SPROTT’S THOUGHTS | Goals vs Dreams

Some speculators treat gold stocks like lottery tickets.

  • Smart investors have financial goals and fit gold stocks into their portfolio.
  • A goal must include a plan, not merely a hope such as gold going to $2,000 per oz.
  • Prudent investing requires work, not just hoping and waiting.



Some speculators approach investing in gold stocks like buying a lottery ticket. A smart investor, however, should have a sound financial plan complete with objectives, goals and practical milestones. Investors should avoid selecting any financial instrument based solely on the asset hitting a predetermined price. A prudent investing strategy includes research and experience — not just hoping and waiting for “The Big Win.”

“The risk of paying too high a price for good-quality stocks – while a real one – is not the chief hazard confronting the average buyer of securities.” – Ben Graham.

It might have been my dream to become a professional athlete, but was it my goal? Did I do everything in my power – training, diet, coaching, etc., to get there? Sure talent can go a long way, but you still need dedication and a plan.

Concerning money, is it your dream to make a lot or do you have financial goals? Winning the lottery is a dream, as is getting a ten bagger. Formulating a plan and objective for your money is a goal. If a stock rises 5% the day after you buy it and goes on to double and triple, you may have made a good decision. However, if you wait for the ten bagger as it dips into negative territory, you are focused on a dream.

A proper plan considers the reason you are buying the company, the catalyst for growth, the rate of return and the exit plan. These objectives should be realistic — a goal of 100% growth per year is a dream.

Following the last cycle, investors might benefit by inspecting their portfolios for evidence of dreams. Did you take advantage of drastic moves by selling on the way up? Did you buy quality companies as their prices dropped? Is your mining portfolio littered with well-promoted, but under-achieving, names that wrote off billions in assets and took on billions more in debt?

Goals require time and hard work. Have you downloaded the company’s latest annual report or presentation? Have you met personally with management? Have you educated yourself in geology and conducted a deeper dive of the orebody?

You must consider all of the above factors and others to properly evaluate an asset and understand the value, rather than the price, of a company.


Rumors are “tips” received by friends or newsletters. Understanding the research, if any, that supports the “rumor” is paramount. With the addition of research and investigation, the rumor becomes knowledge.

In the mining industry, knowledge is widely dispersed and constantly generated, typically through the drill bit. This can create opportunities through inefficient pricing.

Consider the diagram below. How should one value the associated company?

Cross Section.png

Cross Section Drillhole Intercepts From Asset of Junior Mining Company, Source: Sandstorm IR Presentation, Date: April 2018.

The investor should consider how the data is being interpreted and by whom.

The idea of 50 meter width of 5 grams/ton gold might be exciting, but is it “drill width” or “true width?” Furthermore, how likely is this geology to continue? The answer can be the difference between a project with economic potential and a worthless lottery ticket.

As another example, suppose a widely owned company includes a small note in the back of their quarterly earnings report about metallurgy or geological problems. To the untrained eye, it might be just another note with no cause for concern. However, a trained geologist or metallurgist would recognize the issue and potential risk associated with the note.

The quality of the geologist is, perhaps, the most important factor when discriminating between winners and losers.


Numerous studies show that emotions get in the way of logic. Individuals are notoriously bad investors because of emotion. The financial services research firm Dalbar runs a study of this each year.

Below is a comparative chart of two major producers since 2011. One is a widely owned “under-performing” name whereas the other is a much less owned “quality” name.

Gold vs ABX.jpg

Stock Performance of Two Major Gold Producers From April 2011 to
Present, Source: Thomson Reuters Eikon, Date Accessed: April 9, 2018.

Of the two companies, one had zero write-downs of assets through the bear market whereas the other had write-downs in the double-digit billions of dollars. One had a ROIC of 10% while the other destroyed capital. These criteria are one way to measure quality.

“Chief losses to investors come from the purchase of low-quality securities at time of favorable business conditions.” – Ben Graham.

Graham’s words help us understand why the underperformer is more widely held. During the bull market, many investors piled into the sector and held their positions as they continued higher, choosing not to lock-in their gains. In the excitement of the bull market, they lost control of their emotions.

If you have goals for your money, you might benefit by focusing on company quality based on specific metrics. Planning for more than a gold price of over $10,000 per oz. (a dream) would be prudent for those with goals.


Questions or comments? Contact the author here.

Sprott U.S. Media, Inc. is a wholly owned subsidiary of Sprott Inc., which is a public company listed on the Toronto Stock Exchange and operates through its wholly-owned direct and indirect subsidiaries: Sprott Asset Management LP, an adviser registered with the Ontario Securities Commission; Sprott Private Wealth LP, an investment dealer and member of the Investment Industry Regulatory Organization of Canada; Sprott Global Resource Investments Ltd., a US full service broker-dealer and member FINRA/SIPC; Sprott Asset Management USA Inc., an SEC Registered Investment Advisor; and Resource Capital Investment Corp., also an SEC Registered Investment Advisor. We refer to the above entities collectively as “Sprott”.

The information contained herein does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

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Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment.  Because of significant volatility,  large dealer spreads and very limited market liquidity, typically you will  not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.


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