In today’s Exponential Investor

  • You may be a retail investor, but you should act like big money
  • The price doesn’t matter
  • Bull markets make you money, but bear markets make you rich

That’s not a crash… whispers the old timer.

I might sit this one out… whimpers the Gen Xer with a mortgage.

Nah, it’s a chance to buy the dip… says the new kid buying stocks through a brokerage-free trading app.

How much more can I afford to lose?… gaspsthe single parent.

Wish I’d moved to cash sooner… mutters the soon-to-be retiree.

I need to sell everything… panics the newbie investor.

This is the moment I’ve been waiting for… yahoos the investor in it for the long run.

Meh… says the market veteran, researching their next business.

Think like big money

Two weeks ago, I was at Australian mining conference.

The halls were full of pink-sheet-type explorers with pretty posters of their best discovery on the makeshift walls. Or maps of where their best discovery might be. Or drone pictures of nothing but bushland while they waited for exploration permits to come through…

The place was packed. Every chair was taken for most of the presentations. The walkways were alive with chatter. There were queues for lunch… and even longer queues for coffee (a stand I got to know well).

Frankly, it was fun to be back. Listening to the directors of the companies talk up their potential. Hearing geologists get all excited about the rocks. Seeing if I could pick up a whisper as to whether any of the “big” international investors might take a nibble at these tiny Australian names.

The hefty ticket price of this explorers’ conference means it’s not aimed at retail investors. Rather this shindig is “industry talking to industry”. That is, brokers, private equity firms and high-net-worth investors. The kind of folk who’d put not a few thousand quid but several million into an explorer with the right project…

… i.e. with lots of money looking for a home. All the conference attendees had another thing in common. Not one talked about the price of commodities or shares.

Don’t look at the price

After chatting with a few private equity firms in the past couple of years, I’ve come to realise that many of them were cashed up. And more than they expected to be. Despite Covid disruptions –particularly in Australia – and staff and equipment shortages, many of them have been able to keep their investments on track.

They’ve managed to exit their resource projects on time, and with far more profits than they were expecting when they first took a stake all those years ago.

Hence their attendance at an explorers’ conference in Sydney.  

Many were out hunting for their next big investment. All asking the big questions. What’s in the ground? How big will the drilling programme be? How much money will they really need to complete the next stage of drilling? Who will be looking for the stuff in the ground (yep, everyone in the industry has their favourite geologists – we’ll get into that another time).

While the punters asked the same questions a different way, they all had one thing in common. No one cared about the price of a particular commodity that day. You would never have known that copper was at an eight-month low, or that nickel had shaken off the six-figure March madness.

And there’s a good reason for that.

No firms that are about to take a large stake in a resource business give a hoot about the daily, or weekly, price of a mineral. By the time they’ve shuffled up to the conference, they’ve already done their homework on the resources they are interested in. Odds are they’ve already crunched the numbers on the companies they want to speak to, as well.

But companies with money wanting to turn that into even more money by betting on rocks certainly would not have bothered to check, say, the lithium or cobalt price that morning.

Why? Because big money isn’t investing in the short term. It’s not taking a stake in a business based on short-term price cycles, but looking for a multiyear commodity investment.

Correction or crash?

It has been a bumpy start to the year for stock markets.

The mining-heavy S&P/ASX 200 (Australia’s major index) is down almost 9% since the last week of April. The US’s tech-heavy S&P 500 is down almost 10% over the same period. The FTSE 100 has surprisingly not been hit as hard, and is lower by 5%.

It’s far worse if you look at mining indices. An Australian resource index is down 15% and a global mining index has lost a whopping 20% since the middle of April.

A general rule of thumb when it comes to heavy market selling for the broader market is that a 10% fall from the high is a correction and a 20% fall is a crash. Looking at indices only, we are still in correction territory.

How much longer and deeper markets will fall is anyone’s guess. And yes, I do mean guess.

Investors are witnessing a bubbly market with overstretched company valuations slowly leaking. Similar to property, investing in equities increased with loose central-bank policies. Money will always move to where the easiest return is made.

Bull markets are fun. You look clever without really doing much. In a bull market, you’re really only following the money.

Bear markets, on the other hand, are hard. Momentum is down. Moving with the heard is a terrible decision. If you want to make money, you must look for companies with great assets that have been unfairly bashed around by the market conditions. When you make money in a bear market, it’s because you’re astute.

Which is exactly what big money is doing at present. Rather than panicking, it’s slowly assessing future projects and thinking many years into the future. Today’s price isn’t important, only tomorrow’s opportunity.

Until next time,

Shae Russell
Co-editor, Exponential Investor

PS Speaking of tomorrow’s opportunity, make sure you click here to see what Sam thinks the wildest investment idea in the market may be right now.