Ron Hera of Hera Research, a speaker at the Vancouver Resource Investment Conference, has come a long way from his initial career path. He said, “I was originally a software engineer from Silicon Valley and I switched to looking at hard assets after the dot com crash of 2000. I'm primarily an investor in natural resources.” Hera has become popular for his subscriber-funded newsletter by Hera Research. He said, “The newsletter started primarily for friends and family and has grown into a small newsletter company.”
During the Vancouver Resource Investment Conference, Hera gave two talks: one on the life cycle model for resource investing and another on the end of inexpensive commodities. Said Hera, “The first one was about my life cycle model for resource investing which identifies profit opportunity between cycles. We focus on transitions between stages – from exploration to discovery, discovery to production, for example – and this gives us a profit opportunity.” Hera said the biggest opportunity is when a company goes into production. “Profit opportunities don't stop there,” he said, “Within every stage there are other opportunities. The right opportunities are for those in the growth stories. We invest in companies where we can profit between life cycle stages.”
Hera only works in the natural resources market. He explained, “We limit ourselves to natural resources that are rising because of supply and demand.” Resources like gold, silver, uranium, copper, oil and gas are some of the commodities that Hera focuses on. He said, “We make an intellectually honest effort to cover all the resources depending on market conditions.”
Being an investor requires creating a company profile. Said Hera, “If I had to pick an ideal company, it would have high-growth with a proven management team that could double the stock price in 24 months. Like First Majestic silver. It is a showcase company. They are much further along than we normally target. Every few years they bring new mines on line. They have a huge pipeline of projects coming on line. We started with them when they were a junior and now they are a mid-tier. We think they are going all the way.”
Within the life cycle theory, Hera focuses on a specific area. He said, “We mainly invest in the pre-production to production track. We look for expansion potential. You have to understand the grades and the depth. We aren't going to buy a company that doesn’t have more potential than they have already discovered. We are looking for companies that will expand that resource, where their 43-101 can be updated. We don't necessarily invest in project generators. We look for companies that actually go into production.”
Hera Research is focused on a two year timeline for their investments. Hera said, “One thing that makes us different is that we focus on a timeline of 18-24 months. We're buying stocks and holding them with the idea that they will increase in value in 24 months. The actual value of the company will grow over time and will eventually be recognized in the market. We look for companies where we feel they can deliver and we monitor their time-lines and we wait.”
The waiting is part of the analysis. Said Hera, “A good way to think about it is that we sell stocks when the reasons that we bought them are no longer there. If they double and we don't see that again for the future, we may divest of that stock. If they aren't meeting their milestones, we dump it. A good rule of thumb is to dump half your stock when you have 100% gain and let the rest ride.”
The other focus of Hera's talk is commodity prices. He said, “I've just been looking at peak oil production declines and actual production declines. I don’t' really believe in peak oil. We aren't running out of oil, we are running out of cheap oil. Oil that is easy to discover and oil that is easy to produce. We have oil under the ocean floor or trapped in sand. There are a lot of alarmists and they are saying we are going to go back to the Stone Age. I don't believe that. Those resources are going to be more expensive because of demand of Brazil and India.” With changes in demand and less easy to drill oil, Hera believes that prices will go up. He said, “2012 may be the last year of $100 oil. This is the year that cheap oil and resources end. We aren't running out of copper, we are running out of cheap, easy to get to copper and silver. The real economic inputs of producing copper, silver are going to be more expensive. The economy is going to have to adjust.”
Hera runs his newsletter at www.heraresearch.com. He said, “We are a subscriber funded newsletter. We don't take company subsidies. We focus on resources that are going to rise. We are value investors. We buy good businesses.”
When asked about the most exciting thing on the horizon, Hera had a surprising answer. “The most exciting thing is not necessarily a good thing,” he said, “There is a lot of excitement about the euro and commodity prices. It is more like a thrill ride. We are going through an unprecedented period. There is too much debt, the banks are over-leveraged. It is a scary situation for investors.”
Given the challenges that the market poses, Hera has a unique approach. He said, “My personal approach is to buy hard assets. We are in a deflation cycle. That means that you can hold cash, but it is not necessarily the best. I like unencumbered hard assets – farm assets, real estate. Those can protect you against deflation. Importantly, global commodity prices are going higher. Banks are over-leveraged. Countries are holding too much debt. It is an inflationary environment globally.”
With an eye on natural resource investments and a thorough analysis style that has identified deflation in the U.S. as well as inflation abroad, Hera offers his take on economic cycles at his website: www.heraresearch.com.