My Cynicism with the Stock Market

(Also, Metals X and Starecore International)

The more I work in the stock market the more I realize how much the odds are stacked against the investor. The poor guy in the negative-yielding environment must keep chasing seemingly high-yielding assets in the private sector. He forgets that scammers in the private sector are more efficient. I wish he had a choice.

I, who has been in the industry for more than a decade, constantly get fooled and scammed by people I knew and trusted.

Every investor should approach the stock market knowing fully well that the odds are against him and that the management whose fiduciary duty is towards his shareholders does not think so. Most management work for themselves at the cost of the shareholders. I always ask why they took the company public in the first place. If you have such a great idea, why not keep the upside for yourself? I often attribute negative value to the management when valuing a company.

Of course there are many reasons why a company should go public, but it is best to start with assuming the worst.

Now, on some real possibilities…

→ Metals X (ASX:MLX; A$0.92) has made a bid to acquire all outstanding shares of Aditya Birla (ASX:ABY; A$0.18). Shareholders of ABY can get their shares converted to MLX at 1:4.75. The deadline to choose when you can get your ABY shares converted is 24th March 2016—time is of the essence. So, buy ABY and do the conversion only if you can do the whole exercise and paperwork before the deadline. There is about 8% arbitrage upside and then you will have shares in a company—MLX—that I have come to respect hugely. I have enjoyed my talks with their CEO, Peter Cook and believe that he is a strategic thinker. He should make you money going forward.

→ Also, a couple of months back I mentioned a company, Starcore International Mines (SAM) as a good company to invest in. Since then their share price has gone up ~100%. At around $0.50, I still see a decent upside in owning SAM. I have come to respect their CEO, Robert Eadie. SAM recently sold a property to a real-estate developer for US$7 million. This is a fabulous amount of money for this very small company—this property was not even a part of my valuation. SAM, in my view, not only has a nice upside, but also great optionality in Molybdenum. I always like more upside and free optionality.

Next month, I will be speaking at Mines and Money (HK), Mining Investment Asia (Singapore) and European Gold Forum (Zurich). In all the three talks I will directly or indirectly address whether India is the next China.

Warm regards,

Jayant Bhandari

www.jayantbhandari.com

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