Tekoa from Bull Market Thinking interviews Sprott Asset Management founder Eric Sprott, who became a billionaire in the gold bull market, but has lost his step as the bullish outcome for precious metals and resources equities Sprott predicted has yet to materialize. Still, the interviewer asked a couple of great questions of the pioneer Sprott:
TD: Eric, if I can ask you a question or two now about wealth building—the concept of becoming wealthy—based on your experience, what are some of the characteristics that lead to becoming wealthy as an outcome?
ES: Well, you’ve got to go against the grain. You have to be a buyer when people are non-believers. You have to believe in something based on data that says you’re right when the world will tell you you’re wrong, because when the world says you’re wrong and you’re right, you know that the return will be outsized because no one is there. It’s like buying gold stocks in 2000 which I did to a very large extent. The HUI index was at 35 and it went to over 600. It went up 1700% in eight years.
And that’s because everyone was against it. It was like a killing field for an investor to go in and buy things cheap and I really believe it’s kind of [a similar] opportunity again today, that you’re the only guy in the candy store because everyone thinks they’re selling garbage—but it’s really candy and the opportunities are unbelievable.
And you got to stick to your beliefs, that’s the other thing. I mean yes, I’ve taken some big down hits this year. But when I think of where we could go from here, and I’ve done it before, I’ve done it so many times I can’t even tell you…I might have been bullish and [everyone] thought we were in a bear market and it turns out to be a bull market. I’m going back over 40 to 50 years now. So that’s a lot of time. If you believe you’re right and the data says hold your ground, you hold your ground. Normally there’s a pretty big payday at the end.
TD: For people that are looking for other people to invest in, what do you usually look for in deciding whether or not you should invest your capital in a person, whether it be the CEO of a company or otherwise?
ES: Quite often for me it’s not the person. It’s the opportunity. For example, if the price of gold goes up, all CEOs are going to look great. It’s like all high tech CEO’s in 1999 looked wonderful because all their stocks went up.
Probably the guy who was the worst CEO, his stock probably went up the most because he lied better than anybody. So it’s not to me so much about the people, it’s the opportunity. What’s the opportunity that presents itself?
If I have a particular target on gold and I say, “OK. Well, what would this company make at this price of gold?” It almost won’t matter who the guy running it is at the time. It’s more of asking, “What’s the leverage to the upside here?” Yeah, I could lose another 20% or 30% or 40% on a gold stock, but what if I could also make 1000%? That’s not a bad risk-reward ratio. That’s one I’m prepared to take. Obviously I think the downside in lots of these stocks is de minimis, but the upside is quite large over a short period of time.
Source: Eric Sprott December 2013 Interview | Bull Market Thinking