Why This Money Manager Is Going Long On Gold Equities

Howard Flinker has been managing money for a long time and is always on the lookout for cyclical opportunities. Right now gold and silver companies are on his radar. Increasing demand from Asia and shrinking supply make this a prime time to focus on precious metals. In this interview with The Gold Report, Flinker details three companies in his portfolio poised to deliver outsized returns, including one that is bitcoin for gold.

Relief-Mine

The Gold Report: Would you tell us a little about your money management company?

Howard Flinker: I've been in the business a long time and have a small money management firm. My approach is to exclude technology, first of all, and then everything else is essentially based on Graham & Dodd, long or short. On the long side, I want companies that have good operational statistics and records and cheap prices, and on the short side, expensive prices and lousy operational records.

I start in both cases with a contrary opinion. If almost everybody likes it, I ask myself, what can go wrong? I see if I can find it. And if I can find evidence to answer the question, I'll sell it short.

On the long side, when nearly everybody dislikes it, I say, OK, things will get better. Let me see if I can find signs when they begin to get better commercially. And on the long side, too, sometimes I say, OK, they're not making any money. What are the assets worth? Can I figure them out?

I like the cyclical wind at my back. In the case of gold and silver, I know there is rising demand in China and India (along with shrinking supply). In May, Chinese, Indian and Turkish demand took off again. On the short side, I want to see oversupply.

TGR: What kind of due diligence do you do on a company before you invest?

HF: I must meet with management. I want to get a gut feeling about them to see if what they say matches what it is in the published documents.

This morning, I talked to an engineer about a mechanical technique at Pershing Gold Corp. (Nasdaq:PGLC). Last week, I talked to another one because I had questions that I didn't understand. If I don't find an answer, I'll just keep looking.

TGR: Would you talk about a couple of companies in your portfolio that aren't on everyone's radar?

HF: One is Pershing Gold. I found a mention of the company in The Northern Miner. Its low capex caught my eye. I couldn't believe it. I called the investor relations person and he confirmed the data. I asked some more questions, and I said to myself, this is a money machine. I worked out that return on capital all-in, not the mining accounting but real accounting, would be about 40% pre-tax. You don't find businesses in very many places that earn that kind of money.

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Disclosure: 1) Patrice Fusillo conducted this ...

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