Thursday, March 31, 2016

Richmont Mines Hangs In For Long Haul

I am impressed with Richmont Mines (US ticker RIC). Their longevity and profitability in 2015 were rare in a junior resource producer. The main challenge ahead is to replace mined reserves, either with new discoveries or with better engineering to make discovered resources viable.

The management team must be doing something correctly. Their mining engineer CEO has been around other producing companies. It's nice for once to see actual mine operators running a mining company instead handing the place over to former consultants or investment bankers. Their other key people have been around the block in the mining sector for a while.

The company has two active mines in Canada, plus other properties in various stages of exploration and development. The PEA for the Island Gold mine and the latest 43-101 for the Beaufor mine are on Richmont's website. My problem is that the PEA is abbreviated and the 43-101 is in French. Someone in charge over there needs to show me the long forms in my own language. I prefer to examine complete primary source documents in English. I am going to take the company's word that independent parties have verified its 2P reserves and ore grades.

Results in recent years aren't stellar compared to the larger world economy, but are probably better than countless mining companies facing bottomless financial holes during a bear market for metals. Profit margin at 4.72% (from Yahoo Finance today) isn't great, but plenty of resource sector investors would like to see that kind of money after holding other beaten-down mining stocks. Check out Richmont's numbers at Reuters. Its five-year EPS growth rate of -18.39% shows that even solid operations can't hold back a bear market in metal prices. Its five-year ROE and ROA are both below one percent, which are also below their industry averages.

Richmont Mines is somehow surviving when its larger competitors are struggling and the sector's juniors are cratering. Someone has to occupy the middle of the market.

Full disclosure: No position in Richmont Mines at this time.

Friday, March 25, 2016

Thursday, March 24, 2016

James Bond Belongs On Wall Street

Wall Street often undervalues military veterans. Snobs who've never broken a sweat look down their nose at people who've worn muddy boots and dirtied their hands. The only veterans that might be exempt from the categorical cold shoulder are those with intelligence backgrounds. The appeal has little to do with qualifying skills and aptitudes. It has everything to do with a popular culture phenomenon that romanticizes intelligence work as something exclusive to a small elite, just like how Wall Street sees itself.

Intelligence analysis has a lot in common with financial analysis. Both rely on open source material for background data on geopolitical conditions and economic trends. Analysts in the US military and intelligence community use detailed methodologies for tracking changes in a competitor's strength. Private sector analysts have the same mentality when tracking a company's financial statements and news releases. Both types of analysts take the protection of confidential and proprietary information very seriously, and they take pains to safeguard privileged information from disclosure. It should be easy to make the argument that intelligence people would be assets on Wall Street. It's even easier to use a movie icon as shorthand for the advantages of having an intelligence pro in a financial house. That icon is none other than Agent 007, James Bond.

Anyone who's seen a Bond film knows the guy's fictional lifestyle. He travels the world with ease, wears a tuxedo to gambling tournaments at five-star hotels, drinks martinis, wears an expensive watch, drives a customized luxury car, and comes face to face with the most powerful and intriguing people in the world. James Bond is the archetype of alpha achievement and unquestioned competence, with a healthy serving of of sociopathy. Stereotypical financial titans think of themselves exactly the same way. Plenty of senior investment bankers and private equity fund managers negotiate high-stakes deals with intriguing international counterparts. They can afford a James Bond lifestyle in real life. 

Your typical high-powered Wall Street type gets deal flow from peer referrals, and hiring also works the same way. Image and prestige matter more than actual qualifications. An investment banker who sees a resume labeled "intelligence veteran" doesn't think about the candidate's analytical skills, geopolitical outlook, or cultural expertise. They think, "It's Agent 007. This person must have a lifestyle just like mine." That's all that matters.

Military veterans aiming for Wall Street careers can make this irrational bias work in their favor. Executives who think they need a Bond-like presence on their team are suckers for an intelligence veteran's pitch. The dumb trust fund kids running around Wall Street's mid-levels make hiring decisions on instinct. Action movies form their entire picture of military life. They'll hire for a "killer" advantage if they think a veteran brings shock and awe to a deal. You don't have to be a James Bond (or Jane Bond for the female equivalent) to close the deal, but the image's unspoken power just might open a door that would otherwise be closed to veterans.

Right this way, Mr. Bond. We've been expecting you . . . in the Fortune 500 boardroom.

Tuesday, March 22, 2016

Sunday, March 20, 2016

Someone Didn't Meet Investment Banking Thresholds In San Francisco

Investment banking is a fast-paced, high-powered business. Deal flow drives egos, reputations, and compensation. Bankers place large amounts of capital into circulation. The bigger the deal, the harder they work. They do not waste time with small deals. That is why it is so hard to believe some San Francisco blowhards who have claimed in my presence that their small-time reputations came from really big deals.

The Dummies book series describes the revenue threshold separating investment banks from business brokers. Small businesses don't need the specialized services of expensive investment bankers when they are better off finding a generalist intermediary. Most entrepreneurs who have bought or sold a small business figure this out on their own. Hilarity ensues when someone who has never owned a business tries to claim they know how this works.

I met the biggest lying phony of a lifetime a few years ago in American Legion Post 911 in San Francisco. The Legion took forever to shut that phony Post down but its sad legacy lives on in the denials of its former prime movers. The lying phony once claimed on Yelp that he had hired Goldman Sachs to sell his unspecified business, which of course never existed. Try getting a Goldman banker on the phone for any deal worth less than $100M or so and you'll be lucky if they don't just bust out laughing. Maybe a young top-shelf i-banker would take a deal under that threshold if they were totally stupid, or if they worked for a managing director who wanted to force them out for lack or revenue.

Another pathological liar crossed my path around 2012 through some investor relations events that I no longer attend. The guy's claimed record of bulge bracket deals in remote islands made no sense, especially after he started promoting penny stocks. That's a step down in prestige and income from globetrotting i-banking. His further connections to "deals" with companies having no verifiable revenue or visible operations made me shake my head. I can't be around people with such bizarre notions of successful deal-making.

Glib talk about deal thresholds can fool a lot of otherwise intelligent people. It doesn't fool me. I just love studying financial minutiae. Red flags fly fast and furious when someone within earshot brags about closing deals that can't be verified with simple sleuthing. The SEC doesn't always pursue small-fry liars like the Legion Post 911 idiot or the island-hopper. I enjoy picking up the trail where regulators leave off.

Friday, March 18, 2016

Thursday, March 17, 2016

The Haiku of Finance for 03/17/16

Spare change in the couch
Savings plan must start somewhere
Just not where you sit

Wednesday, March 16, 2016

Removing All Mystery From Modern Wealth Management Performance

Stock brokerage was a middle class career path in America after World War II, thanks to brokerages that hired military veterans to staff branch offices across the country. The sector morphed into financial advisory and became a playground for the spoiled kids of rich families. It happened gradually, then suddenly, much like the way spendthrift households go bankrupt.

Legions of stock brokers built their books of business with long hours of cold-calling complete strangers. Federal legislation behind the National Do Not Call Registry removed millions of potential wealth management prospects from the financial sector's reach. The USA PATRIOT ACT further required financial institutions to thoroughly know their potential customers, in the expectation that familiarity kept terrorists out of finance. Brokerages in the early 2000s knew these legal changes would quickly make mass cold-calling an obsolete way to attract new business. They needed some new juice.

Demographics answered the brokerages' growth dilemma. Some market researchers figured out in the 1990s that wealthy people increasingly preferred doing business with other people who were just like them. Being rich was the surest sign of trustworthiness. Everybody was getting rich in the 1990s from the dot-com bubble, so it all seemed so easy without any work ethic or basic financial competence.

Leading brokerages hired consulting firms after the 2001 dot-com crash to redesign their new broker employment pipelines, compensation plans, and even their branding and cultures. The result was a collection of top-tier brokerage firms that defined success as walking in the door with enough money to instantly produce high six-figure revenue. Most firms would put this figure at a minimum $10M book of business. The only people who could pull this off were the trust fund kids born into serious wealth. Mom and dad hand over the family fortune to Junior, who takes a wealth management job to fulfill some stipulation in their multigenerational trust fund. Meanwhile, the brokerage's branch manager acts in loco parentis to ensure Junior sticks around during market hours. It all makes being rich look so easy, and that's enough to fool newly rich clients.

It's easy to become a top-performing wealth manager today. Just walk in the door with your family's $10M and do absolutely nothing. Anyone else hired in a wealth management branch who walks in with less money will be fired in a few months, because their expected production after half a year will curve up by the amount of revenue they would have made if they had walked in with $10M. In other words, wealth management firms employ the hard-working poor to generate qualified leads that their rich peers will collect after they are fired.

I have no empirical research to support my observations above. Chalk it all up to what I have personally witnessed since earning my MBA. Investors have every right to know what their hired financial professionals do with client money. In almost all cases, the hired pros do somewhere between nothing and less than nothing.

Thursday, March 10, 2016

Wednesday, March 09, 2016