Rick Rule: This Was Worth the Wait

Written by Gerardo Del Real
Posted March 24, 2020

I spoke with one of the most successful speculators and investors in the resource space, Rick Rule, and brought you part one of the interview yesterday. We covered whether the Fed can print its way out of this, which commodities Rick is most bullish on, and why we’re on the verge of a historic cycle for precious metals.

Today we continue with part two. Read on to draw on Mr. Rule's 45 years of experience in the sector, how to handle commodity cycles, and how to use volatility to your advantage.

Fantastic opportunities are coming this year for metals, especially for gold. Stay tuned.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader


Gerardo Del Real: Let's get into part two of this interview. Obviously you have seen many of these cycles. I was privy to the 2008 one. This is my second big crisis. I'm relatively young. You have seen many of these and have been able to use them to your advantage, frankly, to make yourself and followers a lot of money.

How can people that are new to the sector or newer to the gold space, the commodity space, use the cyclicality of this space to their advantage? What would you recommend, Rick?

Rick Rule: The first thing is manage your emotions and be prudent. Work harder than your competitors. Focus on stock selection more than you focus on markets. Make sure that you have protected yourself, that is buy the insurance classes before you buy the investment or speculative classes, which is to say own some gold.

It's counterintuitive when they're debasing the currency to hold cash, but the truth is that cash gives you the courage and it gives you the tools to take advantage of volatility rather than being taken advantage of. The opportunity being volatility. If you have cash, you can take advantage of volatility. If you don't have cash, volatility takes advantage of you.

Gerardo Del Real: Let me ask you about that volatility, Rick. The velocity has been absolutely historic in everything, the bond market, the stock market, the commodities market. Have you seen velocity or volatility like this in your lifetime?

Rick Rule: I have not seen volatility like this in my lifetime. Similarly, for the last 10 years, I haven't seen the lack of volatility relative.

Gerardo Del Real: Coiled spring on volatility.

Rick Rule: I think what we had was a sort of the calm before the storm. Certainly, in terms of the popular measures of volatility, the VIX, the volatility index, anything over 20 has been considered to be extraordinary volatility and we've had several days running over 70. So I don't think since the index has been kept, anybody has experienced volatility like we're experiencing today.

Gerardo Del Real: How do you ease into an early-stage explorer opportunity? I'm going to ask you about one specifically, because it's a company that in full disclosure, I'm biased, I'm a shareholder, I participated in the recent financing. But I was a bit surprised by, not the relative state but just proportionate to its market cap, the amount that you and Sprott took down, led by you of course. And that's Hannan Metals (TSX-V: HAN)(OTC: HANNF), which has a highly prospective but early-stage project in Peru.

How do you vet a company like that? And what is it about that that makes you believe that's a wise speculation at this point?

Rick Rule: Well, I need to disclaim this discussion in the sense that I don't know your listeners individually. There are so many of them, so this is not investment advice. I'm going to answer the question exactly as it was asked, that is in the fact that it pertains to me. I invest for the five-, six-, or seven-year term. And when I speculate, I speculate in hopes of 10- or 20-to-1 returns knowing that I might have to suffer 50 or 60% losses in trying to attain those outside returns.

I like to invest with people that I know and love and trust and the people behind Hannan, including Michael Hudson. They're proven performers. I've done business with them for a very long time. While I'm not optimistic about the copper price in the near term, the speculative appeal of Hannan is not so much the copper price, but as to whether or not they discover a world-class copper deposit, which I think there's a possibility that they can do.

This is speculation at its grandest. What makes speculation unique at this point in time, is that there is so much terror in the market, that high-quality people with a world-class idea like this attracts no competitors. I went big into that placement because A, I liked the opportunity that was presented to me, but B, quite frankly there were no competitors for me. I took that size position because it was offered up at that point in time. The only reason that I had the opportunity to get that much stock is competitors are sort of lying in fetal position, moaning on the ground in response to the current market.

The other thing that appeals to me is that there are several investors on the shareholders' roster who I know are experienced at standing behind companies in thick and thin and in small companies like this, making common cause with important backers is an important part of the success of a company like Hannan.

Gerardo Del Real: Excellent. Rick, the storm here on my end is picking up in my signal. My TV signal just went away, my internet signal is flashing that it's about to go. Let me ask you one last question. I'm a client of Sprott. I can speak to the quality of the people at the firm.

How can people get in touch with you and your team if they're new to the space, or maybe somebody that's experienced but wants some guidance during these turbulent times?

Rick Rule: Well, I'll tell you. Any of your listeners that would like me to review their natural resource portfolios personally have the opportunity. If your listeners will email me their natural resource portfolios, names and symbols in text please, not as an attachment.

If they will email those to rankings@sprottglobal.com, I will personally rank the companies 1 through 10. 1 being best, 10 being worst, and I will comment on those companies where I think my comments have value. In addition, I will include two visual aids; a 45-year gold equity stock chart for Barron's, which is the longest running gold index that I know of, and also a 100-year commodity chart. Those two charts will make the points that we have made in this call very, very well.

Gerardo Del Real: That's incredibly generous of you.

Rick Rule: I really look forward to it. I learn a lot from this and it feels good to me after 45 years in this sector to be able to share some of my experience with newer investors and speculators.

Gerardo Del Real: I got to ask you one last question, Rick. Do you think this cycle — and I know you've been waiting for this one for years — do you think this cycle is going to be worth the wait? Because we've had a lot of head fakes in the resource space, the past decade or so. Do you think this one will be one for the books?

Rick Rule: I do. I think the wind is really in gold sales. So gold and gold stocks will move first. But we're setting the stage for an absolutely epic recovery in industrial materials. Almost every one of the major industrial materials is now priced below the total cost of production, which means either the prices recover or really, really, really falter and prices recover more later.

So my suspicion is that although we go through trying times, we enjoy a gold bull market, then a gold stock bull market, and then three years from now, four years from now, an epic, broadly based recovery in the industrial materials resembling the move in industrial materials that we enjoyed in the year 2000.

Gerardo Del Real: Let us leave that there, Rick. Thank you again, appreciate the time.

Rick Rule: Always a pleasure. Thank you, sir.


For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

Heal Your Ailing Portfolio Body