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A Clockwork Orange (from IKN370)

The main intro piece from IKN370, out last Sunday evening, stuck here on the open blog by request (with one slight edit, keeping a name for subscribers only):

A clockwork orange

“By definition, a human being is endowed with free will. He can use this to choose between good and evil. If he can only perform good or only perform evil, then he is a clockwork orange - meaning that he has the appearance of an organism lovely with colour and juice but is in fact only a clockwork toy to be wound up by God or the Devil or (since this is increasingly replacing both) the Almighty State. It is as inhuman to be totally good as it is to be totally evil. The important thing is moral choice. Evil has to exist along with good in order that moral choice may operate. Life is sustained by the grinding opposition of moral entities.”
A Clockwork Orange, Anthony Burgess

Regular IKN blog reader and fairly recently subscribed to The IKN Weekly, reader JL sent over a short mail on Thursday that said a few nice things (ty sir) and then got to the point of the missive:

 “ you have any of the mining promoter crowd that you think is "honest" and actually has its shareholders´ best interest?”

Yeah, let’s do this one. First and foremost, “we the crowd” mentioned all have our own agendas and note the use of the word “we”, I very much include myself in the bunch. This is not charity or even philanthropy, we are not in a place where some overriding religious urge of self-sacrifice is the paramount driver of action. This is mining and digging things out the ground and then selling what they found to somebody else, one of the most capitalist things a human being can do and no one is innocent. With that in place, we can now tackle the real-world question posed by JL. I don’t have the answer for you, because if you think about it long enough you find it’s a question of personal morality, i.e. what you consider to be good, bad or in the grey area between. Clockwork orange. But I have answers for myself and though a lot come from hard-won experience that can be termed “the BS meter” and are difficult to explain, I’m going to mention just one of the ways I categorize the voices that exhort me to buy this-or-that stock.

JL talks of the “mining promoter crowd” in his question, a broad church that covers plenty of different people and jobs, from company investor relations personnel, analysts paid to give recommendations, people paid to attract attention to a company, people paid to coerce you into buying shares, people wanting to sell their recently bought shares to somebody else at a higher price, plenty more besides. A crowded room, we need to differentiate at some level or another. This is a big subject and too much for one brief intro to a weekly, but one of the ways I filter through the noise is to ask myself who is paying for the opinion I’m currently hearing.

Here are the three possible answers, plus extra notes and thoughts on each one.

1) Mining Company pays for voice: This can be the IR person on the payroll, it can be sponsored coverage where a miner pays for a report or article to be published in the name of a third party, it can be a company advertising campaign, it can be the hiring of an IR company, it can be shares for column inches, all sorts of variations are possible. Without exception these voices will be biased towards the company story, however and with exceptions to prove the rule, I find that the ones with the most transparent and openly disclosed connection are the ones you can most rely upon. People such as Investor Relations execs for example, who will say, “Look, I get my monthly salary from XYZ Resources, I’m going to tell you why I think it’s a great story...etc”. They’re also nearly always the most knowledgeable too, after all they spend every immersed in their company’s minutiae. Meanwhile over on the other side of the coin, read that big long glowing report and then spend 15 minutes wading through tinyprint disclosures found via using tiny links to separate web pages and discover that the person who wrote the report was paid $20k by the company itself and...welcome to Metanor Resources, Liberty Silver and all the others. Another pet hate in the  ‘sponsored coverage’ world are those people who will assure you that even though they’re getting paid by the company, they wouldn’t have taken on the account if they weren’t comfortable about the story involved. That’s utter BS and I’ll let Lord Beaverbook explain why in this often-quoted exchange (1) sometimes attributed to other famous people:

“They are telling this of Lord Beaverbrook and a visiting Yankee actress. In a game of hypothetical questions, Beaverbrook asked the lady: ‘Would you live with a stranger if he paid you one million pounds?’ She said she would. ‘And if he paid you five pounds?’ The irate lady fumed: ‘Five pounds. What do you think I am?’ Beaverbrook replied: ‘We’ve already established that. Now we are trying to determine the degree.”

Bottom line: When the person is being paid to put a name in front of you they need to tell you that before anything else, the you can apply your own caveat emptor filter more efficiently. Voices in this category are naturally biased, they’re not necessarily dishonest, but pinches of salt and thorough DD on your part later are not optional extras.

2) Clients (i.e. you) pay for voice: This can be a sellside brokerage analyst (who wants commission on trades), a newsletter such as this one (who wants you to send U$XX per month), a friend that wants you in the stock because he thinks is a great opportunity (because he loves you), this can be a person looking to make their name by publishing free advice in exchange for a growing reputation (if they turn out to be good at it), a hundred different flavours to boot. In theory these are more reliable because they’re “in it with you”, in practice they can be even more deceitful than the “paid for” people because a) the letter writer may be in cahoots with the company via access to sweet and undisclosed options deals (one of the reasons I’ll never recommend (named edited out) again, for just one example) or b) the sellside brokerage has just “coincidentally” closed a juicy placement with the company or is fishing for a slice of the next bought deal. A couple of scenarios there, dozens more to choose from.

Bottom line: If you are paying for the voice you’re not buying a company, you’re buying a story, more no less. I treat these voices in exactly the same way as I treat the (junior mining) company itself, by using a) healthy skepticism to begin with and b) on the lookout for any lies, convenient omissions of key facts, evasiveness, etc. I have a (well-documented) low threshold for BS and it takes just one active deception for a story to fall apart and any nascent trust to be destroyed. If a mining company BSses you about one thing, it’ll BS you about dozens. The same goes for apparently independent voices who are trying to get you to buy Stock ABC for their own reasons. Trust takes time with “you pay” voices, respect is earned not imposed, therefore healthy doses of your own DD are also necessary here. If you get to a place where you can trust a third party’s opinion it sure saves a lot of time on your DD load, however even your most trusted sources will make mistakes so that DD of yours isn’t suddenly unnecessary, there’s ultimately no substitute for your own efforts.

3) It’s totally free, nobody pays for voice: If the voice you’re listening to claims they’re not benefitting in any way, they’re lying. Ain’t no free lunches in capitalism, we’re all in it for some reason or other and if they’re claiming altruism it’s just a big red flag.

Bottom line of bottom lines. The thing that most concerned me about JL’s question was how it can be misinterpreted and that’s why I decided to answer it, using just one aspect of a bigger subject to illustrate, the “who pays the voice” angle. Yes there are plenty of people who are paid in one way or another to get you into stock X or stock Y. Yes there are people who are "honest" and actually have “shareholders’ best interests at heart”. Yes there are a whole posse of crooks, schools of sharks and roomfuls of liars waiting for you in miningworld, trained and prepared in the fine art of separating you from your net wealth. The above covers just one way of considering the issue but hopefully you’ve spotted the main point already, the one that counts for all aspects: No matter what method you use to separate wheat from chaff:

Trust nobody.

Don’t trust me with your cash, don’t trust her or him or them or those. Even people you trust can and will make mistakes and you cannot take even your favourites for granted. Use their opinions as short-cuts for sure, but Do Your Own DD. When it comes right down to it, JL and others, it doesn’t matter one jot whether all, some or none of the mining promoter crowd is honest and has shareholder interest at heart. It’s your money, it’s your mistake to make, it’s your profit to enjoy, it’s your loss to suffer.