Hedge funds

Move over Lazarus, Tom Stanley also rose from the dead

OPM 3 min read

This post, like my last one, is about Tom Stanley, although from now on, I will call him Tom Lazarus Stanley. In case you don’t know, Lazarus is a Bible character who was brought back to life by Jesus. Of course, Jesus also famously came back to life, but I am not rash enough to write that Jesus should move over, as that could be misconstrued. Incidentally, in 2005, the Globe profiled Tom Stanley - a religious man - under the title Tom Almighty, in clear violation of two commandments (against idolatry and using God’s name in vain). I am officially calling for the cancellation of the Globe. The title was also wrong because Tom Stanley proved all too human.

I have checked the numbers: the fund’s drawdown in 08-09 (ie peak to bottom) was around 79%. And the fund then spent nearly 7 years essentially flatlining. What’s behind Resolute’s astounding comeback, returning at least 60% in each of the past 4 years? It’s probably junior gold stocks, do I have to spell everything out? Or some other resource stocks. I am speculating here, Tom rarely talks about his positions. He operates in mysterious ways. He has generally been averse to tech stocks, though he had some biotechs many years ago.

On his website, he says “We no longer seek or desire press coverage”. Who can blame him? At least he occasionally updates his website. Lately, I see he's added a few quotes by Ray Dalio on gold and debt. Tom is a big believer in inflation, that the US won’t be able to pay its debt and in the decline of Western civilization over the next few decades. He has had this worldview since at least 2005. He also thinks market prices are distorted by the Fed, a view typical of permabears.

I see that in 2016, Resolute went activist on Wesdome Gold Mines, demanding and getting the postponement of the company’s annual meeting just one day prior, using such unkind words as "dysfunctional" and "no confidence". I think Jesus would have handled the situation differently. Wesdome has gone up 4x since 2016, so I still don't know what accounts for the near 8x returns. Resolute owned about 26% of Wesdome, which is typical of Resolute's highly concentrated high-octane strategy often in small-cap stocks.

Many investors believe that because there’s a lot of so-called money printing, inflation will inevitably follow. These people have been wrong for many years right up to the present. This highlights one of the great paradoxes of investing. If you ask a 5-year-old, what’s the consequence of an enormous increase in money supply, they will say “No clue”. If you ask someone with some economic education, they will say inflation. And yet, no clue was the correct answer.

Sophistication - especially in a pseudoscience like economics - goes against you. This is a recurring theme in investing. Passive investors beat active investors. The investor who doesn’t know it’s possible to short sell is better off that way. Bearish arguments always sound sophisticated, but the naive optimist makes more money.

Of course, in Tom’s case, he has compounded strongly despite his macro views proving wrong so far (compounding at 15% since 2005). He was also completely wrong on the uranium thesis, which was his number one thing back in 2005. I am well aware of the coin flipper / broken clock / blind squirrel phenomenon, but Tom’s strong overall returns going back to 1993 are at least statistically intriguing.

Tom is around 64 years old. What’s a succession plan for an iconoclastic fund like Resolute? About two years ago, he advertised an opening for an analyst / fund manager to be groomed as his successor. That ad is gone, but he still has other openings. Despite my reservations about his strategy, I think Resolute would be a great place to learn. Tom is open-minded and really dedicated to learning. He is anti-CFA. He’s not an active trader. As of early this year, Resolute has crossed the $500m mark. Tom is a very lean operator, so the business is very profitable. And clearly, that business can withstand anything.

Read my previous post on Tom Stanley here.

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