Buy and Hold Forever Brainwashing

by FI Fighter on September 29, 2016

in Precious Metals, Real Estate Thoughts, Stock Investing Thoughts

Franco-Nevada

Buy and Hold Forever is by far the most popular and talked about strategy being utilized by the retail investor to reach early FI. It has been repeated ad nauseum across the blogosphere, especially among the most diehard investors associated with Dividend Growth Investing (DGI), Real Estate Investing (REI), and Passive Index Fund Investing (PIFI?)…

 

We’ve heard it all before:

 

You can’t time the markets, so don’t bother trying… So and So did a study and it proved without a shadow of a doubt that time in the market beats trying to time the market… by a landslide.

 

Who performed the “study”? Your “Wealth Manager?”

Anyway, more succinctly, here is another way to interpret that same message above:

 

Stop trying to be a smartass! You aren’t that good of an investor so don’t bother paying attention to macro news and just keep your head buried in the sand and Buy, Buy, Buy MOAR!!!

Who cares if valuations are sky high, the economy is slowing down, the risk vs. reward curve looks like shit, and we are entering into the fall season (that also happens to be an election year) which has historically demonstrated to be an extremely volatile and choppy time to be in the markets?

Just buy the fucking dip, you moron!!!

 

But if it was so easy to ONLY Buy and Hold Forever, than how come successful businesses don’t ALWAYS operate in the same manner as the retail folks, utilizing that exact same strategy?

Case in point, let’s take a look at Franco-Nevada (FNV), the largest (and best) precious metals royalty and streaming company on the planet. The co-founder and Chairman of the company, Pierre Lassonde is well known in the industry, highly regarded (he’s in the mining Hall of Fame), and that’s right, he just so happens to also be a billionaire… So, you know, he should know a thing or two hundred about making money…

Recently, Franco-Nevada CEO David Harquail discussed with Kitco News the company’s growth strategy moving forward in the face of a recovering gold market.

Here are some of the thoughts he shared above:

“I think the reality right now in the gold space, in terms of us getting good deals, we can’t really compete with the brokers,” he told Kitco News at the Mines & Money conference in Toronto.

So, it might be time to look at other commodities and find better bargains in other commodities.”

However, Harquail remains optimistic on Franco-Nevada’s potential, noting that he is “very relaxed” in this environment and the company continues to benefit from the $1.2 billion deployed for acquisitions this year.

“If we do nothing, we’ve got growth for the next 5 years and pretty steady production.”

 

The best gold company on the planet is now looking at other commodities in hopes of finding better bargains… and talking about potentially doing NOTHING over the next 5 years…

 

That’s right… Go figure…

 

Franco-Nevada isn’t simply buying MOAR, MOAR, MOAR precious metals at any cost…

 

Why not?

 

Because they were super busy out buying up a storm during the Depths of Despair, the absolute most opportune time to go hunting as a Deep Value investor! You know, that very short-lived window of opportunity when you get to gobble up assets for pennies on the dollar… with very little competition.

From Franco-Nevada.

franco-assets

When the opportunity is ripe and there is a ton of juice left to squeeze, that’s when you buy hand over fist and make your deals… Just like Franco-Nevada was doing throughout the last few years.

  • Etc.

 

Those are some MONSTER-sized deals!

When you exploit market distortions and get to buy at historically low prices, you can’t help but make out like a bandit… This in turn sets up your future so nicely that you can indeed afford to take some time off to rest and relax a bit… Or, in Franco-Nevada’s case:

 

“Pay our dividend for the next 30+ years, even if we do nothing and buy not another thing… So, we’re very relaxed right now and we can wait for the bargains to come up again… We don’t have to do anything right now.”

 

Now that the tide has turned, can anyone blame the company for shifting gears and deciding to focus on other commodities, such as oil and gas, in search of value?

If good deals are nowhere to be found, go find something else… or yes, do NOTHING!

Smart businesses understand that… And oddly enough, even the retail investor will commend and applaud such a company for “staying disciplined” and making “shrewd decisions”…

But how come when it comes to our own investment decisions, we can’t learn from some of these “best of the best” businesses? Why do we subject ourselves to mediocrity and ignore risks?

If we see a storm fast approaching, why do we not also seek out shelter?

In case anyone was wondering, here is how shares of FNV have performed throughout the years, relative to other gold investments.

From Franco-Nevada.

franco-performance

FNV is the GOLD STANDARD of all gold mining stock investments!

Ironically enough, even though the management team at FNV is world-class and the company doesn’t need to seek out further precious metals investment opportunities rain or shine, if there was in fact any gold stock out there that I would feel comfortable with enough to execute the oh-so-popular strategy of Buy and Hold Forever, FNV would be that stock!

Maybe there’s a damn good reason after all why the company’s shares continue to do so well, regardless of rain or shine? Could it have something to do with the company’s disciplined strategy of ONLY chasing after the absolute best Deep Value deals and NOT settling for junk assets, trying to buy up anything that moves like clockwork… every minute of every hour of everyday?

 

Straight up, there’s seriously a lot that I can learn as an investor just from observing a world-class company do work!

 

You reap what you sow.

 

Fight On!

{ 8 comments… read them below or add one }

1 Roadmap2RetireNo Gravatar September 29, 2016 at 5:30 pm

Excellent post, Jay.
There is a lot to learn looking at how companies like FNV buy and build assets over the years. Paying attention to valuation is something that everyone talks about never really follows through except for some picky investors. Pierre Lassonde has shown a spectacular way to build a streaming and royalty company and the stock performance speaks for itself.

Thanks for sharing your thoughts. Always a pleasure to read your posts.

R2R

Reply

2 FI FighterNo Gravatar October 1, 2016 at 4:53 am

Sabeel,

Thanks for the kind words, I appreciate it buddy! FNV is definitely doing things right and we investors can learn much from the way they approach building their business.

Glad you liked the post.

All the best!

Reply

3 SKNo Gravatar September 29, 2016 at 9:22 pm

Jay, Naive question.

I am convinced that I should diversify into Gold. I want to do it at a Macro level and would like to ETF’s.

Now there are mining ETF’s like GDX and GDXJ, versus ETFs that hold real bullion like GLD.

What are the pros and cons of Mining ETFs vs Bullion ETFs?

Appreciate your insight.

–SK

Reply

4 BrianNo Gravatar September 30, 2016 at 5:49 am

One minor con I can give you about Bullion ETFs, is, and I assume you are an US based investor and you are doing this is a taxable account, you have to pay the “collectible” tax rate on any gains instead of the normal long term capital gains rate. The collectible rate is currently 28%. So that is just one thing to consider.

I’ll let other chime in with their opinions, I just wanted to provide that little data point.

Reply

5 SKNo Gravatar September 30, 2016 at 8:07 am

Yes I am a US based investor.

Oh didn’t know about the Collectible tax. Thanks for the information.

Reply

6 FI FighterNo Gravatar October 1, 2016 at 5:01 am

Brian,

Thanks for sharing that very important detail!

Take care!

Reply

7 FI FighterNo Gravatar October 1, 2016 at 5:00 am

SK,

ETFs are great, but it is important to distinguish the differences between all the different products.

GLD is an ETF for trading and trading only… These paper shares are not backed by physical gold (well the ratio is something like 1 oz of gold for every 500+ paper contracts), so if something were to happen, and the price of gold went soaring, odds are very unlikely that you would be able to actually redeem your shares for any physical ounces… They would instead settle your claims using fiat paper dollars. GLD is just a liquid proxy for trading purposes… Don’t use it assuming you have real claims to physical gold.

The Sprott Physical Gold Trust (PHYS), however, is an actual paper product that is backed by real physical gold. Please contact Sprott directly to learn more:

http://sprottphysicalbullion.com

In terms of the miners, GDX and GDXJ are the best way to gain exposure into the mining sector, but just be aware that the stocks are way more volatile than the underlying physical metal. In an upmarket, this can work out well as your returns will be far greater, but in a downmarket, your losses will also be magnified… Think of these products as a leveraged way of trading gold.

Personally, if I was looking for a paper product, I would go with PHYS if I wanted claims to real physical bullion and GDXJ for leveraged speculation.

Another “ETF” I like is Franco-Nevada (FNV), a royalty and streaming company that is extremely well diversified… This company does not own gold mines, but they have numerous royalty and streaming contracts in place with these mining companies, so they do give investors a way to leverage their gains off of gold. The beauty of such a company is individual risks are mitigated b/c the company has so many diversified sources of income, and in a downmarket, this stock will provide much better defense and insulation.

Please see this article to learn more about FNV:

http://seekingalpha.com/article/3963704-franco-nevada-gold-standard-mining-stocks

Take care!

Reply

8 SKNo Gravatar October 1, 2016 at 6:20 pm

Thanks Jay for the valuable answer.

Reply

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