With uncertain markets, investors are cautious – even afraid – to invest their money in stocks that could go down. But not all investors are as cautious! Savvy investors who remember back to 2008/2009 will see this as an opportunity to buy cheap.
At the recent San Francisco Hard Assets Convention, we spoke with Adrian Day of Adrian Day Asset Management (a company that offers individual managed accounts for clients) about his take on the market and what he's looking at right now. As usual, Mr. Day gave us some great investing ideas in the resource sector (and outside of it) as well as some tips to trade in this uncertain market.
He started by talking about the resource boom: "The resource boom is not over," he said. "We've had a bit of a set-back this year with all of the problems – in Europe in particular, and the entire global economy is slow. But I don't think the resource boom is over. We're still only halfway through."
So, if the resource boom is still underway, we wondered where investors should invest. Mr. Day told us about what he's watching right now. He first gave us an overview and then mentioned some specific companies: "In the resource sector, I think gold is definitely my number one pick right now. I think gold will do very, very well next year because the economic problems of the world have not been solved. More and more people are going to continue turning to gold. I like copper. I think the copper sell-off is overdone and China needs a lot of copper for its infrastructure. I think energy is definitely something to look at. And I like agriculture."
So, where is Mr. Day putting his money? In the resource market, he said: "I… own a mix of juniors and seniors." Among the seniors, he said: "My favorite senior is Franco-Nevada Corporation (TSX: FNV)", a gold royalty and stream company. As well, Mr. Day added: " I think there is great opportunity in Agnico-Eagle (NYSE: AEM). I've followed it for a long time but I've never owned it before. But they just wrote off a mine that, in my opinion, was not fundamental to their business. However, their stock dropped from about $60 to about $43. I think that was an overreaction. You get a lot of that in this kind of market. People are generally nervous about everything. When something goes wrong with a company, the market punishes them too much."
Then Mr. Day said: "Among the juniors, I like Vista Gold Corp (TSX: VGZ). I also continue to like the Virginia Mines (TSX: VGQ), which is an exploration company but it's a very low risk exploration company."
Outside of gold, Mr. Day has other interests, too: "In the copper space, the best one is Freeport McMoRan Copper & Gold (NYSE: FCX)"
Adrian Day Asset Management focuses not only on resource companies but also on other stocks around the world. So Mr. Day added a non-resource stock for readers who might be looking to diversify their portfolio slightly: "Among other things, we're buying Business Development Companies (BDCs) in the US. These are companies that lend money to small business. They pay high dividends because they don't pay taxes at the corporate level. People are wondering 'Why invest in the US. There are problems with the US economy'. Well, a lot of small businesses who would normally get financing and lines of credit from banks can’t get them now, even though the businesses are doing well. So they go to companies like the Business Development Companies to get working capital, and the rates are very attractive. My favorite company in this space is Gladstone Capital (NASDAQ: GLAD). They're selling for 70% of book value. It's trading at 7 times earnings and it yields 11.5%. Very, very cheap."
Then, we asked Mr. Day for some advice about how investors should trade in these uncertain markets. He gave some sound, straightforward advice: "The key for investors is not to panic when resource stocks go down. Resource stocks are inherently volatile – they will always been a volatile asset class. You need to use the volatility to your advantage. When things get overly inexpensive, have the courage to buy."
This, of course, causes concern for some investors who worry that the price might drop. So Mr. Day added: "Don't panic when something you own drops in price. If you own something and you know it well enough and there's no particular reason for that particular company to drop (but it's more of a macro-reason) then hold on to that stock and wait… Try as much as you possibly can to keep emotions out of it. If you use emotions, you're going to be petrified of putting your money anywhere right now. This is the time to invest because things are cheap."
As well, investors shouldn't put all of their money to work at once. Mr. Day advised: "Liquidity is king. Nobody knows just how cheap things are going to get. So keep some liquidity. That's a number one cardinal rule. There's nothing worse than needing to sell something and having to sell it at a bad price."
And lastly, Mr. Day wrapped up with some helpful reassurance for investors: "Don't be afraid. When things look bleak, it's often the best time to invest. I just remind investors of how bad things looked at the end of 2008 beginning of 2009. Things looked bad but it was an astonishingly good time to invest."
So, although the market seems bleak right now – and will remain so for the near future – investors like Adrian Day (and Adrian Day Asset Management) are on the hunt for high quality investments and they see this weakened market as an opportunity to buy those stocks at a great price.
REFERENCES
Adrian Day Asset Management: www.adriandayassetmanagement.com/
San Francisco Hard Assets Investment Conference: http://www.hardassetssf.com/
Franco-Nevada: http://www.franco-nevada.com/
Agnico-Eagle: http://www.agnico-eagle.com/
Vista Gold: http://www.vistagold.com/
Virginia Mines: http://www.virginia.qc.ca/
Freeport McMoRan Copper & Gold: http://www.fcx.com/
Gladstone Capital: http://gladstonecapital.investorroom.com/