The 75/25 Rule: No Need To Outperform If Market Returns 1200%

The 75/25 Rule: No Need To Outperform If Market Returns 1200% By Albert Lu for Sprott Global

Invest before you speculate was the message Rick Rule, president and CEO of Sprott U.S. Holdings, delivered to a capacity audience at the 45th New Orleans Investment Conference earlier this month.  

“We are at, or pretty close to, the bottom of the [gold mining] market in a 40-year context.”  

“There’s a newfound … aggressiveness among the investors. There’s a sense that we have been through the worst of the bad times [in precious metals] and we’re coming into good times.” 

Nevertheless, Rule stresses caution. 

“[The Barron’s Gold Mining Index (BGMI)] shows us that the nine major recoveries we’ve seen have been between 200% and 1200% over compressed periods of time.  

“[I]f just capturing the market gives you between 200% and 1200%, the idea that you take a lot of risk to try and beat that is a little silly.” 

Rather than increase risk to beat the market, Rule prefers to ease back by allocating 75% of a mining portfolio to, what he calls, the best of the best stocks. 

“I suspect that over the course of a bull market you’ll probably give up 20% or 25% of the performance. But you’ll do that by de-risking your portfolio by 70% or 80% … You take substantially less risk to make all or most all of the move.” 

So, what separates the best from the rest? 

“I would say it’s people,” explained Rule. 

“The truth is, in my life, most of the performance that’s been generated to me, and hence to my clients, has come from 10 or 15 people. And you find that the best people always end up building the best companies.” 

THERE’S A LOT TO BE SAID FOR EXPLORATION 

But despite his cautionary warning, Rule encourages those who can tolerate risk to speculate. 

“I’m not suggesting that, for a different portion of your portfolio [—the remaining 25%], you shouldn’t speculate. There are very few ways in the world to add economic value more rapidly than through the drill bit.  

There’s a lot to be said for exploration. There’s a lot to be said for buying very high-quality junior gold stocks that grow at the same time that the market’s ability to appreciate them also grows.” 

“The gold narrative, once it gets going, is unusually powerful.” 

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Rory Hall, The Daily Coin. Beginning in 1987 Rory has written over 1,000 articles and produced more than 300 videos on topics ranging from the precious metals market, economic and monetary policies, preparedness as well as geopolitical events. His articles have been published by Zerohedge, SHTFPlan, Sprott Money, GoldSilver, Silver Doctors, SGTReport, and a great many more. Rory was a producer and daily contributor at SGTReport between 2012 and 2014. He has interviewed experts such as Dr. Paul Craig Roberts, Dr. Marc Faber, Eric Sprott, Gerald Celente and Peter Schiff, to name but a few. Don't forget to visit The Daily Coin and Shadow of Truth YouTube channels to enjoy original videos and some of the best economic, precious metals, geopolitical and preparedness news from around the world.