In today’s Exponential Investor:
- When everyone wants the hot tip… it’s a stock market top
- Travelling halfway across the world to hear about the most important commodity…
- … copper!
If you see someone calling for oil at US$200 per barrel… it’s a top.
If you can’t get a seat at a conference… it’s a top.
If people follow you to the bathroom for investing advice… it’s a top.
This “top” I’m referring too, is the peak of market.
It’s that elusive point many of us would love to sell our stocks at, but often miss out on.
Sometimes we miss this point because of greed. That is specifically because we want just a little more profit from the position.
Sometimes, we miss the point because we’re happy with the profits made so far and sell too early..
Of course, you never know when a market is halfway through its rally or right at the peak. Often, it’s only with hindsight that you can truly see it.
Nevertheless, the experts on the stage at Rule Symposium – one of the foremost conferences globally on investing in commodities – said that sometimes there are clues you can look for to know where you are.
The consensus, it appears, is that sometimes the best way to judge a stock market peak or bottom, was to look at how other people behave, rather than the market itself…
Hot, humid and time to learn
Did I just travel 28 hours door-to-door from Melbourne, Australia, to Fort Lauderdale, Florida, to hear some of the world’s best mining experts dish out simplistic advice?
Well, yes. That’s exactly what happened.
However, sometimes simple advice is often the best. Especially when it comes from world-leading experts in the mining sector.
You see, I was fortunate to be invited back to the Rule Symposium as a guest of Rick Rule’s this year. This was the first symposium that I have attended in person since 2019.
There I was in a grand, near-century-old ballroom in Florida, listening to some of the world’s best resource explorers and mine builders tell the crowd how to invest in the natural resources market.
In addition, there was some of the highest humidity that I’ve ever experienced. And I say this as an Australian. I had no idea you could roast in the sun and suffocate from the moisture in the air at the same time.
Was I complaining? Absolutely not. Rick, aware that most people haven’t experienced Florida in July, made sure refreshments were abundant. Some of those refreshments were even non-alcoholic…
Serious conference business (left) and ready to depart for the river cruise (right)
Source: Shae’s overloaded smartphone
Anyone who has underground mining experience, however, wouldn’t have worried about the weather. As I explained over here, Florida’s weather in July is very similar to being 1km underground in a mine.
I’ll also point out, there’s worse places in the world to sit and talk mining. Which was exactly what we were here for.
Copper, copper, copper
Two topics seemed to dominate the conference this year.
The first was the resource the world is critically short of.
And it’s nothing fancy like lithium or palladium or cobalt or even one of the rare earths ending in “ium”.
It is the boring metal humankind has been using for 6,000 years and will need ever increasing amounts of for the future.
In fact, as almost every mining CEO, geologist, mining engineer and investment analyst pointed out during the presentation, we haven’t spent enough on copper.
We don’t have enough of it in the ground.
We don’t have enough projects in the pipeline.
And most certainly we haven’t spent enough money spent looking for more of it.
Yes, there are a handful of miners that are exploring for more copper.
But as for most of the experts rotated through over the four-day conference, it won’t be anywhere near enough to satisfy future demand.
One study estimates the world will need an extra 19 million tonnes by 2050 to meet projected demand for copper. We currently use around 20 million tonnes per annum today. In short, we will need to double our current copper production in less than 30 years.
But just how big is that future number? Let’s try and put this demand in perspective.
The world’s largest copper mine, La Escondida in Chile, produces on average 1.1 million tonnes every year.
Annual production from the La Escondida mine is so big, it produces more copper than the world’s number two and three copper mines. Collahuasi and Buenavista del Cobre produce 610,000 kilos and 525,000 kilos of copper per annum respectively.
In other words, to meet projected demand, we somehow need a new La Escondida mine to come into production each year, for almost 20 years.
Given the pipeline of new copper projects is low – and they have a high failure rate – the consensus among miners is it will be impossible to increase the production of copper based on where we stand today.
Hence there is the urgency to invest in copper mining.
That was one key takeaway from the trip.
The other, surprisingly, was that sometimes the best advice is to keep it simple.
You can make money in bull markets, but bear markets will make you rich
Commodity prices are for the most part in something of a slump right now.
And much of the conference crowed seemed to want to know when the slump would be over – how much more pain did they have to endure? How much bigger will the falls be?
Rick – and many other speakers over the four days – were quick to point out that no one actually knows the answer to any of those questions.
He said based on his near 50-year career in commodity stock investing, markets can both rise higher and fall deeper than makes sense.
However, Rick added there are a couple of tell-tale signs to look out for which may indicate which stage of the market you are in.
I won’t do the story justice here, but Rick recounted how at a conference during the 2000s commodity boom, he quickly walked off stage after his presentation and headed to the bathroom.
Unbeknown to him, most of the front row from his presentation followed him into the men’s bathroom and proceeded to ask him questions about the markets while he, ah, ahem… did his business.
“That, ladies and gentlemen,” he told a near hysterical audience, “is how you can tell the market is nearing a top. When common sense disappears, and people start acting irrationally.”
The flip side of this, Rick said, is when people “… stop asking for a hot tip, or there are empty seats at a conference. Investors tend to flock to commodity stocks there when there is easy money is to be made. That’s the difference between a market peak and a bottom. It’s when you have to work, like learning how to value companies, learning more about mining, geology, the management teams rather than just follow the heard. That’s when you know there’s a market bottom somewhere nearby.”
The key, Rick says, is to be patient.
Do the work when the market hates a sector, and then be patient.
It may take much longer than you expected, but that’s the difference to making a little bit or a lot of money on your investments.
As commodity investors, we may not like the answer. But take it from someone who has personally made his fortune through two commodities booms and busts, good investing and patience are more important than any hot tip.
Until next time,
Editor, Exponential Investor