Some investing philosophy.

Five investing tips from multi-billionaire Rick Rule

Multi-billionaire Rick Rule has revealed the secrets to his phenomenal financial success, sharing his top five investment tips.

Oriel Morrison*

3 min read

May 2, 2022 - 8:44AM

Rick Rule, a well-known mining investor and chief executive of Sprott US Holdings, has spent decades hunting for small, unknown stocks in the hope they will one day be worth much more.

Rule began his career in the securities business in 1974 and has been mainly involved in natural resource stock investments ever since.

In a recent interview, he outlined several crucial investing tips which he’s followed to increase his chances of success.

Tip 1: How do you find the good stocks? Research

“With regards to a $10,000 to $20,000 investment in securities the due diligence often seems to be ‘got a hunch, bet a bunch’,” Rule says.

“The number of stocks in a portfolio should be consistent with the number of hours per month that you tend to spend researching the stocks in your portfolio.

“And by researching the stock, I don’t mean reading inflammatory headlines.

“I mean reading annual reports, reading quarterly reports, reading analyst reports.

“If people would own a number of securities which corresponds with the number of hours per month they are willing to spend understanding their securities, their portfolio performance would be immeasurably better.”

Tip 2: Bigger is not better

“One of the services that I offer are portfolio evaluations. If people send me their mining securities, I rank them 1-10,” Rule says.

“One of the things that struck me is the number of portfolios with a 45-50 stock selection.

“Sometimes I email people back and I ask them – ‘how comfortable are you with this number of securities?’

“And invariably I get the response from them that ‘diversification is a risk management tool.’

“I would suggest that diversification in that fashion is a risk maximising tool.

“Owning 45 positions that you don’t know anything about is a lot riskier than 10 positions that you know well.”

Tip 3: The 10, 20, 30 baggers take time. Be patient

“The Disallowed, 20 or 30 baggers stocks that I have enjoyed over my career have taken 5-6 years for that price escalation to occur,” Rule says.

“Almost all of them have fallen in price by 50 per cent or more at some point.

“You have to have the willingness for time to be on your side, and the stomach to endure volatility.

“In the 50 odd years that Warren Buffett has been the steward of Berkshire Hathaway it has fallen by 50 per cent or more over 18-month periods of time four times.

“Terrifying to live through, but the truth is that over the fullness of time they didn’t matter.”

Tip 4 Know when to sell a loser

“Exploration speculators, as an example, may buy a company because of an impending drill hole.

“Their hope is that this drillhole will prove the third dimension of a deposit. Inexplicably, the drill hole comes in and doesn’t confirm the third dimension of a deposit.

“If the stock subsequently declined from $1 to 75c many people would refuse to sell.

“But if the reason to own a stock disappears, the stock should disappear too.

“I’ve probably had 1000 investors in my career that when we talk about a losing trade they say ‘I’ll just wait until I break even’.

“(But) if the attribute of the company which would cause it to gain value has gone, why would it go back to break even?”

Tip 5: Does your thesis hold up?

“In 1998 in Kalgoorlie, I ran into John Borschoff, from $1.5m market cap uranium stock Paladin.

“I did a 10c per share financing for them, with an attached option at 15c. My genius was rewarded with the stock going from 10c, to 9c to 8c.

“A year into the investment my 10c piece of paper was trading for 1c.

“I revisited my thesis as one must do when one’s faith is tested. I found, frankly to my surprise, that my thesis was very much intact.

“I still believed I was right, and that the market was wrong.

“I was able to buy some more stock at 1.5c, and six years later that stock was trading for $10 a share.

“The truth is that Paladin was substantially more attractive at 1.5c per share than it had been at 10c – and I liked it at 10c.

“If you like something at 10c you better love it at a penny.”