A Conversation with Jayant Bhandari of Anarcho Capital
NOTE: This interview was first published for Junior Stock Review Premium readers on April 2, 2020. Become a today and get my best investment ideas, market commentary and interviews first.
Over the course of my life, there have been a number of people who have made a significant impression on me.
Some of these people made an impression before I’d even met them.
I have mentioned before that my introduction to gold and what it means to be a libertarian started with Doug Casey. I had never contemplated the idea of sound money or the short falls of government before hearing Casey’s opinions.
From there, I went down rabbit hole, which brought me to the junior resource companies and invariably, I heard Rick Rule speak.
Every time Rule speaks, there’s something to learn about what it takes to be a successful investor in the junior resource sector.
If you haven’t already, go to YouTube and search his name. Watch any of the videos and listen for the “how.†It’s in there and it’s invaluable.
Finally, and more recently, there is Jayant Bhandari.
Bhandari is a friend, a Libertarian, a fellow investor in the junior resource sector and a major influence in my life.
In a recent conversation, we covered a number of important topics about investing and life.
Bhandari’s insights will make you a better investor, of that I have no doubt.
Enjoy!
Brian: Current stock market dynamics can send investors on an emotional rollercoaster – seeing your portfolio plummet in value is something that most investors fear. Adding to this, there’s the risk that Covid-19 poses to you and your loved ones, which certainly has a compounding effect.
I have a two part question. First, with all the uncertainty in the market, do you view this as an opportunity to buy or is it time to sell?
Second, if it is an opportunity to buy, how are you able to put emotion to the side and take full advantage of the situation?
Jayant: I have been loading up. The best time to make money is in a bear market, when everything gets sold off, based not on valuation but on emotions.
When I buy something, I make sure to have a valuation. I always have a buy and a sell price for everything I own.
Even in a normal market, prices of individual companies are volatile. As I would have taken a calculated decision by trading in something, I do not beat myself up if thereafter the price changes against me, which almost always happens. Those who beat themselves up condition themselves to be emotional.
I want to restrain my emotions at all times. That way, I try to get objectivity to guide me. Of course, I make sure that I have enough cash at any point of time to not have to worry about my living expenses. If one has to worry about living expenses, one will inevitably get emotional.
One question remains. What is the best time to buy? How should one know when the proverbial knife has stopped falling?
I do not accept the concept of “falling knife.†There is no way to know when the market will stop falling. We cannot predict when it will turn around and start going up. So, when the price is right, I do what I intended to do. That, of course, means that I buy and sell too early. But those trying to perfect the timing keep waiting. For me, the right time is based on what I decided to be my buy and sell prices.
Brian: In my view, to be a consistently successful investor in the junior resource sector, you need to buy companies with good management teams that are selling at a price which is less than their intrinsic value, and have an acceptable risk profile.
In saying this, investors do have to be wary of value traps, which I define as companies that have the potential to never escape the market discount.
First, do you agree that value traps exist or is it just a matter of the investor getting the thesis wrong?
Secondly, if you do agree that value traps are out there, do you have any advice for steering clear of them?
Jayant: It took me a very long time to be respectful of the concept of “value-traps.†This concept is very hard to comprehend for anyone who makes objective judgements. A rational person thinks that, sooner or later, someone rational must start valuing a company based on its inherent value.
Most people like to think that the management of a company will take actions to correct the market perception or deploy capital in a way that the company gets the respect of the market.
Such an “objective†investor forgets to take into account the negative value that a bad management imposes on the company. “Value traps†are not just value traps, they are reflections of crooked or stupid management in command, who for whatever reason cannot be removed, and who impose a consistent negative contribution on the company.
An investor might erroneously think that stupid people cannot rise to the top. Alas, there are many ways to the top. My liking for the free-market does not fool me into thinking that it would be a panacea for all ills.
In general, I avoid any company run by a crooked or stupid management. Or at the very least, I account for the negative value that a bad management imposes on a company.
If you would like, I suggest you have a look at two companies, both that offer seemingly fabulous upsides, but are destined to stagnate.
One is G-Resources, a company that trades in Hong Kong (code: 1051). This company has a whopping US$1.5 billion in cash or cash equivalent. The company unfortunately trades at a mere US$0.23 billion market capitalization. There is seemingly a 550% upside. This looks unbelievable, but the problem is that making a hostile takeover of a cash-rich company does not work. The management gives no dividend and pays itself a very high salary. It is a no-brainer that despite seemingly such a huge upside, the cash will get frittered away, with an eventual value of likely zero.
Or look at Jubilee Exploration (JUB). This company has more in cash value than is its market capitalization. Based on my valuation, the company offers, perhaps, an easy 1,000% upside. Alas, a shareholder does not see how the upside will ever be paid out to him in dividend or capital gains.
Of course, both the companies I mentioned are not for people to buy, but to show how value-traps are real and why they might continue to exist to the end of the life of the company.
Brian: On March 23rd, the U.S. Federal Reserve, in an emergency FOMC statement, announced that they would essentially do everything in their power to prop up the American economy. They have dropped interest rates to 0% and have essentially indicated that they are prepared to infuse an infinite amount of money into the financial system.
The really crazy thing is that the Fed isn’t the only one taking these unprecedented steps. Countries around the world have pledged countless amounts of money to their corporations and citizens to minimize the impact of this global crisis.
In your opinion, will these financial measures be enough to contain the economic impact of the Covid-19 crisis and, if so, at what price has this containment come?
Jayant: Such “containment†measures are like an icing on the cake for an investor. When they were announced the stock market sky-rocketed. If I cannot fight it, I prefer to profit from it. I tend to buy more stocks when I know that they are falling because of lack of liquidity, for I know that the government would pitch in with more paper. Everything is immoral about this printing press.
From a macro perspective, however, printing money works as termite. It eats away the innards of any society, not just by destroying the capital by encouraging mal-investment, but also by imbuing immoral, irrational behaviour among the citizens. What becomes a personal relief for an individual is destructive to the society, which in the end is a mere transfer of money from one wallet to another, from the strong hands to the weak hands, along with massive loss of capital through friction (bureaucracy, regulations, etc.).
In any social emergency, there is indeed a need to keep the economy on ventilator to give it time to recover. However, when you must use the ventilator of the printing press, you pre-empt people within the society from helping each other, which is a more accountable system.
Fed’s printing press discourages people from saving during the good times, savings being what is needed to fight off the need to print money.
Brian: In my view, we live in
a society of paradigms or bias that lock us into thought patterns that keep
many of us blind to other alternatives that may be more efficient or
beneficial.
Whether it be financial, political or social, in your opinion, how does one keep an open mind and see through paradigms and their own inherent bias?
Jayant: Today the media and the institutional system encourages consumerism and hedonism, which are nothing but signs of decadence. My view is that the biggest reason we get set into a fallacious paradigm, which refuses to change despite evidence, is because of what have traditionally been know as sins. Our lust, greed and fear warp our thinking. We want to believe what suits our animal instincts. That does not mean that we necessarily supress our desires, but we must attempt to understand how they guide our thinking, conduct and decision-making.
Moreover, we are biological creatures and our habits and ways of thinking get encoded in us. It is very difficult for us to change our minds. My guess is that an awareness about this should make it easier for us to change when time comes.
Brian: In 2007, you wrote in an article entitled Twenty Observations of Liberty and Society, which was published in the Liberty Magazine,
“Every little bit of totalitarianism in our minds, however benign it may appear, helps to produce a complexly corrupt and coercive society, endlessly mirroring itself in the workings of the state. People should learn to see this connection. Libertarians should learn to see it. They should learn that the seedbed of oppression is not the state but the culture.†~ Liberty – pg.53
I think this is a very important insight, one that may not be completely understood by everyone upon reading it for the first time.
Can you please give us some context as to how you came to this realization and why it is important for people to learn to see it?
Jayant: I grew up in India, a grotesquely poor, wretched, superstitious, and backward society. I often meet Indians who are tired of corruption they face from the government. A moment later they happily offer bribes to get what they don’t have a right to, or they cheat their clients or customers. It is a society of distrust, where there is no moral code. Everyone is driven by expediency.
One corrupt bureaucrat I knew in Delhi told me once with tearful eyes how he had bought house for his son in London from the bribes he had collected. He then told me that his son was still expecting more and cheating him. What else did he expect when he had taught a certain moral code to his son?
Virtually every Indian I meet wants to be free, but desperately wants to control lives of other people.
Now, reflect of the above and tell me what kind of people will such a society supply to work in the government. What kind of motivations, drives and interests such bureaucrats have? What kind of incentive and feedback would such a society provide to those in the government?
Only in a society of moral and rational people can you expect a sensible government, which by definition will be minimal in size, and will constantly face forces for further reduction in its size.
Brian: Last year, you opened my eyes to the potential of East Asia, in particular, Singapore and Hong Kong. You have mentioned many times that, in your view, East Asia is the best hope for the future of humanity.
This statement has a lot of weight.
In your view, why is East Asia the best hope for humanity?
Jayant: Singapore, Taiwan, Japan, South Korea, and Hong Kong have not only kept a lot of their own values, of honor, respect, hard-work, loyalty, etc. but have strengthened them as a result of their interactions with the West. They have in a way adopted and adapted many of the good values of the western civilization, the one civilization I have know. The end product of this adoption is that East Asia today is more western in a good way that the West is today.
East Asia has not given much credence to the culturally Marxist forces that have emerged in the West over the last several decades, the forces that encourage hedonism, drugs, and a sense of entitlements and gradiences. This partly happened because East Asia is not necessarily democratic in the way that the West has become. So, the base desires of the masses do not reflect in the conduct of the government to the same extend. Moreover, East Asia has adamantly refused to accept refugees and immigrants, most of who come with a very strong psyche of expectations, and a sense of entitlement and grievances, which they readily impose on their hosts when they get the right to vote. Look at it this way, immigrants and refuges are carrier of the same cultural-virus they claim to be running from.
A homogenous society is, also, more trusting and loyal.
Of course, the leftist media of the West does not like East Asia and cherry picks bad aspects of it, corrupting western people’s understanding about East Asia. The fact that East Asia is not as democratic as the West is, it hasn’t brought in immigrants who refuse to assimilate, and hence retained many of the good qualities of the western civilization makes its goodness sustainable, when the West, alas, has started to sink.
I go to China several times a year. A lot can go wrong in China, but so far it has been on the same trajectory as South Korea or Japan was on at one point of time. Yes, there is tyranny, heavy-handedness and over-secrecy in China, but I am not comparing China with the US. I compare China from where it has arrived, a positive change unseen in human history.
My view is that the US does not have much time left. After Trump is gone, the US, given a massive demographic shift that is underway, will swing the US rapidly to far left. Without the crutches that the US is for the rest of the West, the West will start falling apart very quickly. The Third World stays relatively sober because of the fear of the US. That leaves only East Asia as the surviving sane part of the world.
But can countries like Japan defend themselves with the US presence? Again, while Japan might not call its armed forces as army, but they have a formidable defence force. East Asia will survive, or at least is the only area that has a hope of surviving.
Brian: On July 25th, in Vancouver, following the Sprott Natural Resource Symposium, you will be hosting the 2020 edition of the Capitalism & Morality Seminar.
In my opinion, Capitalism & Morality has no comparison; its structure and list of speakers are unique and of the highest quality. I wouldn’t miss it and am honoured to be a part of it this year.
Past speakers include Rick Rule, Doug Casey, Adrian Day, Albert Lu, Stefan Molyneux, Frank Holmes, Butler Shaffer, Keith Weiner and, of course, yourself.
The first Capitalism & Morality Seminar was in 2010 and has grown dramatically over the last 10 years.
Looking back to the seminar’s beginnings, what was your motivation to host such an event and what can people expect from the 2020 edition?
Jayant: I immigrated to Canada for one reason. I was searching for liberty and wanted to live in western civilization, which, I must restate, is the only civilization. Even East Asia is a civilization today because they have adopted the western ways of life and thinking. In running Capitalism &Morality, I want to, in my very little way, contribute towards protecting the greatness of western civilization, which is what distinguished humanity from animals.
The seminar has grown in support every year. And I am excited that you will be anchoring a panel discussion this. All I can say about this year’s seminar is that it will be better than the earlier ones.
Your subscribers can get 10% off the price for the seminar by using coupon code, LENI. Anyone who pays, attends the whole day, and thinks he did not get value for money can ask for a full refund. Also, those who want to watch from home can do so for free on YouTube.
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Until next time,
Brian Leni P.Eng
Founder – Junior Stock Review Premium
Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company and sector that is best suited for your personal investment criteria
