A billionaire's guide for today's capital markets: contrarian investor Rick Rule
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Rick Rule is a legendary financier and resource stock speculator. Watch the full interview on his career rise and how to navigate the markets today, live now! https://www.matthewrnelson.ca/podcast
"It literally changed my life"
A 20 year old Rick Rule reflected upon his meeting with Peter Cundill, a legendary Canadian value investor who took an interest in Rick early on. Peter handed Rick the book "The Intelligent Investor" and to amuse him, Rick decided to read it and as soon as he started, he couldn't put it down. Rick Rule, the fierce contrarian investor came alive that day…
Rick's career started in the natural resource bull market of the 1970s…
"The consequence of all that (starting your career in a raging bull market) as a young male with probably more testosterone than serotonin, I came to confuse a bull market with brains… When that bull market turned into a bear market, I found out just how smart I was. I went from being a very wealthy young man to having a negative net worth."
Rick was fortunate enough to have lots of mentors who taught them everything they know.
"I was so lucky, I managed to attract an awful lot of mentors. I believe it was probably because I was so passionate. I believe I was fun to teach. It didn't occur to me that I was top stupid, too niave to realize that all these bright people that I wanted to ask questions wouldn't want to answer them. I had the courage to seek people out."
One of those mentors was Doug Casey, a well known American author, speculator, founder of Casey Research and above all, a personality.
Rick's Wildest Doug Casey Story
"Doug and I were in Cuba, before Americans were really supposed to be in Cuba. We were having a meal with a guy named Lahey, the minister of finance for Cuba."
"It was a very interesting meal, he was a very smart guy. I was asking him questions that were interesting to me about the character of the Cuban central bank reserves, what the reserves were, what reserves were probably considered equity to sustain the flow of currency, stuff like that. Mr. Lahey mentioned that most of their reserves were U.S dollars…
"At which point in time Doug absolutely exploded. He said, you commi's are special morons. You back a bankrupt currency with another bankrupt currency at the same time you give the benefit of seniority to the U.S government, which is your sworn enemy. Why would you do this?"
"And I'm thinking, oh Doug, I can't believe you did this. Mr. Lahey gets up and he leaves the room. I'm thinking, oh so this is really bad.
"He comes back in the room with a bottle of rum and a couple bottles of Coca-Cola. He said, I hadn't anticipated this conversation will become as interesting as this one obviously will be. I think we should drink a couple of Cuba Libre's and actually discuss relationships between the U.S. and Cuba.
Doug by being Doug, by being completely candid turned what otherwise would have been a fairly formalalistic staged discussion to an absolutely fascinating candid discussion, simply by being Doug."
How Rick Got Ahead Of The Game
Starting off his career, Rick was blessed to have received wisdom from many acclaimed businessmen and to be in the midst of a huge bull market. However, as far as that can take you, it's about the work that you do and what you bring to the table.
When asked what his best business personality traits are, Rick responded with this:
"I've always stuck with businesses that I was really interested in. What that meant is that people who were competing against me were merely in it for money. They couldn't compete with me, I was competing with myself to be the best I could be. They were competing with the market to buy a Lamborghini or something. What that meant was they might have put in 8 hard hours dreaming of a Lamborghini, while I put in 16 hard hours because I was fascinated with the subject at hand."
Rick's wife once said to him, "Don't worry about the money, worry about providing so much value to your customers that they won't go elsewhere."
"When I started worrying about being the best I could be and I started worrying about delivering value rather than making money. Matthew, within 90 days, I was making appreciably more money."
Rick's Portfolio Today And What He Is Doing
What does your portfolio look like today?
"Overweight cash, while it wasn't really a strategy, turns out to have been a pretty good thing. I did feel a year ago that we would have increasing volatility within the markets and I did feel as a result of rising interest rates that equity and bond prices would be hurt. The real reason I built up so much cash in my portfolio is because I think the junior resource stocks got way ahead of themselves and there wasn't much to buy. I've learned in prior bull markets that when there isn't much to buy, you want to do some selling."
"One of the things that I've learned in my life is that if you don't have an opinion on a company or an asset's value, the price information isn't worth much. Knowing a stock is selling for $1, $2, $10 or $100 is irrelevant if you don't know the company's value."
"I'm looking to increase my positions in private placement financings which I've basically been frozen out of for the last 3 years because they've been stupidly overpriced. Now we have a circumstance where a lot of junior issuers who played chicken with capital markets when they should've raised money 3 or 6 months ago but they thought they could do it with less dilution at a higher share price are going to run out of money. They are going to have to offer terms that are more advantageous to check writers than they have in the last 3 years."
What resource are you the most confident about right now?
"For most people gold, I think most people should be more defensive than they are and gold is the ultimate cash from my point of view. I believe the gold price in the next 5 years is much more likely to go higher than other people think it will, simply because of quantitative easing."
What makes you want to buy a resource stock (juniors)?
"It begins with people… The chief thing about a junior resource stock is that these are knowledge businesses, not asset businesses. Aligning yourself with serially successful entrepreneurs, the Ross Beaty's, the Clyde Johnson's, the Bob Quartermain's, the Lukas Lundin's is the single most important thing you can do."
"Most people pay attention to price, the stock is at $0.56, $0.67, who gives a shit. If you don't know what the stock is worth, who cares what it's selling for."
How Rick Met Peter Brown
"When I immigrated to Canada, I had to have a job to put myself through school. The only marketable skills I had at age 18 was I was a very large, aggressive young man, who had boxed for 10 years. To put myself through school because I needed a job at night, I became a bouncer and through a series of mistakes I went from being a bouncer to a bar owner."
"That bar was frequently visited by Peter Brown and the rest of the Canaccord crew and I guess Peter had the opportunity to watch how hard I worked at a business that I hated, which was the bar business. He had some faith that if I put that much effort into something I didn't like, if I liked something then I would do well at it. At any rate, I seemed to have had at that point in time, an uncanny ability to add energy to the knowledge that older, more skilled people had."
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