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March 4, 2019 | How to Beat the PDAC Curse

Lobo Tiggre, aka Louis James, is the founder and CEO of Louis James LLC, and the principal analyst and editor of the Independent Speculator. He researched and recommended speculative opportunities in Casey Research publications from 2004 to 2018, writing under the name “Louis James.” While with Casey Research, he learned the ins and outs of resource speculation from the legendary speculator Doug Casey. Although frequently mistaken for one, Mr. Tiggre is not a professional geologist. However, his long tutelage under world-class geologists, writers, and investors resulted in an exceptional track record. The average of the yearly gains published for the flagship Casey publication, the International Speculator, was 18.5% per year during Tiggre’s time with the publication. A fully transparent, documented, and verifiable track record is a central feature of IndependentSpeculator.com services going forward. Another key feature is that Mr. Tiggre will put his own money into the speculations he writes about, so his readers will always know he has “skin in the game” with them

Today is the second day of the 2019 Prospectors and Developers Association of Canada (PDAC) Annual Conference. This is the biggest mineral exploration show of the year. For me as a researcher, it’s 10-bagger hunting ground.

But all the hoopla I’m seeing online makes me think this is a good time to remind investors of the so-called PDAC curse. The notion is that resource shares often peak in March, then go into a slump throughout the summer. Since the PDAC convention is in early March, the post-conference decline is seen as a curse.

While this pattern doesn’t always hold true, it does happen—and there are several reasons why it should:

  • One could say that the PDAC curse is just a resource version of the general “sell in May and go away” stock market adage.
  • With so many resource companies stopping work during the Northern Hemisphere winter, there’s a dearth of news in the spring and early summer.
  • The PDAC conference itself is such a big event, resource companies pull out the stops to deliver any and all good news possible to the market by early March. This leaves them with less to deliver for some time after PDAC.
  • Gold—which is a major driver in the junior resource sector—has a seasonal pattern. March is usually a down month for gold.

All true, but the last point bears further examination. The conventional wisdom is that gold tends to rally in the first quarter of any given year, then slump in the summer, and rally again in the fall. This pattern is visible in long-term data on monthly gold price changes.

 

 

In looking at this chart, however, I notice that it has changed over the years. The pattern isn’t as clear. Things are different now, so this is no great surprise. But it did make me wonder how different the charts might look before and after gold went into correction seven years ago.

Here’s the “before” chart…

 

 

Note how much stronger the seasonality is. This implies a less-happy picture since gold’s late 2011 peak—and that’s just what we see in the “after” chart.

 

 

What does this tell us? Well, I’d first caution that it’s dangerous to drive forward while looking backward. The past is important as a teacher and a guide, but it’s not a source of certainty on what will be.

That said, if gold doesn’t break out of the range that has constrained it in recent years, its seasonality says it likely to underperform until later this year.

And what if it does break out? Well, during the last bull market, April and May were good months for gold.

Which way will it go? I don’t know. And I wouldn’t believe anyone who told me they did.

Fortunately, I’ve found ways to profit with or without gold—or any other commodity—heading higher.

One way is to speculate on visible exploration success.

By this, I do not mean potential success. I mean success in progress. An example would be SilverCrest—my first big win last year. Waiting for success in progress does mean missing out on bigger gains from getting in early—but the risk is vastly reduced. That’s how I booked a win on SilverCrest before gold and silver turned upward in late 2018. Note also that I bought my shares of SilverCrest just after PDAC last year, and that worked out just fine, despite the curse.

Another way is to speculate on the pre-production sweet spot (PPSS).

I’ll have more to say on this soon, as I’ve now redone and expanded my past research in this area. For now, I’ll just summarize, saying that the data still show better than 90% odds of success in the PPSS, and average gains of just over 100% in just under two years. And—most critical to my caution about the potential of a PDAC curse this year—the average gain is still a positive 23% in bear markets, while the average in bull markets is 135%.

This makes PPSS plays both defensive positions in case the market goes against us and terrific growth positions in case the market turns positive.

I do still expect that, by the way, despite last week’s slump in gold prices. The fundamentals haven changed—but the buying opportunities have improved.

These are not foolproof strategies, of course. Not all PPSS plays deliver. The above figures are averages. And “success in progress” may not be equally clear to all. So, picking the best stocks still matters… which is what I help subscribers to The Independent Speculator  with.

But in terms of general guidance, now you know how I plan to beat the PDAC curse this year.

Caveat emptor,

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March 4th, 2019

Posted In: Louis James

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