If you can wade through the convoluted rubbish about fifty- and sixty-year cycles proposed by Russians with unpronounceable names, you may find at the very end of the posting at this link, some reasonable insight on junior gold mining companies in Vancouver. But let me warn you: the going is tough when the author Ian Gordon waxes unlyrical about his Russian Religion. Here is a sample:
The basis of the Longwave Principle is the Kondratieff Cycle. Russian economist Nikolai Kondratieff developed his thesis on this in the 1920s. The cycle lasts approximately 50 to 60 years. I call it a lifetime cycle, because we live only one cycle in a meaningful way. For that reason, it is also very difficult for anyone to recognize where we are in the cycle because we haven’t lived it that period before.
This is the essence of non-sense religion: believe me, for only I have the insight to guide you. Along with “poetry” about spring, summer, autumn, and winter cycles, Ian Gordon believes we are in the winter of despair and things are going to get a lot worse. So he recommends buying share in junior gold mine companies in Vancouver. I fail utterly to see the logic in this. But if you dig deep enough, you will find out why he likes the Vancouver junior gold miners. Of one, he writes:
There’s a little company, Golden Goliath Resources Ltd. (TSX.V:GNG), that’s been out of favor for a long time that I really like, and feel could do really well for investors. I did the IPO for this company in 2000. We had committed to raising $3.5 million at 50 cents based on a group of properties in the Uruachic Mining District in Chihuahua, Mexico. It was a real struggle for me. If you can believe, no one had an interest in gold stocks in 2000. Then Agnico-Eagle Mines (TSX:AEM) became an investor, and as a result we were actually able to raise the IPO from $3.5 million to $4.5 million. That was one of the things that I felt very proud about.
So it boils down to the usual: they paid me, I gave them life, and now I love them.
To counter all this pernicious nonsense about cycles and objective reality, I recommend reading The Black Swan- The Impact of the Highly Improbable. I blogged about this book yesterday and I return to it today, for it provides a hefty dose of reality and a grand antidote to the likes of Ian Gordon. I quote from the Wikipedia take on the Black Swan and silly springs and winters:
Before Taleb (citation needed), those who dealt with the notion of the improbable, such as Hume, Mill, and Popper focused on the problem of induction in logic, specifically, that of drawing general conclusions from specific observations. Taleb’s Black Swan Event has a central and unique attribute, high impact. His claim is that almost all consequential events in history come from the unexpected—yet humans later convince themselves that these events are explainable in hindsight (bias). One problem, labeled the ludic fallacy by Taleb, is the belief that the unstructured randomness found in life resembles the structured randomness found in games. This stems from the assumption that the unexpected may be predicted by extrapolating from variations in statistics based on past observations, especially when these statistics are presumed to represent samples from a bell-shaped curve. These concerns often are highly relevant in financial markets, where major players use value at risk models, which imply normal distributions, although market returns typically have fat tail distributions. More generally, decision theory, based on a fixed universe or a model of possible outcomes, ignores and minimizes the effect of events that are “outside model”. For instance, a simple model of daily stock market returns may include extreme moves such as Black Monday (1987), but might not model the breakdown of markets following the September 11 attacks of 2001. A fixed model considers the “known unknowns”, but ignores the “unknown unknowns”. Taleb notes that other distributions are not usable with precision, but often are more descriptive, such as the fractal, power law, or scalable distributions and that awareness of these might help to temper expectations. Beyond this, he emphasizes that many events simply are without precedent, undercutting the basis of this type of reasoning altogether.
This is heavy stuff; but then your money invested in a failing mining company is heavy stuff—you need to read and think hard before you put your hard-earned money into the pockets of somebody who believes in fifty-years cycles we do not live long enough to document.
An easier way to prove the silliness of fifty-year investing cycles, is to ask how these events. amongst many, can be reconciled with cycles as opposed to black swans:
- The shooting of Archduke Ferdinand – hence the First World War.
- The fall of apartheid and the fall of the communist state.
- The debacle at Toyota.
Now you may ask if a black swan is a bubble. Sometimes it may be, but bubbles have the advantage in that it at least some smart investors are smart enough to make money out of bubbles; they are smart enough to recognize the signs and to to ride the waves. Most do not of course, and get burnt like the rest, but that is their stupidity and greed, not an inherent property of the system. Black swans, by comparison, come out of nowhere and hurt bad. The only way to avoid the worst is to be vested in many activities and to have the backup cash to survive the coming and going ot the Black Swan. You may have to sell your Toyota and buy a Honda. Or you may put some of your cash into the Black Swan Mine in Australia.