Sprott Asset Management's Rick Rule is one of the smartest guys in the resource investing world — and one of the most reasonable — which has made his interviews of the past few years a little disconcerting. Along with the obligatory positive thoughts on the long-term value of gold and silver and the resulting bright future for the best precious metals miners, he always points out that the sector hasn't yet endured a capitulation, where everyone just gives up and sells at any price, tanking prices and setting the stage for the next bull market.
Knowing that this kind of existential crisis is still out there has taken the fun out of buying ever-cheaper mining stocks, which of course has been Rule's point. Just because something is cheap doesn't mean it can't get a lot cheaper before its bear market is done.
Some representative quotes from late in 2014:
Complete Capitulation Hasn't Arrived: Rick Rule
Henry Bonner of Sprott's Thoughts spoke to Rick Rule, chairman of Sprott US Holdings, to find out whether gold stocks' recent problems are the result of capitulation “or just a particularly nasty sell-off.”
As quoted in the market news:
In a complete capitulation, stocks melt down dramatically and some stocks just go ‘no bid.' That hasn't happened yet, which means that we may be witnessing a very nasty sell-off, but not complete capitulation.
‘For those of you fond of surf,' Rick explained at our San Diego office, ‘capitulation is sort of like getting caught under a particularly big wave. You get pummeled and tumbled around under water. Capitulation in 2000 only lasted for about two weeks. Just like when you're stuck underwater and struggling to come back up, a short amount of time can seem like an eternity.'
The most important thing to do now? Prepare yourself psychologically.
‘Abandon your ‘hope stocks' – the ones where there is no catalyst, asset, or enough cash to do anything important. Get rid of the stocks you own that have no reason to go up, and get into ones that do,' Rick advises. In a complete sell-off, you may find that just a few investors will make the difference as to whether a particular stock survives, which means you must be willing to be one of those investors if the market gets much worse.
