Rick Rule: How to Succeed in This Bull Market

It’s a bull market for gold, but Rick Rule, president and CEO of Sprott US Holdings, is advising investors to take caution—being careful and deliberate is still important amidst all of the excitement.
We spoke with Rule at the recent Sprott Natural Resource Symposium in Vancouver, where he shared his views on the current bull market, as well as a few strategies he thinks could help investors succeed. He also spoke about a few stocks he’s interested in himself at the moment.
Here’s a sample of the thoughts Rule shared:

• “I would ask your listeners and readers to limit the number of stocks they own to the number of stocks that they’re willing to spend one hour per month on each.”
• “The truth is that you don’t sell when you want to sell, you sell when you can sell, when there’s volume in the market.”
• “Looking forward two years, two and a half years, my suspicion is that we’ll be in a synchronized bull market with precious metals and all of the other metals.”

Listen to the full interview, or read the full transcript below, for more of what Rule had to say:

Interview Transcript
INN: Hi, I’m Teresa Matich with the Investing News Network. And here with me today is Rick Rule, President and CEO of Sprott US Holdings. Rick, thank you for joining me.
RR: Thanks for the opportunity, Teresa.
INN: So how does it feel to be back in a bull market, Rick?
RR: Bittersweet. It was easier to make recommendations when the market was less frothy. It’s nice, however to see deserving projects getting funded and it’s nice to see smiles on clients’ faces rather than apprehension. So I have mixed emotions, I like things better when other people hate them.
There’s a time to write checks and there’s a time to cash checks. This is probably a time to write a check for the next sort of commodities. And it’s probably time to cash checks and cash some checks with regards to the junior gold issuers.
INN: What other commodities are you looking at?
RR: The whole range of commodities. Mercifully, the gold bull market has taken the lustre off of everything else. Looking forward two years, two and a half years, my suspicion is that we’ll be in a synchronized bull market with precious metals and all of the other metals.
The good news with regards to the other metals is that everybody hates them now and they’re cheap. Will copper work? Yes. Will zinc work? Yes. Will nickel work? Yes. Will oil and gas work? Yes. Will uranium work? Yes. When? I don’t know. What I’ve learned in my declining years, however, is if I ask myself a question where the answer begins with ‘when’ rather than ‘if’, I’ve asked myself a very high quality question.

INN: That makes sense. So what would you say to investors who are looking at the gold space now, and maybe they missed out on the big names earlier this year, but they’re still interested. Is it too late for them?
RR: No, I don’t think so. I think if you don’t have gold in your portfolio at all you have to add gold out of self-defence. I would tell most speculators, not most investors, most speculators that you probably start now in the junior gold space by buying the ETF. You buy the sector and you work on beta, not alpha. You concentrate on real, real, real liquidity and don’t take individual company risk until you come to understand the space.
I would also ask your listeners, many of whom I know and am fond of, that they remember not to buy too many stocks. It’s important that you understand the stocks that you own. And I would ask your listeners and readers to limit the number of stocks they own to the number of stocks that they’re willing to spend one hour per month on each. Read the annual report. Read the quarterly releases. Read the letter to shareholders. Read the proxy. Do the work. If you’re not willing to do the work, buy the ETF. Get beta from the sector, not alpha or negative alpha, from your mistakes.
INN: Absolutely. And what’s your prediction for the gold price over the next year? A lot of people here have said there are going to be some dips and gold’s not going to move up in a completely straight line, of course. So what are some catalysts that investors can look for to maybe take an opportunity and get in on a dip?
RR: Well, with the caveat that at 63 years of age, my crystal ball is cracked and cloudy, all I’m willing to say with regards to the gold price is, over time, higher. I don’t have a specific forecast because I’m too old and smart to let you trick me into it.
But what I can say is this, in my experience gold—there’s been many factors that influence the gold price, but the most important has been that it trades inversely mostly with the US 10-year treasury. And the US 10-year treasury has been in a 33-year bull market. Everybody, I think, has to agree that while it may have some room further to run, that bull market is very long of tooth. The yield on the US 10-year treasury has fallen from 15.6 to 1.3. So arithmetically it doesn’t have much further to fall. If you believe in inverse correlation and you agree that the US 10-year treasury is towards the end of its bull market, then you must believe that gold is towards the beginning of its bull market because it trades conversely.
The trigger for the move that we’ve seen in gold has been zero interest rate and in fact, negative interest rate environments with regards to sovereigns. And it would appear that that is gaining steam. So while I can’t give you a specific gold price forecast and I even can’t give you a specific time frame in which this will occur, again, we’re talking about a question where the answer begins with ‘when’ not ‘if’ and that’s very attractive.
INN: I’ve heard in the past other people say too that when there’s seasonality in the gold price and when you see gold rising over the summer, that can be an indication of a bull market. It’s pretty obvious at this point, but what would you say to that?
RR: I’ve heard those same discussions. I’ve heard that gold, typically, does better in the fall, the Indian wedding season as an example like that. These aren’t phenomenon that I personally am familiar with, so while I’m interested in them I can’t give them credence and I can’t criticize them.
What I know is that gold does well during periods of instability, and I am rock bottom certain that we are heading into a period of instability. Gold does well when there is a lack of faith in government institutions and a lack of faith in financial services institutions and anybody who looks at government institutions, either in my country or yours, can’t have faith inspired by the circumstances in front of us. Both of which auger well for gold irrespective of its seasonality.

INN: And on that note, how do you think the US election could affect the gold price?
RR: I don’t think it’ll affect it particularly, I think the world economy is, however halting and however weak, strong enough to survive either moron in my country. The good news, I suspect, if Trump were to win—I don’t think Trump winning is good news by the way—the good news if Trump won would be that he would have so alienated congress that we’d have four years where nothing got done and a completely ineffective legislature would probably be a very good thing for the United States.
Almost every good thing that’s happened in America in the last 200 years has been done by private parties and almost all of the harm done in the United States for the last 200 years has been done by the President or congress. So a President and congress that were locked in a war where neither one would probably be good for the economy. The truth is that, for me, Trump is such an objectionable human being that even a positive outcome would still leave me angry.
INN: Yes, of course. And to give the converse of my earlier question about investors just looking at the space now, you gave an earlier talk on, “You felt through the pain, now maximize the gain,” for the opposite investors who’ve maybe even be riding this out over the past few years. Could you talk about that?
RR: I’m not sure I understand the question.
INN: Oh, what would you say to investors who, maybe they’re just seeing some gains now and maybe they want to—
RR: Sure. Investors who came in last year, real contrarian investors who have seen their positions in speculative stocks up two or three hundred percent, need to recover their initial capital. The truth is that you don’t sell when you want to sell, you sell when you can sell, when there’s volume in the market.
You feel good about a fifty cent stock that’s a dollar fifty stock but unless something has changed with the company, not just with regards to sentiment, what you need to do is take some money off the table with regards to stocks like this. I call this the point of no concern. You bought 10,000 shares of stock, the stock tripled, you sell 5,000 so you have your money back, you still have 5,000 shares. The point of no concern means that you’re in this risk free, as opposed to the point of no return where you’re down 90 percent on your investments, which happened to many people over the last five years.
Again, I need to differentiate between people who had the foresight to be in the sector as contrarians and people who are coming into the sector now, catching the train late. The people who come in who are under invested in gold also run a risk, but those people should probably be buying beta in the sector by buying the ETFs, preferably, of course, the Sprott ETFs. Whereas investors who took the individual stock risk and who are already up two or three hundred percent, need to take some cash out.
INN: Right, and for those of our listeners who are interested in individual stocks, I’ve heard a lot that not everything is completely over valued yet. So to quote yourself, could you serve us some fish, please?
RR: Sure, absolutely. With the caveat that I’m not allowed to make stock picks because stock picks would require that I knew more about the individual means and needs of your listeners—
INN: Of course.
RR: What I would rather talk to you about, I guess, is a couple of things that I’m buying personally.
INN: Ok.
RR: From my own account, in other words, these aren’t for you, these are for me.
I would say that my most aggressive purchases personally in this market have been things like Ivanhoe Mines (TSX:IVN), Robert Friedland’s wonderful entry. Could things go wrong? Of course. They’re in South Africa, they’re in Congo, it’s going to be capital intensive. But this is the best promoter of this epoch with the best range of assets I’ve ever seen in a junior mining company. So I like that company.
I’m a very large shareholder of Nevsun (TSX:NSU), both as a consequence of owning Nevsun before and a consequence of it’s taking over Reservoir where I was among the larger shareholders. And I’m actively buying more Nevsun. It pays me a nice dividend while I wait. They’re moving into a zinc dominant phase in their mine just as the zinc price rises and, of course, they have the Timok mine to build. So you no longer have to worry about how they’re going to grow. There’s great visibility in terms of how they’re going to grow.
Three other stocks that are present at this conference that interest me, four actually, are stocks that are involved in very high quality discoveries. We see a lot of exploration work taking place out there but most of it has been unsuccessful. Amazingly, given the constrained exploration budgets in the last five years, the world is working on four very nice discoveries right now.
There’s a discovery in Mexico, which is a joint venture between two Vancouver juniors, one called Orex Resources (TSXV:REX) and another called Canasil Resources (TSXV:CLZ), where we have been fairly active buyers.
Separately, there’s a separate silver discovery in Mexico that is being run by an Australian junior called Azure Minerals (ASX:AZS), also an exhibitor at this conference.
A third discovery which has got a lot of attention, that we really like, is the Hot Maden discovery in Turkey that has been brought forward by Mariana Resources (TSXV:MRY), a London listed company that is just now coming to North America and [is now listed] on the Toronto Stock Exchange.
The fourth discovery, which wasn’t present here at this conference, is a discovery in West Africa that’s being brought forward by Cardinal Resources (ASX:CDV).
My own supposition is that the mining industry is perilously short of high quality new deposits, and high quality discoveries will be taken over by other mining companies at truly eye popping margins because of their scarcity. And to have four active discoveries on the market at one point in time, high quality discoveries—by no means guaranteed to be mines, but certainly with high probability of becoming high quality mines—is very rare and very attractive.
INN: Right. That’s a theme we’ve been hearing from a lot of people. Thank you so much, Rick.
RR: Always a pleasure, thank you for the opportunity.
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Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.