Rick Rule: Gold & Natural Resources About to Outperform other Asset Classes
Tom welcomes back the legendary investor Rick Rule to discuss current events in the banking system.
Rick discusses the systemic risks that exist in the commercial banking system, citing the example of Silicon Valley Bank. He provides advice on how the average depositor can assess the financial stability of their financial institution, such as looking at the percentage of total capital represented by equity, the duration mismatch, and the amount of very liquid assets relative to the deposit base. He also warned of a potential “perfect storm” in commercial real estate if banks become less willing to lend and if high yield ETFs experience mass redemptions.
Rule believes that banks should prioritize security and confidence as the primary goal, with diversity and inclusion as a secondary goal. He advises investors to do their research and read balance sheets and income statements to ensure their money is held in a safe place. Natural resources have been systemically underinvested in for the last several decades and that they will likely outperform other investment classes over the next 10 years. For most of his money, he is chasing beta, or outperformance of natural resources relative to other investment classes, by investing in the biggest and best companies in the sector. For the remaining 20-25%, he is looking for alpha by speculating, particularly through private placements. He believes that the best time to achieve alpha is in a market panic, and that investors should be willing to bet big when the odds are stacked in their favor.
Rick also hosts bootcamps to help educate investors and pass on the lessons he has learned throughout his career. In retirement, he is still working 40-50 hours a week, but only on things he enjoys and finds fulfilling. He believes that high interest rates are not enough to change his outlook on gold, as long as real interest rates remain negative.
Talking Points From This Episode
- Research and read balance sheets and income statements to ensure your money is held in a safe place.
- Natural resources have been systemically underinvested in for the last several decades and may outperform other investment classes in the next 10 years.
- Bet big when the odds are stacked in your favor to achieve alpha during a market panic.
Time Stamp References:
0:00 – Introduction
0:43 – Banking Risks
5:17 – Yields & Belief
10:50 – Return Free Risk
15:29 – Purchasing Power
18:07 – Deposit Guarantees
21:25 – Regulatory Environment
24:38 – Security & Free Markets
27:49 – Banking Risks & Leverage
33:40 – Low Rates & Contagion
36:32 – Safely Parking Cash?
39:05 – Portfolio Structure
45:14 – Market Tops
47:42 – Boot Camps
51:45 – Semi-Retirement
53:45 – Rates & Selling Thesis
55:28 – Wrap Up
Rick Rule has dedicated his entire adult life to many aspects of natural resources securities investing. Besides the knowledge and experience gained in a long and focused career, he has a global network of contacts in the natural resources and finance sectors.
Mr. Rule is a frequent speaker at industry conferences and is regularly interviewed for radio, television, print, and online media outlets concerning natural resources investment and industry topics. Prominent natural resources-oriented newsletters and advisories frequently quote him. Mr. Rule and his team have expertise in many resource sectors, including agriculture, alternative energy, forestry, oil and gas, mining, and water.
Mr. Rule is particularly active in private placement markets, having originated in hundreds of debt and equity transactions with private, pre-public, and public companies.