FDR and expected value calculationsFor those of you with easily accessible cash reserves and now wondering whether you own enough FDR, allow me to offer a possible re-framing of the puzzle. It is not a simple question, and everyone’s personal situation is different, so this is not meant as any kind of criticism of individual risk tolerances.
And it is not as though I have all the answers. I do like to simplify complicated problems where possible, however. If we remove everything from the table except the math, what would the numbers say?
By numbers, I don’t mean estimates of gold ounces in our property. Anticipating those properly involves an entirely different set of skills. I like playing at resource modelling for FDR, but that is not primarily what would be driving my decision today if I were considering whether to increase my share holdings. I am instead talking about mere expected value calculations.
When Great Bear was brought to my attention, it had already touched $4.00 for the first time. I’d like to say I waited patiently for pullbacks and built my position economically and efficiently... but I’m not so gifted. The truth is I fed capital in as fast as I could during the spring and summer of 2019. At $3.00? Sure, some. But also at $5.00, $6.00, even $8.00. Not counting my attempts to trade GBR at higher prices.
My reasoning? Once you are essentially certain, on a balance of probabilities, that a stock is going to rise strongly, does it really matter whether the ultimate return is 10x or 3x or even just 1.5x? That, in truth, is proper “conservative” investing, I would contend.
Because that kind of 51% probability of success – even of just a 1.5x growth move - will beat some other stock with a 1% chance of 20x returns. (And that 1% chance describes most IPOs and other start-ups / hot tips etc., if we’re honest with ourselves.) Certainly it will beat a stock whose risk profile is a 51% chance of a 25% return. An expected value calculation.
Yes, the above was an over-simplification of the math, but the broad principles do apply here.
Now, the difference between this and pure momentum investing is the “essentially certain” part. We’ve got enough hard evidence. We are this day looking at a clear mis-pricing for FDR. Markets don’t adjust instantly to new information. Otherwise, our experience of buying stocks would be entirely different to the one we have come to know.
Markets adjust when people like us step in after some deliberation and lay our money down. As corny as it sounds, “we are the change we’ve been waiting for”, and we can “be the change we want to see in the world”. How else do we expect markets to move?
FDR’s reasonably expected gold ounce resource is out of all proportion to its low trading price today. Buying today more resembles value investing than a momentum play.
So for those of you considering committing fresh capital to FDR, don’t feel like you’ve missed the boat. There is an argument to be made that Founders is a much *safer* investment today than in May 2023, or even last December. Which makes you less of a risk-taker if you buy at current prices.
Fortunately, there is still plenty of upside waiting for those who do take on the risk from this point on. What a wonderful thing the stock market can be.