The junior resource sector of the market has had a challenging, if not boring, year so far. Some companies are announcing positive news and investors are, almost as a rule, selling into news even if it’s good news. This is a “show me” market and market participants don’t seem to be impressed by much of what’s out there right now. Energy & Gold caught up with 321gold founder Bob Moriarty over the Memorial Day Weekend and a wide-ranging conversation ensued, ranging from precious metals to individual stocks to what a junior resource investor should look for when buying a stock. Without further ado here is Energy & Gold’s May 2018 conversation with Bob Moriarty…
CEO Technician: Since we last spoke precious metals have declined further, however, we saw a rally towards the end of last week. Is this it? Is that the end of the correction or do we need to still see lower levels?
Bob Moriarty: I would like to see a deeper washout. I don’t think we’ve seen the ultimate lows for this correction even though the DSI (Daily Sentiment Index) for gold, silver, and platinum all reached 10 about a week ago. I still feel like there is too much optimism out there and I think we could get one final decline in the next 4-6 weeks before a major seasonal low is put in place. At that point the junior mining sector would be set up for a 100%+ rally into August and September.
CEO Technician: We’ve seen cryptocurrencies fall back near US$300 billion in total market capitalization after reaching US$470 billion earlier this month. Has anything changed from your perspective and are we about to see new 2018 lows in the crypto space?
Bob Moriarty: Nothing has changed except there are more crypto cons, there are now 1874 cryptocurrencies out there. So while the bitcon bulls wanted us to believe that there was a limited supply and there was a scarcity of bitcons there are now more than 1850 cryptocurrencies. I don’t see how there is any scarcity. Bitcon is the greatest example of herd psychology in financial markets that i’ve ever seen, everyone had to own bitcon in December even as the price had turned completely parabolic. I nailed the top in December even when everyone was telling me I was stupid and I was an old man who didn’t understand technology. That’s the sort of sentiment that bubble tops are made from. 95% of that US$830 billion will be wiped out before a bottom is put in place.
CEO Technician: John McAfee just made a prediction that Bitcoin will “surpass $15,000 in June” – what do you think of that bold prediction?
Bob Moriarty: If someone paid me $105,000 per twitter I send out, I’d say it was going to a gazillion by this afternoon. McAfee sold out his soul and reputation.
CEO Technician: We’ve spoken about NV Gold (TSX-V:NVX) a couple times this year and the company released a disappointing hole last week. Is this a gamble that just didn’t work out or is the market panic an overreaction?
Bob Moriarty: You’re dealing with the Carlin Trend and the idea of having a one hit wonder just doesn’t exist whatsoever. I was buying NV Gold at C$.20 last week. It was C$.24 before the company announced anything. You have to have 10 or 15 holes to really make a discovery. I’m not concerned in the slightest and I have cut my average price in ½ and i’m thrilled to do it.
CEO Technician: What can we expect from NV Gold going forward?
Bob Moriarty: They’ve got some more holes that have been completed and will be reported. They’ve added on some more ground. Now I hate the term but this is absolutely a technical success, they got a lot of value out of this.
Investors forget that there’s two things you want to know from a drill hole. What’s the most important thing you can find if you’re out there drilling?
Gold obviously.
If you’ve got a big drill program what’s the second most important thing you can find?
No gold.
You need to not only know where the gold is but you need to know where the gold isn’t. They got a lot of valuable information from that hole.
CEO Technician: Has the situation changed at all from your perspective as an investor and shareholder?
Bob Moriarty: Yes. The stock is half the price. I will always go back to the investing wisdom of buying things when they’re cheap and selling them when they’re expensive. If I like a stock at C$.60 and it drops to C$.20 am I going to buy some more? You bet your sweet bippy I am.
CEO Technician: As an investor in the junior resource sector, what are some of the things that an investor should avoid? What are some pitfalls to absolutely avoid?
Bob Moriarty: The biggest mistake one can make is following the crowd. Herd psychology is the most dangerous pitfall one can succumb to in markets and we just got a textbook example of this with bitcon and the 1800 other crypto cons out there.
You should not follow the crowd, whenever the crowd is certain that a particular market or asset class is the greatest thing since sliced bread you know it’s a bubble and a crash is coming. I wrote something last week on a company called White Gold (TSX-V:WGO), the stock was C$2.30 a year ago and it was C$.80 last week. Meanwhile, nothing’s changed. You can buy gold in the ground at $30 an ounce.
WGO.V (Daily)
You’ve got to think for yourself. Everyone hates to think for themselves, they want to follow gurus. Most gurus are just guys with opinions who are most often full of shit.
CEO Technician: Great points Bob. How does an investor know they’re with the herd and potentially about to make a big mistake?
Bob Moriarty: In the juniors it’s actually really easy. You can look at the chart and you can also judge when you should be selling by how liquid a stock is trading. If it’s really liquid and easy to sell then you should be selling. On the other hand, when a stock isn’t liquid and it’s hard to buy that’s when you should be buying.
Right now the junior market is relatively quiet, illiquid, and it’s not easy to sell. This is a good time to be a buyer in the junior mining sector, it might get even better but you can’t time the exact bottom. Buy when it’s difficult to buy (both mechanically and psychology), and sell when it’s easy to sell.
CEO Technician: What are some other factors that an investor should be looking at in determining which stocks to invest in?
Bob Moriarty: It’s important to figure out where you are in the cycle because where we are in the cycle should determine how you invest. At the bottom in December 2015 you could have bought the biggest piece of crap junior out there and it probably turned into at least a 5-bagger a few months later. You also want to monitor sentiment, as I said before you want to buy when nobody else is buying and you want to sell when the herd can’t get their hands on enough of whatever it is that you own.
CEO Technician: You are a macro cycle investor but you also have an eye for the micro details of individual junior mining companies. For example with Westhaven Ventures (TSX-V:WHN) you were able to identify a company that was flying under the radar and quickly appreciate the upside potential based upon the quality of WHN’s project and management team.
WHN.V (Daily)
Bob Moriarty: That’s a great example, Westhaven was under the radar and I wrote about it which helped to put more attention on the potential of the company’s story. I look for situations which are under the radar that have a lot of potential upside.
The problem that junior resource companies face is that it doesn’t matter how well run they might be or how great their projects are, if nobody is writing about them and nobody knows they exist the share price isn’t going to change. Westhaven is an example of a well run, well financed company on the verge of potentially making a big discovery and they just needed some visibility and I was able to help with that.
White Gold is a brilliant story in the Yukon with Shawn Ryan behind it, and out of seven trading days it only traded on one day. So when you talk about illiquid and dead, it was deader than a door nail for a while.
CEO Technician: Meanwhile, there are examples of companies that do a tremendous amount of promotion with mediocre to poor results and the market gets tired of hearing their story. After a while it can get to the point where if a company doesn’t deliver any results it doesn’t matter how much promotion they do, the market will ignore them.
Bob Moriarty: You want to stay away from companies that are overly promotional. But you also want to stay away from companies that don’t do any promotion; if you don’t tell your story you don’t have a story. It’s the tree falling in the middle of the wilderness, if there’s no one around is there sound created?
Westhaven would be an example of a nice situation, where you have a company with lots of fundamentals lining up at the same time and then they decided it was time to promote their story after quite a while with little or no promotion. You want to get involved with stories just as market participants are beginning to appreciate them.
CEO Technician: What kind of a batting average should investors look to achieve in terms of winners vs. losers? Does a junior mining investor need to hit 75-80% winners to make money?
Bob Moriarty: I lose money on between ⅓ and ½ of the stocks I buy. However, I make money overall because I make a lot more money on the ½ – ⅔ that do go up than I lose on the ones that go down.
CEO Technician: Is it possible for smaller investors to successfully follow some of the big money investors (Giustra, Beaty, Sprott) in the sector?
Bob Moriarty: It depends on the big money investor. Giustra deals are often pump and dumps, Ross Beaty aims to make money, and Eric Sprott hits nothing but home runs and strike outs. You need to follow the history of each to know.
We would like to thank Bob for his time and insights. I know that I learned a lot from this conversation, I love the concept of buying when it’s hard to buy and selling when it’s easy to sell. Obviously there are some nuances involved in determining when exactly it’s “hard” to buy and “easy” to sell, however, the basic premise is absolutely spot on.
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