time. But when they built the mine, and they spent $0.75 billion building this first class, spare no expense, leader of the modern mining of the world, this fantastic mine, they got underground and the deposit wasn’t what they thought it was.
They had a linear model for this zone. And then it turned out that it was wandering within those bounds. It wasn’t as straight as they thought. Then when they got really close and personal with it, it turned out to be more like a spaghetti, new twisting and turning within that broader area. They had to completely redo the mine plan to maximize extraction of that much more complicated thing. So the costs are higher. Fortunately, it really is there, and it’s high grade enough that it still works out for them. But this isn’t some fly by night junior, this is one of the savviest mining companies in the world. Highly experienced, great guys with directly and high grade narrow underground mining … Well, not that narrow, but underground mining scenarios doing what they do best. And they still got it wrong.
That’s the nature of the beast. It really can be mother nature just being vicious. The drill results made it … Look, they didn’t make that up. That drill results looked consistent across a certain geometry. It wasn’t until they got very, very close to it that they realized that that was an artifact of, unfortunately good drill results. The drill results were too good. That having been said, I think I would probably put Red Eagle in that camp. I think the guys were not crooks or anything, it just didn’t work out the way they expected based on, I think adequate drilling at the time for what they had. Rubicon on the other hand, they did break the rules. They had deep deposit, was going to be very expensive, and I’m not saying they’re crooks by the way. I’m saying that they didn’t do what you normally would do, which would be to drill the thing off and produce a full feasibility study before building the mine.
Because of the depth of the deposit, it was going to cost them almost as much to drill it off and produce the study as it would be to build the mine. The results up to then had been pretty consistent. Not only that, the new management that made this call, they actually said, “Okay, we’re going to be conservative. We’re going to cut the grade back. We’re going to have a more conservative model here. A lot of people didn’t like that market. They got a haircut because they stepped back from the ultra high grade models that the discovery team had made and went with the more conservative realistic underground model. On that basis it still looked like it would pay for itself. So rather than spend all that money studying it more, they went ahead and built the mine. That was breaking the rules, but there was a reason for it. I don’t think they’re crooks.
But again, there are reasons for the rules too. They got underground, and it wasn’t what they thought, and they ended up having to write off nine tenths of the deposit. So, major black eye. By the way, full disclosure here, I drank the Kool-aid on that one, and it was an important learning lesson for me. Another one that I had a similar outcome on, well was Bank’s Island Gold, where that wasn’t even deep. It was right on surface. You could mine it with a backhoe on surface. It just looked like a super high grade plum ready to be plucked. And they almost succeeded. But when they got into the mine, they found things that they didn’t expect. Because they also built it on a PEA, which Rubicon had. And so going forward, here’s a freebie for your listeners. It’s an important educational experience for me. Please use my pain to your gain. Don’t bet on companies that build mines on PEAs. It’s extremely risky. There are very good reasons for full feasibility studies. Taking shortcuts increases the risk in an already risky business.
Bill: When you look at the opportunities that are available to resource speculators today, how do you compare it, and how do you rate it relative to your previous 15 years experience?
Lobo: I think … Well, I’m not sure relevant to my 15 years experience is the right way to look at this. I’ll just say that, gold itself has been in this training ride in dollar terms for all these years, just broke out. But we’re still, just having broken out from a rap, we’re not near a new peak, or closer to the bottom than at the top. And that’s important. It means that investor sentiment is negative. It means that all the punters out there and all the promoters don’t really have anything, haven’t been able to raise money, haven’t been able to bamboozle investors as they do during a raging bull market. That sentiment goes beyond the gold market. I would say that the resource sector overall has not been able to persuade that highly liquid speculative capital that went off chasing Bitcoin in 2017, and weed stocks in 2018. That money has fled the sector, and that means this is a good thing for the buyer. This is a buyer’s market still.
The breakout and gold makes it exciting, but it’s still a buyer’s market. What’s happened is, the flight of all that highly liquid speculative capital to other sectors has meant that only the … almost, I can’t say 100%, but it has meant that pretty much that the companies have been able to advance, been able to raise money anyway. All the companies actually have something, have something of objective merit, have something that the insiders in the industry, and the experienced people, and the bankers, and the funds that are mandated to invest in the resource sector who have competent due diligence teams that know what they’re doing, those savvy investors have funded the people that actually have something worth taking a chance on. I think, it’s one of those things where people don’t like it. People hate it. They wanted their stocks to go up for all these years and they didn’t.But the reality is that we have been able to separate the wheat from the chaff. We know who’s got stuff that’s worth taking a chance on. And that’s a fantastic opportunity for the people coming into the sector now.
Bill: You’ve been listening to Lobo Tiggre. He’s the independent speculator. Lobo, as we conclude, can you share with listeners what they can find at your website and what you offer there?
Lobo: Thank you very much. The first thing I want to say is actually we do have a free service. It’s a weekly digest that covers the posts that we publish on an almost daily basis on the website that are available for free. But it also includes originally insight, market recaps and things that are only published in that digest. What it does not include is a bunch of spam. I do not bombard people with sales pitches every day, all day promising insane gains. “If you sign up now before midnight …” I don’t do that. I try to respect the intelligence of my readers, and I encourage everybody who doesn’t know me to sign up for our free, no-spam digest and see if you like what I do, and see if it’s worth for you.
If you know me, and you just haven’t heard what happened to me when I left Casey Research, and you’re ready to subscribe, of course you’re welcome to jump into the Independent Speculator. There’s subscription buttons all over there. The key value delivered there is, as I mentioned earlier, is it’s not a theoretical or model portfolio. The portfolio in the Independent Speculator is entirely comprised of speculations, I think are not just good or interesting, but great and I’m willing to put my own money where my mouth is on that, or it doesn’t get in there. I also provide coverage of other opportunities, more in-depth looks at markets of interest to the readers, and there is an alert that goes out in between additions if anything important happens. I try to really take care of the readers, but the core value is the portfolio, which is where I am willing to put my own money, have skin in the game with my readers.
Bill: Excellent. Well, thank you for coming on Mining Stock Education today. I appreciate that Lobo. As I mentioned to you prerecording, I look forward to meeting you in person in Vancouver shortly at the Sprott conference.
Lobo: Me too Bill. Have a great one.
