The Markets Might Be Beaten up, but That's Good News for Mickey Fulp

By Dr. Allen Alper and Aaron Hoos
on 12/3/2011

A lot of investors are sitting on the market's sidelines right now, waiting for something good to happen. Understandably, they don’t want to put their money into something and then watch it fall. Rather, they are waiting for prices to rise before investing. But this "timing the market" strategy doesn't work very well and it can be expensive.

Recently, at the San Francisco Hard Assets Convention, we spoke to Mercenary Geologist Mickey Fulp whose contrarian ideas should inspire investors to take advantage of the opportunities in today's market.

As with our other interviews with Mr. Fulp, we started with a brief recap of the market and then talked in detail about how investors can invest appropriately. "Markets are down… I think we all know that," Mr. Fulp joked. "It's a combination of factors, but mainly fear about the European debt situation. Uneasiness and trepidation have hit the market again and it doesn't seem that there is a real push to accomplish anything meaningful in Europe."

He continued, focusing in on gold: "Gold price has been range-bound since it went parabolic from $1500 to $1900, then came slamming down to $1531; predictably it recovered, and it's been trading in the mid $1600s to high $1700s for the last couple of months."

Gold's range-bound price has not prompted Mr. Fulp to invest in anything new here. "At this time, I'm not participating in anything new in the gold sector," he said. "The price of gold has been very volatile, and gold companies (especially my preferred company type – advanced explorers) did not participate in the run-up in gold but they have participated every time the price of gold goes down. So I don't see a near-term rebound for gold exploration companies."

In a classically contrarian move, Mr. Fulp is shying away from the investments that everyone else is getting into and instead finding opportunities elsewhere: "I recently participated in an oil and gas deal and a new graphite deal. I'm going to initiate coverage on a copper company soon via a near-term development project."

So, how can investors make sense out of today's market? Should they continue waiting on the sidelines for things to turn around? Mr. Fulp (although not a licensed financial advisor) doesn't think so. "Volatility is the word… and my new mantra is 'embrace volatility'. In times like this, if you sit back and decide that you don't like the markets and are fearful of them, you become a victim. But I look at volatility and rapid downticks to be buying opportunities. We all want to buy low and sell high and f there’s no volatility in the market, it's impossible to do that."

Here's the mindset investors should have, Mr. Fulp explained: "Rather than shying away from volatility, realize it's the new paradigm; embrace it and participate in it. It's the hand you've been dealt so put your poker face on, play without emotion, and develop a strategy to profit from the volatility."

Next, Mr. Fulp gave investors some ideas in this regard: "When we have extreme volatility like this, you need to be a little more nimble and quick on your feet. By doing good due diligence and knowing a fundamentally strong company in advance, a volatile dip will become a buying opportunity for you."

In some cases, a new style of investing is required: "If you like them, buy on the lows and sell on the up-tick. Maybe you become more of a quick trader." But those quick turnarounds aren't for everyone, so he added: "If you don't like that philosophy then perhaps you just buy some of the beaten up stocks when they're down by putting in stink bids. I'm a firm proponent of finding fundamentally strong companies, and buying them with stink bids. There are incredible buying opportunities now in good stocks."

Some bearish investors will counter with the concern that price could go lower. Mr. Fulp agreed that they CAN go lower but he pointed out that it's a reality of investing, especially at this time of year: "I'm not going to tell you that they're not going to go lower because we have a month of tax-loss selling still to come. Like most investors, I'm tax-loss selling now."

So, where is Mr. Fulp investing now and how is he doing it? "I'm getting out of companies that have not performed to my expectations and I'll try to redeploy that money into fundamentally strong companies that I have my eye on. Some of these companies I already own, and some are new positions. I put in stink bids at 5% or 10% to 15% below the current trading level and wait; you never know when those bids might be filled."

But he's also holding some positions, especially in rare earths. "The rare earth sector has been beaten up unmercifully. Rare earths are very dependent on healthy markets. These are pure speculative stocks. With the exception of Molycorp, there is not a rare earth producer with a public company listing anywhere in the free world. The health of the rare earth industry is very much dependent on a healthy world economy. In addition, some REE prices have gone parabolic but remain very high compared to 2008 and 2009. When we have an uneasy world economy (even though the best of these companies will not be producing rare earths for another 5 years or so), the market reacts to that. At some point, fundamentally strong rare earth companies present buying opportunities. If readers are interested, they can go to my website and find out who those companies are. I remain a shareholder of the five rare earth companies mentioned in the past."

As usual, Mr. Fulp concluded our discussion with a few helpful tips for investors who want to get into the market and don't want to remain on the sidelines. He said: "You should choose to buy on weakness. Chasing a stock when it is on the uptick is, in my opinion, a 'highway to Hell'. That's the way you're going to lose money. You should buy stocks when they are unloved and beaten up. Pick fundamentally strong companies with the right share structure, people, and projects. Every junior in any given 52 week period will have a double between its high and its low. The trick is to buy them when they are dormant and trading with low volumes and low prices and sell them when they have good news with high volumes and high prices and everybody wants to get onboard. It's a simple contrarian philosophy that works well in both up and down markets."

And then he provided this advice for investors to help them eliminate some of the emotion from their trading: "I very much like the idea of programmed open orders to buy and sell. It takes the emotion out of trading. Being a field geologist and gone for extended periods of time to remote places, I don't always have the ability to trade on a minute's or even a day’s notice. But with my open orders, those trades happen automatically."

According to Mr. Fulp, the markets may be beaten up – and he doesn't sound overly bullish in the near-term – but that doesn't stop him from finding fundamentally strong companies and investing in them… because NOW is the time to do that.

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