Stock investing is a social affair on the whole today, with individuals coming together through discussion boards, presentations, pub gatherings and increasingly twitter to ponder and assess the opportunities they have identified.
The emotional side of trading that we all encounter derives comfort from the scenarios where people agree. There is nothing better to be a member of the club where multiple parties all follow the same mantra and feel a sense of collective correctness.
Collective correctness often, regrettably, means one thing; diminished returns; because over the millennia investing activity has almost always demonstrated the highest returns are achieved from taking a contrarian perspective. In simple terms, you have to be against the crowd not with them when applying money into the market.
I have seen this countless times in my 30 years of stock investing and have spent the lion’s share of that period learning about the simple importance of betting against the crowd. It has been a slow learning process for me, but I am finally getting there.
In October 2015 I made it to 3% in Greatland Gold plc (LON:GGP) and it was announced to market. For a few months I carried on building and became involved in a refinancing and restructuring of that company. I talked about my position openly and from the initial 3% declaration received quite a large amount of criticism pointing to the lacklustre performance of the company over many years and the foolishness of my investment.
From my early buys well below 0.1p the company rose in 2017 to over 0.80p and now sits around 0.60p. It was an investment success but one that would have boxed me as a fool had you seen the vitriol the original investment generated.
So to with Regency Mines (LON:RGM) which although a far less successful outcome than Greatland Gold thus far has still already seen an opportunity for tremendous value appreciation. In my case my mid 2016 0.40p buys lead to a plus 10% position and a share price rising to 1.30p or so in early 2017 before the company lost its way a touch with financing and operational management issues. Again on entry in mid 2016, the criticism was palpable, despite the near trebling of the share price that was to follow in relatively short order.
I had a delightful experience with Metal Tiger (LON:MTR) where alongside Cameron Parry now CEO of Lionsgold (LON:LION) we lost two years of our lives in the most intense rush for value creation during the 2014-2016 period that saw some atrocious conditions for the natural resource junior company sector. A successful decision to invest in Kibo Mining (£150,000 at 1.5p with 1 for 1 warrants at 3p – November 2014) helped by generating +£1million of profit in a few weeks as the share price rose from our 1.5p level to over 10p intraday. Even there, following the company’s investment being originally announced, we received criticism from multiple sources for investing in the moribund Kibo. In fact of the multiple critics on investment announcement only one came back to note how wrong they had been and noting a decent investment call.
We are now in a fresh recovery phase for the resource sector, and the above three examples represent some of the early opportunities I have experienced first hand. There are many more examples across the market and many investors will have benefitted from stock price rises.
What unites the three scenarios above, and indeed what unites them with similar opportunities from the last resource upswing in 2008 – 2011 is the challenging circumstances that surround the early investment decision.
In each case the investment was made into a company that has experienced considerable share price attrition and where investor confidence in the stocks had fallen away. Investing in this backdrop is a lonely affair, with few willing to engage in discussion and even fewer having your level of belief sufficient to justify an injection of capital into a stock.
Boredom accompanies loneliness and the two combined act to grate on the mind and raise almost continuing doubts about the validity of investment in a stock or stocks where your peers are largely absent, but if vocal tending to be derisory in their opinions.
That said, in all my experience the soup of dejection, disbelief, quietness and derision forms the perfect investment position.
If a stock is disliked and has been for some time, it is likely that there will be few buyers. More importantly there will be few sellers, as time will have acted to push those disinclined to hold out of the door.
This doesn’t necessarily mean a stock will leap on your first acquisition. The legacy of down cycle can leave a pool of stock around the low priced levels and occasionally the odd seller or two wishing to dispose. Moreover the tendency to shorting of some market participants can generate a pressure to keep market prices suppressed and not allow free supply/demand trading which could expose them to financial loss.
Nevertheless if you can take the risk of remainder stock pools, frustrated shareholder disposals and shorting, it generally doesn’t take too long before you consume enough of the stock to see a pretty decent market reaction.
Shares can drive considerably higher just on a little net buying from the bottom. 1.5p to 2.5p is perfectly feasible in short order but if you want the continuation to 10p there has to be a story with which you believe investors will engage at some point, and hopefully in the not too distant future.
Right now I have a wide spread of personal natural resource and fintech investments. I am trying to apply the above principles to new investments, because I believe they work and I have sufficient experience over recent years to demonstrate the considerable financial returns that can be achieved by following the principles.
Most of my investments are held outside of the public arena, the experience of going notifiable is something you relish at first and then very rapidly you realise that on the whole it’s probably better to stay below radar, for your sanity if nothing else.
But that said on occasions applying more capital to stock situations is quite important as you have to back the shares that you believe have the best chance of delivery.
As a contrarian I must be against the majority of investors on entry. Therefore the stock I discuss below should not inspire you and quite frankly I wouldn’t bother reading on.
Connemara Mining plc
Code: CON
Business: Irish Zinc and Gold
Shares in issue: 87,417,618
Share Price (Sept 2017): 2.225p
Market Cap: £1.97million
Overall and for the sake of brevity here are my thoughts.
Position: I currently hold 11.87% of Connemara Mining (LON:CON) which is the highest percentage of any AIM company I have held in my investing career.
Key investing factors: very low market capitalisation, tightly held with management having a material position, new finance recently introduced (and which I supported), a new Chief Executive Officer and a clutch of highly prospective zinc, gold and potentially lithium exploration opportunities in Ireland.
Key share price drivers: gold results from drilling underway in the ballpark of Dalradian in the north, major interest in Stonepark zinc (CON hold 23.44% and have just refused a buyout offer for their stake) and the murmurings of lithium within licence ground.
The backstory here is simple. Connemara has for some time been an option on zinc and gold commodity prices. The potential lithium twist is more recent and hasn’t really emerged as yet so I would disregard it for now.
In essence Connemara could just sit on their ground for years and not do a great deal, waiting for the commodity sector to turn around with rising zinc and gold prices lending a considerable underlying value to their properties. They have, to a certain extent followed this pathway until recently and they have done so with reasonable good grace toward investors by not draining the company of funds through excessive salaries or expense accounts. A degree of moderation in cost expenditure has been their hallmark even though it has made for quite a dull investment in recent years.
They have been jerked into life by the recovering markets notably zinc, where the metal price has doubled in the last year or so and there is a global scramble for good quality zinc projects. Moreover there has been an Irish scramble with many international players entering the Irish resource market looking to acquire or joint venture.
This is Connemara’s time and they have had the good sense to realise this raising some money to recommence work, recruiting a new Chief Executive Officer and embarking on a renewed marketing and promotional strategy to widen awareness of the company.
What is perhaps missed by investors is the significance of their portfolio of interests and again for brevity I will focus on just one, Stonepark, Connemara’s flagship zinc project. The company walked away from a takeover offer for their interest recently, preferring to stand their ground. They hold 23.44% and that strategic stake in what may build into a significant zinc deposit is pretty unique and well worth protecting.
In total with 35 licences 100% owned or in JV with others, this company offers just what investors will engage with – an emerging story, a robust capital structure and an ultra low market capitalisation. The market will get the full extent of this when the share prices rises sufficiently to kick in the momentum trade and a major share price rise ensues. Then hundreds of investors will be crawling over the website, presentation and market announcements ad articulating the upside potential.
At the moment it’s just me and Gert as she seems to follow me around. And every time I buy more shares its bloody hard to summon up the enthusiasm. Contrarian wise that’s just perfect but of course it doesn’t mean I am right and as ever your own research and due diligence should take precedence!
Author: Paul Johnson
Twitter: @pauljohnson9691
29 September 2017
