Rick Rule: "I Sleep Better at Night Owning Physical Precious Metals"

Rick Rule of Sprott US Holdings is a popular figure in the resource sector, and that couldn’t have been more clear at the recent International Metal Writers Conference. He gave some of the most well-attended talks at the show, covering uranium, private placements and more.
Speaking to the Investing News Network midway through the event, he expressed positivity about commodities overall, commenting, “I like the whole space.” In the near term, however, he’s most interested in precious metals. “The precious metals stocks I think are reasonably priced,” he said, adding, “I don’t think they’re cheap, but they almost never become cheap.”
That said, Rule cautioned investors not to bite off more than they can chew. “[Investors should] own the number of stocks that corresponds with the number of hours per month that they’re willing to spend on research,” he said. In other words, if you’re willing to spend 10 hours a month on research, you can own 10 stocks — it’s up to each individual to decide their limit.
In terms of which stocks are the best, Rule gave a few tips on how to identify good ones. He said he looks for companies with management teams that have been serially successful (read more on that here) and projects that could become large — perhaps most importantly, however, he focuses on understanding what a company’s value proposition is.
Watch the whole interview above, or click the links below to skip to different parts:

• 0:21 (gold and the US dollar) — “gold has done very, very well in non-US dollar terms.”

• 2:14 (advice on choosing stocks) — Rule explains his “holy grail” for picking good companies.

• 4:25 (why to own physical precious metals) — “I sleep better at night owning physical precious metals.”

• 5:07 (bitcoin and distributed ledger technology) — “I was until very recently a small bitcoin owner.”

The transcript for this interview can be viewed below.

INN: Last time we talked was at PDAC. You said we were in a rare situation [where] gold and the US dollar were both doing well. Can you start by giving me an update on what’s going on?

RR: I think that’s still the case. The US dollar feels like it’s trying to roll over a little bit. Gold has done very well in non-US-dollar terms. So I think the theme that we talked about at PDAC continues. Some of your listeners will remember the context of that, which was that twice before in my career gold has done well in dollar terms, and in both cases the dollar subsequently rolled over and gold did extremely well. We can only hope that past is prologue.

INN: How are you feeling about the resource as space as a whole right now? Are there any commodities you’re liking in particular?

RR: I like the whole space. Your readers need to take into account that my time frames are often longer than theirs are. But I’m attracted in the near term to the precious metals. The precious metals stocks I think are reasonably priced. I don’t think they’re cheap, but they almost never become cheap. So from a relative point of view, when they’re reasonably priced in the historical context they are cheap.

INN: We’re here today at International Metal Writers Conference, and you’re going to be participating in a number of talks and panels. I managed to catch your first one — you were moderating a talk on stock picks from a number of different people. I wondered if you have a stock pick of your own you’re interested in sharing.

RR: I’m not allowed to do that as a consequence of US securities regulations. If you’re a licensed person, which I am, that is alleged to constitute investment advice. And if you give that investment advice, it has to be suitable for the people you’re talking to, and I can’t know among all of your subscribers whether or not it is suitable, so regretfully no.

INN: Can you share some advice on the things you look at when you’re looking for a good company?

RR: Absolutely. My talk tomorrow is going to be that in early stage companies, people are more important than properties. The first thing I look for is management teams that have been serially successful. I look to the Lukas Lundins, I look to the Bob Quartermains, the Ross Beatys, the Robert Friedlands of the world, and other people would be wise to do that too.

Secondly, people need to understand that this is a business that’s really fraught with risk. The consequence of that is that you want to invest in projects that could become large. Small mines make small money, but have big risks; big mines can make you big money. So we want project size and we want very high-quality people.

The third thing is that we want to understand what the value driver is. Most people don’t understand that in junior stock speculation the name of the game is answering unanswered questions. I want to know what the unanswered question is, what the process is to answer it, what a “yes” answer is worth, what the probability of the answer is and how much time and money that will take. That’s my sort of Holy Grail.

INN: You mentioned this in your talk — people really do come here looking for stock picks, they want to have names. I think people are going to come away from here with lots of different names from lots of different people. What’s a reasonable number of stocks for the average investor to have in their portfolio?

RR: Charlotte, that is such a good question. We ask people to own the number of stocks that corresponds with the number of hours per month that they’re willing to spend on research. So if you’re actually going to spend 10 hours a month, you can own 10 stocks; if you’re going to spend 20 hours a month, you can own 20 stocks. It’s important to understand the companies that you own better than your competition. Read the annual report, read the press releases, read the filing statements, read what people say about the companies. It’s up to the individual how many stocks he or she can own. That’s a function of how much work they’re willing to put in. That’s a great question, thank you for asking that.

INN: No problem. What about physical metal? Should the average person be looking at that too, and how should they balance that out with their stocks?

RR: I absolutely believe individual investors should own precious metals. I believe that you own them the same way that you own insurance. Understand that if you own them, you don’t necessarily want them to go up in price because it changes the way you live. If you believe like I believe that gold is, if you will, social catastrophe insurance, you don’t really want the price to go up. Just like any other insurance policy, you don’t want to get paid off — life insurance presumes that somebody dies. But yes, I sleep better at night owning physical precious metals.

INN: Alright, last question — it’s a bit of a different one. There are a couple of talks today on bitcoin and the blockchain, which I thought was unusual. I wanted to ask about your thoughts on that space.

RR: I think it’s here at the conference because people are interested in it, I think that’s a marketing ploy. I was until very recently a small bitcoin owner. Bitcoin has done so well recently. My experience has been that [with] hockey stick charts, straight-up charts, the back part is as steep as the front. So I am now an ex-bitcoin owner. But I will say that Sprott has a rather large investment in distributed ledger technology. We’re trying to create a gold token, a physically backed gold instrument that will trade with distributed ledger technology. So I’m very, very interested in the technology, and I’m interested in bitcoin — I’m just no longer long.

But you know Charlotte, when you think about it, you and I are both consumers of currency. You probably operate in Canadian dollars and US dollars, maybe in precious metals. As consumers we want lots of currency. We want competition between currencies to deliver utility for us — if you look at it from that point of view, you want bitcoin to succeed, you want the Canadian dollar to succeed, you want the Euro to succeed, you want the dollar to succeed — you want lots and lots and lots of competition for your utility.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Related reading:
International Metal Writers Conference 2017, Day 1: Notes from the Floor
International Metal Writers Conference 2017, Day 2: Notes from the Floor