shareholders are holding a call option

A Real Asset Call Option

I posted this on the COAL forum last night and thought you guys might be interested in how some fund managers think.

Excerpt from the above article

"Aussie investors can take heart from Grantham's resource point. It means that companies with proven reserves in the ground - or even just a large, undefined resource - may be better long-term investments than existing producers. Why?

Existing producers are vulnerable to falling commodity prices. They are vulnerable to rising capital and labour costs. They're also vulnerable to lower global economic growth. That's a long list of vulnerabilities.

If we're in a Credit Depression in which financial asset prices are going to fall or go sideways in real terms for many years, Grantham is arguing that you're better off accumulating real assets that are still in the ground. These are like savings bonds, but denominated in metal, ore, or tangible assets.

One way to think of this strategy is like buying a call option on future economic recovery. The option gets cheaper the further asset prices fall. And unlike a real option, there's no time decay. You just have to make sure the company that owns the rights to the mineral or energy resources is a going concern and can stay that way through a long drought.........."

I still love MTE although she has been behaving very badly of late!

The moral of the story is to let it all play out for as long as it takes unless you need the money. It's up to you whether you buy or sell. I'm waiting a little longer before I start buying again if these prices get cheaper.