How investors are like ants

POSTED ON September 08, 2015 BY Benjamin Cox
CATEGORY Stories,

Photo Credit Moyan Brenn, Flickr

Up until a couple days ago we had ants in our office. Once they made it to the kitchen counter I bought ant poison and eradicated the issue, but before that I spent some time studying their behaviour. The more I watched them the more and more they reminded me of stock market investors.

Most investors don’t do a lot of original research; most of them follow other people's trails. They tend to follow the crowd because it feels safer. They want to have the upside of “risky” investments, while still feeling safe in what they are doing. They do this by going where the tide takes them, and definitely not blazing their own trail.

Ants follow trails put down by other ants. If there is food down a path, more ants go down it and they build stronger trails as they bring food to the nest. If you take a rag and wipe the trails away, it can take them tens of hours to find the trails that you removed. Want to build a trail? Just leave a thin line of sugar water and they will find it. Put a gap in and you can watch the random explorers find the new source, and they will all find it ASAP, as those explorers carry food back.

When markets go up, funds flow into sectors accordingly, and when markets go down, funds flow to greener pastures. Both retail and institutional investors, really everyone, seem to follow the same pattern of following the “ant” investor trails. We listen to fund managers, talking heads, CNBC, BNN, and newsletter writers and let them lay out the paths for us. We also rely on share price, fund flows, and other drivers, but rarely do we truly do our own asking, pushing, or thinking to come up with our own research.

What does this have to do with the junior markets? For the last four years, all sugar trails have led to other investments. But if gains start to come from our sector (and we are so low right now that any buying, discoveries, or even random events could trigger gains), the sugar trail will lead right back to us. If you are well-positioned, with good names, good assets, and a decent management teams behind the companies, you can profit.

The risk right now - if you are still in metals and mining - is that you are the explorer ant, which can be lonely. You are not finding sugar, everyone else is busy feasting somewhere else, and they are laughing at you. However, if you are like me and busy buying stuff that works, you know that when the recovery comes you will be the one laughing.

Follow the sugar trail to chat.ceo.ca and join the explorer ant conversation.

Benjamin Cox

Prior to founding Oreninc, Mr. Cox served as a senior analyst at the D.E. Shaw Group and as a consultant with the GLG Group, where he worked directly with 15 Wall Street teams in the mining deal space. Mr. Cox is the Chief Executive Officer and a Director of Aston Bay Holdings Ltd. (TSX-V:BAY), a copper and zinc company with properties in Nunavut, Canada. Mr. Cox has researched and developed business, financial, and shipping models for every major global iron ore project. He is also an expert on mining industry market dynamics and metals, with a focus on raw materials including base metals, iron ore, platinum group metals, and industrial materials such as potash and lithium. Mr. Cox holds a B.S. from Brandeis University and an M.B.A. in Finance from Portland State University. More →

bjc@oreninc.com

Benjamin Cox

bjc@oreninc.com

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