Potential Post Crash Investments

The mining and agricultural sectors are cyclical.  As mentioned in earlier posts, I have a significant stash of cash as a result of dismissing most crew members in
The Financial Log Book (which will be updated soon).

Why have I done this?

• A view that the markets are in for a major correction.  This has emerged over the past two years.  I realize that I may be "out" by a year or two, but I'm prepared to accept that.  Herr Buffet's admonition about not losing $$$ as the first and second rules for investing rests top of mind.   
• The hope that I can make nice profits by investing when "market spirits" are low.  Market cycles are there to be seen in hindsight.  There is every expectation that they will be repeated.  

While there are complex counter currents in the mining and agricultural sectors, I think that the general trend indicates a downward trajectory in both sectors.  

Why?

• low commodity prices
• growing fears of economic dislocation as a result of geopolitical strife/uncertainty, the prospect of increased trade wars, the threat of increased interest rates, the burden of government indebtedness,  etc. 
• a sense in the markets that a correction is to be expected ... things have been "too good for too long" and the party is about to end

Preparation for Investments in the Future

I am compiling a list of potential companies.  Here are some of the general criteria I am using:

• strong balance sheets with little debt and access to financing 
• great management that has experienced operating during the depths of at least one market cycle
• competitive products and services and a strong reputation with client markets
• companies which are innovative and developing products/services to meet the future demands of clients - not too far ahead of the curve: pioneers take the arrows while settlers take the land
• the ability to quickly ramp up operations when good times return
• majority of company business is located in stable jurisdictions where the rule of law prevails

I am also looking for companies which occupy specific niches in the aforementioned sectors and which should be especially profitable in the early stages of recoveries.  In this respect, I am revising my systems models as part of this analysis.  For example, during the early stages of recovery in the mining sector, I figure that it is more profitable to invest in existing producers whose operations can be ramped up fairly quickly.  Generally speaking, it is only later in the cycle that explorers become more attractive.  

Some Potential Crew Members

I am exploring a few themes:

1. Agricultural equipment distributors
2. Agriculture equipment manufacturers, especially those who are making inroads into traditional markets 
3. Mining equipment manufacturers
4. Mining engineering companies
5. Senior/intermediate mining companies with operations that can be ramped up quickly and where the "operational kinks" have been worked out

Here are a few companies which may be added to the crew at some point:

Outotec 

Rocky Mountain Equipment

Deere

Kubota

While researching Outotec, I came across an interesting site, Corporate Knights - The Magazine for Clean Capitalism .  I'm going to investigate some of the Global 100 companies for two reasons:

• to get a sense of the "opportunity space" occupied by the companies in order to open new avenues for research
• to identify potential crew members for The Financial Log Book

It is a work in progress that will unfold over the next two years.  It brings to mind a dictum which applies (pardon the pun) to painting and varnishing:

A good paint job is 90 percent prep work and 10 percent painting.  

So too, it is with investing.