Have you ever noticed that the longer you follow an investment, and the more familiar with it you become, the more you have a desire to own it – because you kind of understand its performance characteristics, how it operates, etc? Even though you know there are potentially more exciting options out there, you stick with what you know and are comfortable with.

Using my basketball analogy, this is the player on the team who isn’t the best in the league, and might not be a starter on other teams, but you know what you’re getting and how they fit in the system. Knowing these things, you can use them successfully, probably more successfully than others. This is my long relationship with Sprott Inc (SII).

I’ve been an investor in (and out) of Sprott several times over the past 13 years. I was working in the industry, and quite familiar with the company when it went public in 2008. Eric (Sprott) is no dummy, and after many years of building his firm and launching a series of successful funds in the precious metals and resource sectors, he took it public.

SII went public in 2008…..and what a time that was. The markets had been on a long colossal bull run, but the global financial crisis was rapidly unfolding, banks were just starting to collapse, and the smart money started heading for the exits. And the exit for Sprott was to sell a boatload of shares to the public @ $10 per share (pre consolidation – equal to $20 now). Just before the collapse. Well played sir, well played. Weeks later, it imploded. Check it out.

After launch, SII promptly crashed, as people fled the all things related to any markets. Even the large exposure to gold and precious metals through its various funds couldn’t save it. It did have a great run up in 2010 / 2011, but by that time the winds were coming out of gold’s sails, the assets Sprott was managing continued to decline and things settled down back to a range equal to 25% of the company’s go-public valuation.

Over the past decade I’ve traded SII as a low risk trade based on its valuation as an asset manager. It would fall into the mid / low 20’s, look cheap and easy, and I’d buy some. In the 30 range, typically a couple / few months later, I’d sell. Nothing too exciting about it.

But things changed with the advent of Covid-19. As I was cooking up the DTM5 strategy, I was looking for things that would benefit from the coming economic crisis. Gold – and companies that manage gold funds – were a logical investment. When markets began their decline in Feb 2020, and gold was pulled down along with it, I saw the opportunity for a bigger SII trade than usual.

In a big crisis, everything initially sells off, even things that will logically do better as a result of the crisis. Despite the current and strengthening gold bull market, Sprott went below $21. I started buying (more) and it has worked out well. I’ve taken quite a bit of profit off the table, but still maintain a decent position in the DTM-5 retirement accounts.

So, what are my take aways? It pays to be familiar with some old faithfuls……having some bench strength to call on if required. Its good to have some familiarity with valuations so when a company’s price disconnects from reality due to external events, you can take advantage of the opportunity. Another one – In a big crisis, everything tanks. Even things that the crisis will benefit. One final thought. Some investments you rent, you don’t have to buy. In other words, you can change your timeframe to take advantage of price volatility, and this is easier when you understand and have belief in the underlying asset valuation.

GLTA!