Lead-Lag Live
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Lead-Lag Live
Rick Rule on Price Controls, Gold Investment Strategies, and Natural Resource Market Dynamics
Experience the financial wisdom of Rick Rule, a luminary in natural resource finance, as we dissect the intricate effects of price controls and their historic failures. Learn how rent controls in New York City transformed vibrant neighborhoods into neglected slums and understand the broader societal impacts of price manipulation. Rick shares his career journey, introduces Battle Bank, and provides a thorough analysis of the Federal Reserve's recent rate cut and its potential to weaken fiat currencies while bolstering gold prices.
Discover economic parallels between the 1970s inflationary era and today's financial turbulence. Rick delves into the historical inefficacy of price controls and the shift from economic optimism to a cautionary stance. Hear his compelling argument for gold and silver as safe havens in volatile markets, and reflect on past successes with silver stocks during bull markets. We also examine the essential yet often overlooked issue of underinvestment in key commodities, potential supply shortages, and the subsequent impact on market prices.
Our conversation doesn't stop there; we tackle the complexities of investing in the gold mining sector, focusing on the crucial role of effective leadership and strategic patience. Rick offers his personal investment strategies, emphasizing the importance of holding investments long-term for substantial returns. He also highlights opportunities for further education through his virtual bootcamps and resources available on Rule Investment Media. Tune in to gain invaluable insights into the natural resources sector and arm yourself with the knowledge to navigate uncertain financial landscapes.
The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
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Well, price controls really has a track record unblemished by success. If you look back to markets where they had price controls, what you ended up having was a supply control. You also had a diversion of revenue from the people who could increase supply, which is to say private industry, to those who always constrained supply, which is to say the US government. It may be that price controls become popular again, I don't know. My hope is that an examination of history will cause even our political elites to be less stupid in the future than they have been in the past. I've never seen price controls work. Let's look at New York City. The consequence of rent controls Slums, underinvestment in rental construction, a lack of availability of rental accommodation. A track record, as I say, unblemished by success. Successful, of course, for those people who were able to obtain rent-controlled units in the 1970s and 1980s and enjoy substantially below-market rents today, at the expense of the broader community all right, everybody.
Speaker 2:I promised uh rick rule and I have delivered, although nine minutes a little bit after uh the top of the hour. Appreciate those that continue to watch these shows. This is the second episode of the day I am uh streaming and recording. I'm always excited whenever I get a chance to talk to Mr Rick Rule, given that he's in far better shape than I am and slightly older, and he's been tracking my fasting progress. He does not fast because he doesn't need to Look at him.
Speaker 2:If any of you want to engage or ask questions during this roughly 50-minute conversation, I can see your comments on X, on LinkedIn, on YouTube. Let's make this interactive. Like the last live stream, this will be an edited podcast under Lead Lag Live on all of your favorite platforms YouTube, apple, spotify. Please help me keep that momentum going as far as the downloads and the reach. And with all that said, my name is Michael Guyatt, publisher of the Lead Lag Report, and join me for, as I mentioned, the rough 50 minute time period to Mr Rick Rule, the legend himself, as some people would say, rick. For those who don't know about you and your incredible background, talk about some of the highlights of your investment career and what are you doing? Growing?
Speaker 1:Well, I guess you could say I'm a boring guy. I attended university majoring in natural resource finance and I've been involved in natural resource investing and speculating since 1974, so 50 years. A consequence of building financial services firms around natural resources is that I'm also a reasonably accomplished financial services investor outside natural resources, including my latest effort, which you can see on my shirt Battle Bank. This will be the seventh local bank that I've been seriously involved in. It's a follow-on to a bank that I helped create some years ago called EverBank, which we grew from zero to $28 billion before selling it to TIAA Cref Overt commercial. If any of you are unhappy with your current bank for any reason, I suggest that applies to all of you. Check out battlebankcom See what the battle for better banking looks like.
Speaker 2:So we're one day removed from the in quotes historic Fed decision 50 basis points. You're well-versed in all commodities. I'm curious which commodity do you think benefits the most from the Fed easing?
Speaker 1:I think in the near term and I define the near term as a year gold. Gold, in my experience, has done particularly well when people are concerned about the maintenance of purchasing power in their domestic currency. This Fed decision is really interesting. We're told we have a great economy and the equities market would suggest we have a great economy. If we have a great economy, why do we need a 50 basis point rate cut? That's of interest to me.
Speaker 1:A broader topic, I think, Michael, around gold is the fact that if you believe, as I do, that the gold price does well when people are concerned about the maintenance of purchasing power in fiat denominated instruments, let's do a little bit of arithmetic. The government would have you believe that inflation, their measure of the deterioration of the purchasing power of the US dollar, according to the CPI, is cruising along at 2.6., If you believe that earning 4.2, 4.3, or now 4 in the US 10-year treasury isn't a bad deal, you get paid 4% real yield in a currency depreciating by 2.6% a year, you get a positive real yield. I don't believe those numbers, Michael. I do a thought exercise every year and I have for six years around the pricing of the basket of goods and services that I consume in my life. The government, when it's inconvenient, doesn't include food or fuel. Unlike you, Michael, I'm not on a fast, so the price of food is of some import to me. Importantly, the government number and the CPI doesn't include the cost of government itself, While tax is usually the largest component of every household budget, every working family in the United States.
Speaker 1:If you believe, as I do, that the deterioration of the purchasing power of the US dollar is more like seven and a half it is to 2.5, then the fact that you're getting paid 4% on your 10-year treasury, on your deposit products, in a currency that's depreciating by 7.5%, means that the money that you're saving is losing you 3.5% a year in purchasing power. There is nothing in the world that would cause me as much concern about the deterioration of my purchasing power as that simple piece of math. Cutting the reference rate, cutting the Fed rate, cuts the yields on other savings deposits while at the same time likely increasing the deterioration of the currency in real terms, and I would suggest that the beneficiary of this, once that arithmetic comes to be felt in the market, will be first in the gold market.
Speaker 2:At what point does that deterioration of purchasing power really impact societal motivation? I mean, why would anybody work as hard as they're working?
Speaker 1:if it's going to be taken away. So my answer is going to be necessarily dry. I came into the business in the decade of the 70s and the circumstance that confronts us now confronted us in 1968, when I was a little too young to understand it. But it was pretty clear, after having fought the war in Vietnam and the war on poverty, that we had more obligations as a society than we could service. It became fairly obvious too that we couldn't raise tax to cover the net present value of our obligations. So what we did in the period 1970 to 1981 is that we reduced the purchasing power of the dollar through inflation by over 80% in 11 short years. The consequence of that is that the gold price, of course, went from a price controlled $35 an ounce, pardon me to a price in excess of $800 per ounce. What's germane to the question is that the writing was on the wall around inflation beginning in 1968, but it didn't become a matter of popular concern until 1972 or 1973.
Speaker 1:If you dial back to that circumstance, if you dial back to those days, we had experienced very, very, very buoyant economic conditions from the end of World War II, say 1946, all the way through 1968. The nifty 50 is an example the wonderful growth of American hegemony around the world, the strength of the US dollar, and people were conditioned to be optimistic. I would suggest that we have lived through an even longer and even more beneficent circumstance from 1982 to 2022. Wonderful boom in I mean wonderful strength in the US dollar, wonderful equity markets, wonderful bond markets, a lot of animal spirits, people being trained to buy the dip, people not being afraid. I personally believe that this beneficent epoch that we enjoyed, this four-decade epoch, came to an end in 2022. And I personally believe that there will be a lag in psychology from a psychology of boom to a psychology of caution.
Speaker 1:By the way, I'm not calling for the greater depression. I'm not calling for the end of the US dollar. I'm not doing all that doom and gloom stuff. All I'm not calling for the end of the US dollar. I'm not doing all that doom and gloom stuff. All I'm saying is that there is going to be a reckoning as a consequence of the obligation that our society favors, and that that reckoning, I think, almost necessarily results in the continued and accelerated depreciation of the purchasing power of the US dollar and, increasingly, too, a recognition of the benefits of gold, a recognition that we last saw to this extent in 1970 to 1982, but we also saw in fairly dramatic form in the period 2000 to 2012.
Speaker 2:You use the term price controls and I'm curious, given that there are concerns that the Harris administration would usher in price controls. What's the history of price controls and commodity prices?
Speaker 1:Well, price controls really has a track record unblemished by success. If you look back to markets where they had price controls, what you ended up having was a supply control. You also had a diversion of revenue from the people who could increase supply, which is to say private industry, to those who always constrained supply, which is to say the US government. It may be that price controls become popular again, I don't know. My hope is that an examination of history will cause even our political elites to be less stupid in the future than they have been in the past. I've never seen price controls work. Let's look at New York City. The consequence of rent controls Slums, underinvestment in rental construction, a lack of availability of rental accommodation. A track record, as I say, unblemished by success. Successful, of course, for those people who were able to obtain rent controlled units in the 1970s and 1980s and enjoy substantially below market rents today, at the expense of the broader community.
Speaker 1:Price controls never work. Markets always work. The cure for low prices is always low prices. The cure for high prices is always high prices. But markets are missy. They take time. Markets have victims. Markets have beneficiaries. The victims are always covetous of the beneficiaries. The victims are also more numerous and they vote.
Speaker 2:Speaking about psychology, there's a question here from Tom Wolf on YouTube. I don't know if this is an accurate characterization, but you said you were psychologically unable to chase silver. Do you feel you have a sufficient position and are you still accumulating silver selectively?
Speaker 1:I am not buying silver bullion. I have a fairly large position in gold bullion. By the way, I'm stupid to do that. I'm the largest shareholder of Sprott Inc. And if the gold market and silver market run in theory, the most important brand name for retail investors in gold in North America is Sprott. I will do well. But I own gold bullion because it helps me sleep night and at age 71, that's a real benefit.
Speaker 1:I do own silver stocks and I own silver stocks because towards the middle of a gold bull market, through the end of a gold bull market, through the end of the gold bull market, historically there is no asset class that performs as well to the upside as the silver stocks. The population of legitimate silver stocks is very small and their combined market capitalizations are very small. Four times before in my career, the precious metals narrative has been such that the generalist investors go first into the gold equities but later into the silver equities and the combined market capitalizations of the silver equities. We'll call that. The silver silo is so small that it can't handle the influx of capital that comes in and the results can be very dramatic. Michael, I remember in the decade of the 70s when I was too young and too dumb to play. Well, coeur d'Alene Mines went from 10 cents a share to $65. In the latter part of the decade of the 80s before that wonderful bull market that happened 91 to 96, I was able to finance two small silver companies One, pan American Silver at 50 cents, the other, silver Standard at 72 cents. Six or seven years later, both of those stocks had crested through $40.
Speaker 1:So when I say that in a silver bull market the asset class that performs most dramatically to the upside is silver stocks, that is an indication. I was vocally bullish about silver stocks in December of last year and January of this year for the simple reason that there was so much hate concerning them on social media. I determined that, from my own viewpoint, almost everybody who wanted to sell had sold because there was no love, there was only hate. The consequence of that is that that subset of silver stocks has done very, very well, up about 50, 60% in the first, what, seven, eight months of 2024. In direct answer to the question, about 2.5% of my total portfolio was invested in silver equities. That has become about 3.4% 3.5% of my portfolio, not because I've added more money to it, but simply because the prices of the small silver stocks has outperformed most other asset classes in the ensuing period.
Speaker 2:Speaking about playing with the junior side of things, this one from Unite, America Unite. Not investment advice, but I think it's worth bringing it up. I want exposure to junior miners with less potential downside, don't we all? Is Empress Royalty a good vehicle for this?
Speaker 1:I'm an Empress Royalty shareholder because I think that the company is selling for a little bit less than its royalties are worth. In other words, I think it could be liquidated at a premium to the current market cap. So my downside right now is an upside. One needs to understand that Empress Royalty is substandard. It is too small a company to, over time, withstand the general and administrative expense associated with building a royalty company. So Empress Royalty will be forced, will have to grow or else the cost of running the company will cannibalize the premium of value to market capitalization.
Speaker 1:I own the company because I believe the management team has access to deal flow that is superior to the access to deal flow that is exhibited by its competitors. Specifically, the management team comprised part of the management team of Endeavor Financial, which is one of the most important financing arrangers for juniors in the world. As a consequence of that, the Empress Royalty team sees opportunities to acquire royalties and acquire streams that are proprietary, that don't get out into the market at all. I am of the point of view that Empress Royalty will be able to add sufficient mass in the next two years so that the cannibalization of the net present value by the GNA won't pull the company through the floor.
Speaker 1:This is a speculative position. People need to understand that. They need to understand this. Durable competitive advantage with regards to acquisition doesn't result in scale additions over the next two years that you will lose money. If I'm right about the durable competitive advantage and about the company's access to capital including my own and they are successful in expressing this advantage in the way that they have in the past, one could do very well Understand that this is a speculation, not an investment. Understand, too, the conflicts of interest. This is a reasonably large position for me.
Speaker 2:You mentioned your career history financing some of these companies. I don't really hear too much talk about the bond side when it comes to mining entities. It's always focused on the equity side. Are there perhaps better opportunities or maybe more mispricing on the fixed income? End of things?
Speaker 1:Occasionally. On the fixed income side of things, you need to be able to understand the net present value of the security around the bond and you need to understand the covenants, conditions and restrictions. Understand that exchange-traded bonds are originated by investment banks to earn a fee from the issuer, so the covenants, conditions and restrictions on the bond are as light as the investment banks can make them in order to extract the fee.
Speaker 1:I happen to love being a bond investor. I also, it should be noted, have been active for 30 years in private credit agreements with public mining companies, not in the form of bonds and not in the form of investment grade securities. The business that is now Sprott Resource Lending started life as something called Quest Capital, with me as a co-founder, and I have been active for 30 years providing private credit to public issuers in natural resources, which is a wonderful business. When people refer to junk bonds, when they refer to the risks inherent in bonds, they need to understand that the worst piece of debt is better than the best piece of equity on any individual balance sheet. With regards to security, it's all in the collateral and it's all in the covenants.
Speaker 2:I think the commodity cycle discussion is an important one. You mentioned gold. Let's talk about some of the industrial commodities for a bit. It seems like the industrial commodities need to have maybe China to have a comeback, to get any kind of real sustained momentum. Am I wrong on that thesis? You're both right, andrew.
Speaker 1:It's a function of time In most industrial commodities. Humankind has been under investing in productive capacity around those commodities for a very long time, so that even current levels of demand will, in the five, six or seven-year timeframe, exhaust our ability to produce them. We continue to underinvest in such commodities as copper, nickel, platinum group metals, nutrient materials like potash and phosphate, and oil and gas, so that if the pace of investment, the pace of productive capabilities, doesn't increase, normal demand will overwhelm supply. The only reason that that wouldn't take place is if we had a synchronized global recession or depression. If we don't have a synchronized global recession or depression, without the renewed vigor of Chinese expansion, but rather simply demographic trends, demand, even if it just held steady at today's rate, begins to overwhelm our ability to supply in a period as short as five years. When you look at commodities even much larger than copper, I'm thinking precisely oil and gas. One example would be that, while the market suffers from a near-term oversupply as a consequence of abundant credit, a low cost of capital in the United States and also the conjunction of various technologies things like horizontal drilling, management by wide drilling, three-dimensional seismic stimulation and fracture technology that producing surplus goes away in as little as two years. It's important to note and I'm not saying to buy oil stocks, I'm using this as an example it's important to note that on a global basis, if you include state-controlled firms, we are under-investing in sustaining capital in the oil and gas business to the extent of about a billion dollars a day.
Speaker 1:In a capital-intensive business, if you don't maintain sustaining capital expenditures, what you do is you reduce your ability to produce in the out years. Examples of this would be the National Oil Company of Mexico, pemex, which has diverted free cash flow from their national oil and gas business into politically expedient domestic spending programs, including, ironically, subsidizing the price of gasoline, where the productive capacity of Pemex in the last 30 years has declined by 80%. A more dramatic example would be Pena Vesa. Arguably, venezuela has the largest total petroleum reserve in the world and, as a consequence of the diversion of free cash flow from PDVSA, again to politically expedient domestic spending programs, the producing capabilities of the state oil company that controls the largest reserves and resources of oil in the world has declined by 85% over the last 25 years. I point this out because if we do not turn around this reduction in capital spending, you are going to see tight oil supplies in a period of time as brief as two years or two and a half years.
Speaker 1:And this problem isn't confined to oil. It exists in the copper business. It exists in a variety of businesses. Confined to oil. It exists in the copper business, it exists in a variety of businesses. If we have a global economic slowdown where you reduce demand, then you can see supply reduce without upward pressure on price, because prices are, of course, set at the intersection of supply and demand. If we don't have an economic slowdown in the next five years, I think it's a virtual certainty that we see price escalations in a whole range of industrial commodities as a simple function of historic underinvestment in productive capacity.
Speaker 1:Looking at the comments here this is a question from Joey Socks Is it generally safer to buy mining stocks in miners located in North America? People, particularly North American people that look like me, believe that money that's stolen from them by obviously Caucasian people in English according to the rule of law is somehow less gone. My worst experience with political risk personally in terms of money lost, occurred in a banana republic called the People's Republic of California, where we made a gold discovery in 1982, and, as a consequence of politics, weren't able to put that project into production until 1994, a 12-year delay. A 12-year delay at an 8% cost of capital means that effectively all the net present value of the deposit at the time it was discovered was gone by the time we put the deposit in production. By contrast, as an investor although there have been thrills and spills, I've been treated well in places like Sudan, in places like the Congo, in places like Bolivia. It's really a function of the price that you pay for the risk that you experience. An investor who will cause himself or herself too much trauma watching the nightly news, himself or herself too much trauma watching the nightly news, seeing the problems that go on in places like Congo, and who will not psychologically be prepared to stay the trade. For the people who will pay more attention to the narrative than the arithmetic over time, those people, because of their own response to political risk, would be much better off investing in North America.
Speaker 1:But when I hear that North America isn't politically risky, I think about data like this Michael, there's a wonderful copper deposit in Arizona called Resolution discovered three decades ago a billion and a half tons of one and a half percent copper. For reference, the average mine grade of copper worldwide is less than one half of 1%. This is three times the average grade worldwide. And it's right. In Arizona, it's next to a community that has miners, it has water, it has power, it has rail, it has highways, it has everything. This mine has been stuck in permission in the state of Arizona for 26 years 26 years. When people tell you that Arizona isn't risky or California isn't risky, or Texas isn't risky, or British Columbia isn't risky or Ontario isn't risky, they are not telling you the truth. They're a different set of risks. I'm tempted to say, michael, this will disenfranchise some of your audience the most dangerous government is the one that's closest to you.
Speaker 2:I definitely want to explore that because that's an interesting way of framing a lot of things that might be coming. Let's do another question from the audience here. I appreciate those that are engaging on the live stream. Are you invested in Seabridge? If so, any news on a GD partnership you think will be BHP. If so, how would you play it?
Speaker 1:I have been. I wouldn't call it an investor. I have been a speculator in Seabridge for over 30 years, since Rudy Franck beat me to the KSM deposit. We had a heads up fight. He won and the consequence of him winning is that I became his shareholder.
Speaker 1:There are times when the Seabridge market cap greatly exceeds its optionality value and I sell it. The market cap now is over a billion dollars, which sounds like a lot of money until you think about the fact that there are well over 100 million potentially recoverable ounces of gold there. The upfront capital costs associated with putting that gold into production, I think, exceed $8 billion above the capability of Seabridge to finance and above the technical capabilities of Seabridge to construct. So what you are betting if you own Seabridge is that in the event of gold price escalation which I consider to be highly probable, albeit not certain that the net present value of well over 100 million potentially recoverable ounces will cause one of the biggest mining companies in the world to blink and say that they have to own that deposit. The major mining companies in the world are in a conundrum. They need to continually replace the ounces that they produce, and deposits large enough to enable to do them are extremely scarce.
Speaker 1:I would suspect that if Seabridge is able to sell itself or do a joint venture with a major mining company, that that mining company would not be BHP.
Speaker 1:I don't believe it would be a base metals mining company because the base mining company would not be BHP. I don't believe it would be a base metals mining company because the base metals mining companies sell at smaller cash flow multiples than the gold mining companies do. The gold mining companies have a lower cost of capital, so I would suspect that it would only be one of the major gold mining companies that would be able to acquire and amortize the upfront capital cost at a higher cash flow multiple. So I would suggest that the name that ultimately, if one does acquire Seabridge, would be a gold name, a name like Newmont, a name like Barrick, a name like Goldfields, a name like Anglo-American, even if one were to stretch, a name like Agnico Eagle, a smaller major but one that I note likely generates $5 billion in cash flow next year. I don't believe that the name would be BHP, because BHP wouldn't get the same multiple expansion, given the fact that their cash flow comes from commodities like iron ore and copper, which are rated less aggressively by the market than gold companies.
Speaker 2:I love this question. I'm going to show up here. I think we can expand on this quite a bit. From Tom Wolfe on YouTube, you have noted the irony that your patience increases with age, something I identify with as someone who's also 71. I see this as an edge. Could you offer a view on concentration and diversification investing Now? I remember this line that diversification is a luxury for the rich, the implication there, of course, being that if you want to get wealthy, you have to take a concentrated bet, which of course means that feels like you go broke.
Speaker 1:Warren Buffett always says that the ideal number of stocks in one portfolio is one that you put all your eggs in one basket and you focus on that basket. Extremely well, I don't consider myself anywhere near as smart as Buffett. I would argue that diversification for me is partly a hedge against my own ignorance. I've never found an investment that was good enough that I had the courage to put all of my net worth into it. I certainly, from time to time, have seen circumstances where I thought that the investment proposition had so much going for it in terms of the probability of it working and so much going for it in terms of the escalation of value that I would enjoy if I was right, that I made very, very, very heavy bets not as heavy as Buffett has and the consequences that my results haven't been as good as Buffett's has been. But I believe in concentration when the time and when the bet is right. I believe in diversification because I have to diversify. I haven't yet seen an investment that I could go all in on. But let's return to the origin of that question, or rather the statement. I am, in fact, substantially more patient at 71, now that I have less time on Earth than I was at 21, when I had lots of time on Earth. That isn't because I wouldn't prefer immediate gratification. It's because, as an investor for 50 years, what I have learned is that the most important thing in investing is compounding, and compounding takes time.
Speaker 1:As a speculator, one makes money answering a series of unanswered questions. So in my speculative portfolio, I did a fairly extensive back test and I found that, in terms of speculations that really made a difference to my net worth speculations where I got tenfold returns or 20-fold returns or even hundredfold returns that my average holding period was six years. And, by the way, in my average 10-bagger I experienced at least one, but often two, 50% share price declines during the period that I held the stock. That means that you have to be A patient and it means that you have to be B tenacious. I wish it wasn't so. I'm not being patient because I want to be patient. I'm being patient because my observations around the topic tells me if I'm not patient, I won't be rich. I have become patient simply because experience has told me that patience is what is required to generate spectacular capital gains over time. Warren Buffett again quote the ideal holding period is forever.
Speaker 2:Yeah, questions just keep on coming, which is great. This is actually another good one that we can expand on. Do you think the recent uptick in I-80 gold was justified? And this is more the question that to me is intriguing how much can a new CEO impact the value of a mining company, the leadership it's supposed to matter? Let's talk about both of those.
Speaker 1:The recent uptick in I-80 gold happened for two reasons. The gold price did well but, probably more importantly, the seller was gone. It's fairly well known that Equinox Gold was a 19% shareholder in I-80, and Equinox needed to raise cash to finish off a $1.2 billion construction project in Northern Ontario. If Equinox had raised capital in Equinox rather than selling their I-80 shares, the institutional investors would have said oh, that's very interesting. You think I-80 is worth more than you are. One consequence of that is that Equinox sold the I-80 shares. In other words, a 19% shareholder had reason to sell the shares, had a need for capital and did it. When there are more sellers than buyers, the share price goes down. The uptick in I-80 shares corresponds very nicely with Equidox Gold running out of stock to sell. Surprise, surprise.
Speaker 1:The second part of the question can a CEO make a difference? A CEO can make all the difference. A CEO who makes intelligent, strategic decisions. A CEO who manages his or her board while they're managing him or her. A CEO who optimizes the allocation of skills among the other senior managements on the team. What you find over time is that you have serially successful human beings, and those serially successful human beings and those serially successful human beings in small companies like IEA Gold become absolutely critical.
Speaker 1:For those listeners of yours, michael, who are familiar with Pareto's Law or the Pareto Principle, which is the social science dictum around the popular cultural supposition of the 80-20 rule, 20% of the people adding 80% of the value will understand the importance of the CEO.
Speaker 1:What's important to understand in the context of this discussion is that the 80-20 rule repeats itself, which is to say, if you believe that 20% of the population generates 80% of the value in any given endeavor, what you find is that if you take that 20 and run it through the same performance dispersal curve, that 20% of the 20 do 80% of the 80, or 4% of the population generates 64 or 65% of the utility. And I have found over 50 years in speculation that that runs at least one standard deviation more, which is to suggest that eight-tenths of the population generates about 45% of the value in any given circumstance. A high-quality CEO pardon me is proof that the effect of Pareto's law goes at least three standard deviations, and it's an incredibly important thing for investors and speculators to pay attention to you had mentioned a little bit earlier or referenced this idea of legitimate mining companies.
Speaker 2:Is it fair to say that once you just think about the space from a blue chip perspective? Like the best of the best, don't speculate too much on the small ones, because some of them may not be as legitimate in quotes as others.
Speaker 1:For most of your listeners. The answer to that is yes. If you look at a 50-year chart of the XAU, what you'll see is that the gold equities bull market is a truly spectacular thing. It is common that you experience a 300% share price escalation over three or four years. It's not uncommon to see a five or 600% share price escalation.
Speaker 1:So merely capturing the beta, which I would define as the outperformance of the gold mining sector relative to other sectors, is a very worthwhile endeavor if one has the patience to do it. You can accomplish that two ways. You can buy the index, you can buy the GDX, you can buy the XAU and capture that beta. But what I prefer to do is a little more, a little harder working but a little more conservative. Rather than buying the top 40 companies in the sector by market cap in the form of an index, but exposing myself to 20 or 25 companies that I wouldn't otherwise buy because I think they're second-tier performers, what I prefer to do is construct an investment account for myself to capture beta. That is the best of the best.
Speaker 1:Ironically, in a rip-roaring bull market, the best of the best underperform the rest. The reason for that is obvious. If you are a low-cost producer increases in the gold price increase your margin less than the margins of the less efficient producers increase. What I have decided, michael, at age 71, is that for the investment part of my portfolio, you can take away some of my upside if you take away most of my downside. Let's assume that by buying five or six of the highest quality gold mining companies in the world that I underperform the index by 15%. As an example, and let's say that the market itself exhibits the performance in past gold bull markets and the index itself increases by 300%. Index itself increases by 300%. That generates for me perhaps a 240% gain, but a de-risked gain. That's good enough for me, michael. It might not be good enough for others.
Speaker 2:Rick, as we start to wrap up here, I know you do these interesting virtual bootcamps and you're a very big officer on investor education. Talk about some of the things that people that are watching, people that are listening, can do to engage with you and to access some of your knowledge.
Speaker 1:Three messages I guess I want to leave with people. The first is if you like what I have to say about natural resource investing, you can personalize it. Go to my website, ruleinvestmentmediacom. List your natural resource stocks and if I follow them, I will rank them for free, no obligation, One to 10. One being best, 10 being worst. I will comment briefly on individual issues if I think my comments have value. Please, no tech stocks, no pot stocks or psilocybin stocks. Please, no crypto. I rank natural resource stocks.
Speaker 1:If you want to get more deeply into natural resource investing and speculation, go to the Rural Classroom. You'll find over 200 hours of instructional programming. Two more hours added today, 13 hours of course material as to how to invest in natural resources. And there are. That's all free. There are two deeper products one boot camps Every 90 days.
Speaker 1:I and a panel of experts focus on one topic. We've done silver, we've done uranium, we've done royalty and streaming. We've done development stage companies. We just did private placements. We're going to do a boot camp on understanding tier one deposits. That is, how to identify deposits that will become very large, how to invest in them, what to look out for. I think you're going to post a link to that.
Speaker 1:Now listen, this is not for tourists. This is not an entertainment product. This is an eight-hour deep dive into investing and speculation around tier one deposits or other topics. This product costs you 99 US dollars. For this product, like all of my other educational products, if you find, after you have taken the course, that I didn't earn the 99 dollars, simply email me and there is a full, no questions asked money back guarantee.
Speaker 1:Of course, too, in July of 2025, there will be either the 28th or the 29th Rural Natural Resources Investment Symposium. I believe this to be the finest investment conference around natural resources on the planet. You can attend live in Boca Raton, Florida, which I would recommend. There's a lot of nonverbal communication that you'll pick up there or you can attend live stream in the comfort and convenience of your own home. In either case, you will have access to the recordings of the conference, like you will have access to the recordings of the boot camp for many months thereafter, and you will need to access those recordings because we're going to give you more information at the conference and more information at the bootcamp than you could possibly absorb during the time that we will have your attention.
Speaker 2:Everybody. Please make sure you follow Rick Rule on social media. Check out the virtual bootcamp website as well. Appreciate those engaged live. And again, this will be an edited podcast under LeadLag Live. Always a pleasure, Rick, my pleasure, michael, thank you.
Speaker 1:And thank you on your wonderful exhibition of discipline in terms of getting your own physical as opposed to fiscal life in order. You took control of a problem.
