(Kitco News) - Money manager Adrian Day tries to learn so much about a company that he’s not necessarily disappointed if the stock he owns should decline, since he may use this as an opportunity to buy even more shares.

Day is president and chief executive officer of Adrian Day Asset Management, founded in 1991 in Annapolis, Md. It has $160 million in assets under management.

The company looks for undervalued assets around the world and puts much of its emphasis on natural resources, including precious and base metals, oil, gas and agricultural commodities. Day is author of a book published last month, “Investing in Resources: How to Profit from the Outsize Potential and Avoid the Risk.”

Money put to work in the metals arena goes into senior, junior and exploration stocks, as well as precious-metals exchange-traded funds. At times, he might also own shares in other kinds of dividend-paying companies tied to resource markets, such as a bank that specializes in the sector.

“We are long-term global value investors,” Day said in an interview with Kitco News. “That implies we are fundamental investors rather than technical investors. I will use technicals just for helping me decide when to buy and when to sell. But I certainly do not use technicals in any way to determine whether or not I should be in a market.”

He focuses on companies that have good management, balance sheets, track records and business plans, and then sticks with them as long as the companies stick to their business plans or unless there is a fundamental change in their business.

Day emphasized the importance of not just researching companies but REALLY getting to know them. He figures a good test is whether an investor is happy holding a stock even when the price declines.

“That sounds a little bit peculiar,” he said. “But there are several stocks now where I would be delighted to see the stock price come down, even though we already own them, because I would buy more.”

In fact, he said, he tries to become so familiar with companies that he often buys their stocks without using protective stop-loss orders on the downside, particularly in the more volatile junior-mining sector. Otherwise, a participant might get stopped out of a position on “normal volatility,” he said.

Day said he mainly uses stops to capture profits. Suppose a stock rises to his target. Rather than simply selling to capture his profit, he might place a trailing stop-loss order to kick him out of the market on any pullback. Then he protects his profit, yet could see the profit increase further if the stock continues its ascent. He mainly uses this tactic, however, on shares of larger companies with high liquidity.

“I don’t like using a stop unless I have decided that I actually want to sell the stock anyway because it’s over-priced,” he said. “I never sell a stock hoping to buy it back cheaper. You’re normally disappointed in those endeavors.”

For junior-mining companies, he considers it especially important to know the management team, as well as their balance sheet and business plan.  He prefers a good combination of these factors over a company with a good property but a poor management team and balance sheet.

Day typically looks out three to five years before buying senior-mining stocks, although he may not always hold them this long. Because of the volatility in the junior sector, however, he is more likely to move in and out of these positions on a more frequent basis.

“Things can happen very quickly with juniors. A piece of news on one property is so much more significant for junior companies,” he said. “Or the departure of a senior manager is so much more important to a junior than a senior. You have to be quick to sell them if you no longer like them.”

Day Sees “Super Cycle” In Commodities Due To China’s Demand, Supply Issues

Day said the world is in the midst of a commodities “Super Cycle” driven by ever-increasing demand from China and other emerging economies, while there are supply constraints, such as limited discoveries of new metal deposits.

“I don’t think most investors have truly grasped the enormity of the coming gap between supply and demand,” he said. This is true for most natural resources, including base and precious metals, uranium and agricultural products.

“It’s become more and more obvious over the last couple of years that China’s demand is so much more important than what happens in the developed world,” he said. This showed when many of the base metals snapped back sharply from their 2008 sell-offs even as the economies of Western nations remained weak. Not only is China’s economy growing, but the country is moving toward more urbanization and industrialization with a growing middle class, all of which consume more commodities.

“This is going to keep a floor under the demand for resources, in my view, for many years.”

Day pointed out that there are eight cars per 1,000 people in China, far less than the rate of 550 to 600 per 1,000 in most developed nations. “Increasingly, people (in China) have the desire, they have the need and they now have the means to buy an automobile,” Day said. He said a survey earlier this year ago showed that 17% of the country’s populace plans to buy a car for their household in the next three years.

In another development, Day said mining companies are having troubles finding and developing major new deposits into economically viable mines in politically and environmentally friendly regions.

“We just don’t see where the future supply of metal to meet this growing demand is coming from right now,” Day said.

By Allen Sykora of Kitco News; asykora@kitco.com

<<Back to more Kitco exclusive news

Money-manager Adrian Day: "We are long-term global value investors."