My full interview with Ryaz Shariff of Primevestfund originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.
Ryaz Shariff journeys through jungles in far-off countries in search of valuable assets. Does that pique your interest? As you’ll learn from our interview, Ryaz is something of an Indiana Jones in the investment world. Some may say that Ryaz is too hands-on in his running of Primevest Capital, but his fund, Primevestfund, has not only survived the prolonged commodities bear market and recent oil price collapse, but has managed
to beat the market since 2005, with a 10% compound annual return.
Being a commodity investor in 2015 is a very lonely proposition. The commodity bear market that started in 2011 has yet to abate, and commodity-era darlings such as Sprott Asset Management have struggled. Ryaz, though, has managed to stay much more versatile. Aside from investing within his core expertise, which is the junior and mid-size mining market, he mandates that his fund remain flexible, which is to say that he adjusts Primevestfund’s investment strategy to reflect the prevailing market conditions. This means taking advantage of non-resource special situations, including large-cap mergers as well as employing short-selling in down markets. Today, over one-third of the fund is in the non-resource sector.
While Ryaz insists that common investors cannot achieve comparable success in the junior and mid-size resource market because they lack “deep domain expertise,” there have always been instances of average-joe stock-pickers who make outsized returns from resource booms. One such example is a family friend of mine, Robert Hirschberg, the owner of a sports apparel company who resides in Toronto. Robert parlayed $20,000 into $15,000,000 by speculating in junior mining stocks throughout the 2002–2007 commodity bull market in Canada. While this anecdotal evidence should bring you some hope, I caution that one should wait until the commodity cycle turns up before investing in this sector or else risk outsized losses. A (grizzly) bear market can be mean. As Ryaz explains
in his most recent fund letter, “As we continue to experience one of the longest resource bear markets in history, we have maintained a disciplined focus on building further expertise within the sector, so when the fund flows return, as is now already becoming evident in small ways, we will be the premier hedge fund in the country to benefit.”
I am not as well-versed in the resource sector as I invest in the nonresource sector of the market. Thankfully, Ryaz was both gracious and accommodating. Our interview was over the telephone, with me in Toronto and Ryaz in Vancouver. Ryaz’s responses were short and to the point.
Ryaz Shariff’s 19 Investing Lessons:
1) “We’d rather invest in exceptional management teams than in ordinary ones. Businesses always have hiccups, but management teams that are exceptional entrepreneurs always figure a way around those issues to create value.”
2) “Most of the names that you find inefficiencies in are ones that the market hasn’t followed or that have been orphaned for some reason.”
3) “Identifying the under-followed small-cap businesses is the first part of the treasure hunt; thereafter, you must figure out what catalysts will drive multiple expansion.”
4) “If management creates value from efficient capital allocation, the asset becomes attractive for larger companies with depleting asset bases to consolidate, at premium values. One of the major challenges of a large company that’s pressured to grow is the replacement of that declining asset base.”
5) “This type of investing [in advanced-stage resource development assets] can be very volatile but there’s no better risk-to-reward relationship if you can get it right.”
6) “We don’t try to forecast commodity prices themselves but rather use long-term consensus estimates to model into these opportunities.”
7) “Commodities are generally the focus in the late stage of economic cycles. When the metals cycle eventually turns, you tend to see multi-fold returns.”
8) “We’re not really looking to forecast when the cycle turns because I don’t believe anyone can. The velocity of money in today’s world is so fast that you can’t really figure out the bottom of cycles, the top of cycles, and the turn of cycles.”
9) “[The ideal energy and production company] has no debt, can maintain their production without going into debt at current low oil prices, and when oil prices move upward, it becomes a go-to name.”
10) “The actual cycle works like this: demand exceeds supply; capital is approved to develop supply; commodity prices increase in value till new supply comes on-line; supply exceeds demand; commodity prices decrease; non-profitable supply comes off-line and then we wait for demand to exceed supply again.”
11) “While demand will be volatile in the short term, the long-term demand will be reasonably sustainable.”
12) “If you can get involved when you see political change occurring within a resource market, then there are usually significant returns to be made.”
13) “The two most important ingredients to look at are the demand/ supply fundamentals and institutional fund flows.”
14) “The resource markets are generally a small market so when institutional funds flow into the sector it can have dramatic effects.”
15) “We always have a hedge in place: the ability to short positions. It’s used to insulate some portion of the systematic risk within the portfolio.”
16) “We’ve had some great wins and they tend to be accentuated by the cyclicality of the sector.”
17) “With resource investments, not only do we want the principal asset undervalued, we also like to see additional ‘blue sky’ in another asset or business line that we get for free.”
18) “Some people argue that those small, single-asset companies are riskier, but I could argue that they’re less risky because we understand those deposits better than a larger company that has 20 different deposits.”
19) “If you look at the history of the Venture Exchange, you’ll see immense upticks and immense downticks. . . . Bear markets tend to have violent moves both up and down.”
Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.