“You get a sale at Wal-Mart or Nordstrom, and they’re lined up at midnight to be the first ones in the door. When Wall Street has a sale, everybody says, ‘Oh gee, it might go lower’.” – Marshall Berol
I had the chance to speak with Encompass Fund’s Marshall Berol yesterday. The Encompass Fund is heavily weighted towards junior resource companies, and some of the fund’s investment picks have appreciated over ten times in market value. (click here to view Encompass’ top ten holdings)
During the interview, Marshall shared his thoughts on the state of the junior resource market, where it may be headed, the underlying fundamentals, and the opportunities to be found by defying human nature.
When asked about the qualification process for adding new companies to the fund, Marshall said,
“We try to find the companies that are progressing, that are moving ahead in their business plans, and have the management and the financial capacity[to succeed]…so that when the [resource] stocks catch up with the metals, those companies do even better…You need some patience, you need a longer term time horizon, and that’s what we attempt to do with the companies that are in the portfolio.”
In terms of qualifying the people to invest in, Marshall indicates that,
“One of the main things we look at is management, the people involved in the company, what’s their experience, how broad a team do they have…do they have the people with the background and experience, and the proven records to show that they can handle those different activities, because the activities are all different.”
What asked about his long-term expectations for commodities and their corresponding stocks, Marshall said,
“A parabolic rise in the price of the commodities…at some point it may very well get as it was in 1979-1980, where the price of the metal[s] goes parabolic, and everybody wants to be in, and it’s no different…than in the dot com era…that’s when we hope to recognize it from our experience, and say, ‘you know, it’s time to be looking elsewhere’, but we haven’t seen that yet.”
In terms of the present market sentiment in the resource sector he further added that,
“We hear from our clients all the time, and they remember 2008 all too vividly—it’s a tough hurdle for them to overcome…Wall Street’s on sale now—unless you think the world is going to end, there are a lot of good companies out there [in the resource space], selling very cheaply. There’s a sale on…and everybody says, I don’t want to touch it. You get a sale on at Wal-Mart or Nordstrom…and they’re lined up at midnight, or they’re lined up at 6:00 a.m. to be the first ones in the door. Wall Street has a sale and everybody says, ‘Oh gee, it might go lower.’”
“Uranium is a screaming buy in here,” he added. “After Fukishima, everybody said nuclear energy is done and over with—it’s far from done and over with. China’s building 20 plants, the Middle East is building 14 plants…they need uranium, and uranium is not currently being produced in the quantities needed to supply the current facilities, let alone the ones that are going to be coming on over the next few years, and five, ten, twenty years out.
“So uranium in our opinion is very, very cheap. The companies are on sale…and somewhere out there, who knows when, probably 6-12 months, people are going to say ‘Wow, uranium’s gone from $50 a pound in the spot market, to $75 or $80’. They’ll watch it for a while, and it’ll get to $100, and then they’ll decide to come in. Then it’ll have some reversal, and people will say, ‘Oh my god I did the wrong thing again.’”
With regard to irrational selling and disinterest by investors during resource bear markets, Marshall concluded,
“It’s human nature. It’s what makes opportunities for other people who try and work against human nature through experience and patience, which is what we do as contrarians and value players.”
This was an intellectually stimulating interview which should be added to the libraries of all resource and emerging market students and investors.
To listen to the interview, click the following MP3 link and/or save to to your desktop:
To learn more about Marshall Berol and the Encompass Fund visit: EncompassFund.com
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PS – On September 27-28, 2012 in Toronto, Cambridge House is hosting the Toronto Resource Investment Conference at the Sheraton Hotel.
According to industry experts like Rick Rule, Doug Casey and Brent Cook, there are no better ways to find ideas and grow your network than at these conferences.
Please visit CambridgeHouse.com.