I'm reposting today's e-mail for obvious reasons.Enjoy.
Mike
True Wealth Tuesday: PLENTY OF UPSIDE IN PERTH
By Steve Sjuggerud
February 07, 2006
"Steve it's crazy – we're one of the biggest brokerage firms in Australia, and we just got one mining analyst in Perth."
-Tim, a stockbroker and True Wealth subscriber in Perth, Australia
I couldn't believe it when Tim said it…
To me, Australia is like the Saudi Arabia of minerals… and Western Australia is where the motherlode lies. Yet – can you believe it – one of the biggest firms in Australia only devotes one analyst to the whole thing.
To me, this is a sign there's no "bubble" in mining stocks yet – at least not in Australia's tucked away corner of the world.
I had lunch with Tim on Friday. He used to be a stockbroker with Merrill Lynch, until Merrill closed up shop in Perth. (I don't know if it's true or not, but I bet that the bottom of the bear market in commodities coincides with Merrill leaving Perth.)
Merrill may have left, but we haven't seen a feeding frenzy in gold mining shares yet in Perth…
For example, I met with the head of View Resources on Friday. He was scratching his head at the valuations of North American gold stocks. "We'll be producing gold soon, yet compared to North American gold stocks, our stock is valued like nobody cares."
It’s funny how the investment world works. Look - if you really want to make a large amount of money speculating, you've got to be willing to do two things…
First, you've got to be willing to be "out front" and bold. John Masters, a commodity guy from here Down Under, said it well in one of his annual reports:
"You have to recognize that every ‘out-front’ maneuver is going to be lonely. But if you feel entirely comfortable, then you're not far enough ahead to do any good… Only if you're far enough ahead to be at risk do you have a chance for large rewards."
We’ve been ‘out-front’ in True Wealth over the past few years with ignored assets like rare gold coins and timber. I mean, how many people bragged about investing in timber and gold coins at your last cocktail party? None.
The second thing you have to do to win at speculating is to let the asset go up… and up… and up… In other words, DON'T SELL TOO EARLY.
To do this part well, you've got to understand the simple secret of the “third degree.”
Let me explain…
Imagine for a minute… a newspaper holds a beauty contest, and YOU can win a jackpot by guessing the winner…
In the 1930s, legendary economist and speculator John Maynard Keynes described how to win this jackpot:
"It's not a case of choosing the prettiest according to your OWN judgment, he said. It's not even a case of choosing who the average person will think is pretty. You have to go to the third degree… where we devote our intelligences to anticipating what average opinions expect the average opinion to be."
In other words… you're not looking for value in the strict sense of the word. Instead, you're looking for an investment that the average guy will someday think the average guy will buy. Get there first.
My experiences in Perth – from brokers like Tim to guys like Derek at View Resources – tell me there's still plenty of upside in smaller mining shares, particularly in Australia.
Simply said, the average guy hasn't decided the other average guy is going to buy them yet.
They will.
Good investing,
Steve
P.S. In the latest issue of Sjuggerud Confidential, I share two supercheap real asset plays I've discovered here in Australia. For more on Sjuggerud Confidential, click here.
EDITOR'S NOTE -- On Saturday, we'll be sending you a Special Report on mining companies. Be on the lookout. More details will follow later in the week.
