On John Embry and Figuring Out the Quality of Ounces

John Embry in a recent interview made a statement about the importance of the prospective junior gold mining investor understanding the difference between the quality of a company’s ounces and the quantity of that same company’s ounces. Embry is right on target as usual. The difference is an important one. Indeed in the junior mining sector there are precious few analysts to begin with, and of those few who are present, fewer still have a keen sense of the inherently changeable nature involving the basic metrics of fundamental market analysis. Within that group, fewer still understand that during rare crucial periods in time that changeable nature can take on an accelerating quality and change so rapidly that it actually transforms the very nature of fundamental analysis itself, creating an entirely new field of study almost overnight, figuratively speaking, a field needing new skill sets and new understanding and rendering obsolete long standing and respected analytical methods.

What an investor needs during such a time as this in the junior mining sector is guidance from someone who is not only a crack geologist, but also an intelligent investor with a sharpened business sense. What would make the situation even better would be someone who understands market trends and is not entirely ignorant or inexperienced involving the idea of a secular bull market trend. Where are such people?

Traditional metrics involving stocks and company profiles like p/e ratios can and often do mean nothing when analyzing the junior mining sector. Hopefully you already know this. When analyzing mining, especially in the times we live in, an entire new series of metrics must be developed. Truth does not change, but information about truth, especially as it involves investing, continually does, sometimes, and for some periods, much more quickly than at others.

You are living through such a period of quick change right now whether you realize this or not, and gold and gold mining are right at the center of it. Your ability to survive and thrive in this environment will be based on your abilities not to simply get information, but to make appropriate changes in behavior based on how quickly that “new” information changes, which may be very quickly indeed.

“Quants,” “money masters” and momentum investors who have ridden trends upwards in the past several decades will inevitably fail involving these new markets and the new series of metrics they involve, because such metrics always, in their nascent stages, are much more subjective than they will be as they develop over time and more people become acquainted with them. This, essentially, is what has, throughout history, given the advantage to the thinker and understanding observer over the simple actor or follower or extrapolator.

The man who sees and integrates correctly what he sees more quickly than all the others around him will win the game, so to speak. This is how “the game” has been set up. Those who will win the game understand this set up. Those who will lose the game, quite simply, do not. What is more, the newly disenfranchised will continue not to win, because they will most likely persist in not understanding the essential need for a change in thinking. This will be because so many of their past successes will have been based not on new thinking but rather on following time-tested systems. These old style thinkers will continue to respect these systems regardless of mounting evidence that such systems are rapidly breaking down. They will not learn to change despite the numerous and poignant examples found throughout history involving the common and identifiable threads of human conduct that link one epoch of human behavior and action to new and different one. In such transition times, common sense and original thinking, which, perhaps by design as well, are often in short supply during such times, always, always, always win out.

That this new class of “winners” emerges or that the phenomena associated with this emergence even occurs infuriates and has always infuriated academics and those in positions of inherited and tenured power during such times. As epochs change and modes of understanding truth continue to reshape over time, such “old school” cynics remain dubious, or worse, openly hostile to those striving to live lives tuned into a truer reality rather than remaining fixed into an outdated existence. This great majority of cynics and “old school” businessmen remain comfortably fooled by their own mistaken personal realities, realities often reflected in their investing philosophies. As such, followers of the “old ways” during “new times,” run increasingly up against obstacles to performance that they fail to correctly interpret as a reflection of their own intellectual and perceptual inadequacies.

If the new although ancient game is now gold, then a good starting point is understanding, as John Embry posits, that gold is measured in ounces and also understanding that the quality of those ounces really is of the utmost importance involving the situation. How mineable are those ounces? How concentrated are they? What is the metallurgy like? Where are they located? Who is mining them? How well are those operations managed? Does that management even understand what they are mining? Is gold money to them or a commodity? These are the types of questions that today’s “new” investor must ask.

The time has come for you, dear reader, to make up your own metrics. Create them anew or find the man who can skillfully do as such and follow and study him. This is what must be done and will be done best and most creatively by those who will win this game. This is the earliest stage of fundamental research, and he who will win this game is already doing it from the ground up like you should be doing, educating himself and using the education of anyone and everyone he can find as he goes along.

These new metrics must be based on understanding of human nature, the mechanics of mining, the basis of money and the history of all civilizations. Does gaining such an understanding sound like an undertaking impossible to manage? Good! That’s the way it should sound. Is it impossible? No. Will it be difficult and time consuming? Yes.

If you have been wondering why junior gold stocks are priced as they are or where they are, the answer lies in the fact that nobody out there in the whole wide world knows how to price them. Think of such stocks as a new type of fruit discovered in a South American jungle that might show up in your local grocery store. Nobody would know how to price that either. What would be the supply? What would be the demand? Would people like it? Does it have any magical healing properties? How quickly does it rot? The pricing will take some time. So too will it here with these stocks. Sooner or later it will happen.

Don’t worry about what could be best termed as a continual “bouncing around” in price. This is the result of the trading habits being practiced mostly by people who really don’t know what they are looking for or how to price those things they don’t know enough about. Things, including basketballs, don’t bounce around a lot without a constant input of energy from many different directions and for many different reasons. You are not seeing someone dribbling a junior mining stock down the court for a lay up. You are seeing eight people scrambling around on the floor trying to get possession of the ball. That ball can go just about anywhere in such a situation and often does for reasons quite unexplainable to even the most careful and intelligent observers. When the scramble is over, eventually, someone will get control of the ball and start moving intelligently down the court towards the basket. That hasn’t happened yet in the junior mining sector.

Eric Hoffer once wrote, “In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.”

Understand that and you will be well on your way to creating your own new set of metrics involving the junior mining sector or if not that, at least, being ready to tune into brilliant new metrics as they arrive. Financial prosperity is not the reward of the dullard or the slothful. Do your work. Read, study and prepare.

All the best!

Go Kimber.