Gary Newman is the resource stocks specialist on ShareProphets.com and will be on the main stage during the Dragon’s Den sessions at The Global Group UK Investor Show on 30th March 2019 while also chairing at least one resource breakout session upstairs on the day. We caught up with Gary this week to ask him 21 questions?
1.Who or what first made you interested in the world of shares?
I’ve always had an interest in the stock market going as far back as when I was at school and used to have a dummy share portfolio, and that continued with my BSocSc degree in Money, Banking and Finance at the University of Birmingham.
2. You are, unusually for a share blogger, a trained journalist. Your main job is writing about angling – how did you get into that?
After finishing university, I worked in the City for a year in sales and wasn’t really enjoying it, so I left and was looking for another job. I’ve always been a keen angler and was approached by one of the main weekly magazines, Angler’s Mail, which was part of the IPC Media group. I ended up working there for the next 12 years as a writer and photographer before going freelance.
3. Is it right that we can see you on TV programmes on obscure channels? Where can we catch you?
I work for a fishing tackle manufacturer called Korda Developments as a TV production and projects manager, in the marketing department, and we make our own shows. I’m mainly involved in researching and producing ‘Monster Carp’ and ‘The Big Fish Off’ for ITV4 and ITV1, but have also appeared on a few shows fishing myself, including ‘Fishing Allstars’ which will be shown on ITV4 in the Spring of 2019, and it will probably be repeated on ITV1.
4. Should buying shares in resource companies be termed investing or gambling?
A lot of people treat it like gambling, but the only ones who really make money from that are those who organize the pumps on the stocks at the lower end of AIM – everyone else is just cannon fodder for them! There are some genuinely good investments out there though, but there is a lot of luck involved in choosing those companies. The main thing I look at is whether the project is likely to actually reach production anytime soon – some claim to have huge resources in the ground but either the economics of the project are unsound, or huge amounts of investment is needed to reach production and if they do get to that stage it will be at least several years into the future. If you pick the right ones then there is a lot of money to be made from holding long-term – Serica (SQZ) and Bushveld Minerals (BMN) have been two of my best picks for ShareProphets.
5. Why do you think investors in small AIM resource juniors always mis-price risk?
Most of them don’t seem to want to take into account the risks at all and just focus on how rich they could get overnight – you see people on the bulletin boards discussing which colour Ferrari they are going to buy. That is why they get ripped off so easily by the pump and dump crews which sell the dream of untold riches, as people want to believe what they are being told.
6. With the political and economic storm clouds gathering will 2019 be the year that gold finally breaks out and upwards?
I’m not convinced that we are going to see gold going to sort of levels that some are predicting but I do think that it will have a strong year. Even a return to the mid $1,300 range would have a big positive impact on the producers. I would certainly be surprised to see it finish 2019 at above $1,400.
7. How would you have gold exposure in your portfolio? Which are the three cheapest gold stocks out there?
Holding physical gold means that you have to have a large amount invested to make much of a return, as even a 10% rise is big, and it is now harder to use leverage since the changes to the rules for CFDs and SBs. I would definitely go for equities as effectively they in themselves are leveraged plays on the metal. Three of my favourites are Polymetal International (POLY) and Highland Gold (HGM), and for something a little more risky, Avesoro Resources (ASO). I also like Randgold Resources (RRS) but I wouldn’t describe it as especially cheap at the current price, although I can see upside there.
8. Are you concerned about Brexit? Does it make you less inclined to invest in the UK stock market?
Brexit is a factor and will have an effect on the market, but there will still be plenty of opportunities to make money. There are certain sectors that I would be avoiding at the moment though, especially house builders, retailers and estate agents.
9. Oil has crashed to, as we speak, c $50. Can it go lower and if so for how long? Should I be buying or selling oil shares?
The oil price is largely driven by derivatives and sentiment rather than actual supply and demand dynamics, and that usually means that it over-corrects up or down when the trend reverses. I can’t see it going much lower, as I don’t think that we will see much more in the way of interest rate rises – which have hit commodities in general over the past year – and far more importantly I don’t think OPEC and the Russians will want to see further drops and will control the price to some extent. Especially with the Saudi IPO of Aramco looking likely for 2020/21, as they will want a high oil price for that.
10. Do you believe in Horse Hill?
I find it hard to believe that it will ever be producing large amounts of oil on a daily basis and think that if the prospects were that good we would have seen involvement from bigger players already.
11. How would you reform the AIM Market in one simple step or do you think it is doomed come what may?
I think that having a minimum holding period for those taking part in placings, alongside a ban on them taking short positions would have a big impact. If places had to hold for at least 3-6 months then it would cut off the supply of capital to the lifestyle outfits and they would go bust, but that would mean better access to capital for the companies that actually have a chance of making it.
12. Would you say that you were a trader or an investor and why? How long do you typically hold shares for?
I do both – sometimes I will hold a position for just a few hours and on others I will hold shares for several years or more. I rarely mention my very short term trades as I don’t like that idea that someone could follow me into the trade when all I am really looking for is a quick spike, or on my trading on commodities and FX it is very much based on support and resistance levels, although I am certainly no charting expert and only use the basics.
13. What percent of your portfolio is in cash right now? Would you say that was prudent?
A lot of my portfolio is in cash currently and has been for a few months, which was partly due to the large rises we saw in commodity stocks earlier this year, but also because I have been working overseas a lot and often haven’t been able to keep a close eye on the markets. I don’t like to be out of touch when there is the potential for serious turmoil and events which can cause large movements overnight.
14. Do you take a market view and does that drive you or are you strictly a bottom up investor?
I do closely watch the overall market and events which could have an impact. Over the years I’ve learnt that it is much better to follow the trend than to try and guess where the bottom is, as you can get it badly wrong. If you get in near the start of a proper uptrend then it doesn’t really matter if you miss the first part of any rise, and it is often a safer strategy. Buying right at the bottom or selling at the high is often more down to luck than skill.
15. You must have an opinion on equities. On a global scale are you a bull or a bear right now?
I think it is still too early to be totally bearish on equities, but I am definitely very cautious at the moment. There is plenty going on around the world that could send the markets into a tail spin, and a lot of stocks have looked relatively expensive to me in recent months after several years of fairly sustained rises.
16. What was your biggest ever winner in percentage terms and what made you invest in it in the first place?
Serica Energy (SQZ) has been my best performer, having bought as cheaply as the 5p area and having sold my remaining shares at over 100p. I’m not sure exactly what my average buy and sell prices would be, as I topped up along the way, up the low 20s, and did sell some at around the 60p level to reduce my risk. I bought into that one as I liked the assets that they acquired from BP and thought that they had bought them at a good price as oil was weak at the time, although I never expected it to perform quite as well as it did. I’ve also got lucky with a few explorers, with Rockhopper (RKH) being the best, having bought at 42p and then holding all the way up to 502p – that was as a result of hearing a whisper that they had struck oil from someone that I trusted.
17. And what was your most costly stock market mistake? And why did you make it?
In percentage terms it was actually my first ever AIM resource stock when I was new to all the games that get played on AIM. It was a company called Matra Petroleum (MTA) which was supposed to be a dead cert – I bought at 5.4p and shortly afterwards when their drill didn’t go to plan I ended up getting out at 2.2p. In terms of actual money, it has usually been on commodities when I have tried to go against the trend and guess the bottom (or top when shorting), or I have set my stops too tight with leveraged positions and been taken out before the price has then reversed. I think the hardest thing to learn in the markets is patience – if you try to force a trade, or trade out of boredom, then that is when you tend to lose.
18. Do you sometimes despair at the dishonesty of many involved in the stock market?
It always amazes me how willingly some people will try to rip off other investors just so that they can make a few quid themselves. Often it is at the lower end of the market where it is much easier to influence the share price and to draw in those desperate to make a quick buck. The pumps on these tiny companies only work if those behind them are able to find others to offload their shares onto as these stocks are usually very illiquid. I also despair at the dishonesty of some of the directors who will say pretty much anything to attract new investors, or to keep their current ones. You see them going on podcasts etc claiming all sorts of things are going to happen, and even that funding isn’t needed, then in some cases just a few days later bad news lands, or a placing comes.
19. If you could introduce any one law to make the stock market a cleaner place what would it be?
The larger stocks tend to already be fairly well regulated, although there are still plenty of examples of where investors have been ripped off – Afren (AFR) for example – but often the FCA will get involved. At the lower end of the market I would like to see a lock-in period introduced for anyone taking part in a placing, whereby they can’t sell their shares – or short them – for a six-month period. That would stop the lifestyle companies, which rely on pumps around placings, from raising capital – the only reason many take part in those placings is to immediately flip their stock and hold onto the free warrants which are often attached. Getting rid of those sorts of companies would free up capital for the ones which actually have a chance of building a real business.
20. Do you understand bitcoin and or blockchain and have you invested in any plays in this sector?
It isn’t something which I follow closely, but I do keep an eye on what is going on. I wouldn’t say that I totally understand the technology, but I do think that there will be a place for blockchain in the future and it will be more widely adopted. I also think that we will see a few of the cryptocurrencies succeed, but as for the rest, I think they will end up worthless. I would avoid any of the AIM outfits that suddenly change business and stick the word ‘blockchain’ in their name or business description, as they are simply playing on the recent positive sentiment in this area and won’t actually achieve anything – we’ve seen them do similar with lithium and cobalt as well in recent years.
21. If you had to give one piece of advice to anyone starting in the stock market what would it be?
Question everything and don’t take things at face value. If something seems too good to be true, then usually it is. This particularly applies to resource stocks – if what they had in the ground was really as valuable as is often claimed, then the share price would be a lot higher as the professionals don’t mis-price stocks that badly. A resource in the ground is only valuable if it can be extracted economically. I always remember the Mark Twain quote that a gold mine is ‘a hole in the ground with a liar stood at the top’, which I think applies to some of these small oil and mining companies. If you’re interested in resource stocks then I’d definitely watch the 2016 film called ‘Gold’ which was based on the Bre-X mining scandal, it will certainly open your eyes to what could go on!