Tekoa Da Silva interviews Rick Rule about two of his favorite investing books, “The Intelligent Investor” and “Securities Analysis.”

Interview Highlights

[0:56] How did “The Intelligent Investor” save you from a career in law.

[3:50] What’s the difference between price and value?

[5:55] Differentiate between the acts of investing and speculating.

[8:45] What do you consider attractive equity valuations?

[13:04] Can these lessons be applied to assets other than securities?

[15:00] Comment on your own transition from business owner to investor.

About the show

As the media arm of Sprott US Holdings Inc., we strive to produce the highest quality and most reliable market news and commentary in the natural resource sector. Our vision is to connect scarce knowledge with the people who seek it and to inspire intelligent investing decisions.

About the guest

Rick Rule is the president and CEO of Sprott U.S. Holdings, Inc. Tekoa Da Silva is an investment executive at Sprott Global Resources Investments

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  • Ok I was thinking about myself here: bills paid, only debt is a low interest mortgage, PM stored, some cash money saved. Which is it better to do when investing surpluses and savings between $500-$1000: 1) Put it all on one stock/etf/etc  the whole lump and then save up for the next buy (thus avoiding trading and transaction fees) 2) Pick a spread of affordable and undervalued stocks etc to avoid having all you investment money in too few stocks?

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  • One Up on Wall Street by Peter Lynch As I continue my financial self-education, I’ve had three consistent book recommendations thrown at me. Peter Lynch’s One Up On Wall Street is one of them. It was written in 1989, and although he rewrote an introduction for the 2000 edition, the book is really designed to impart a mindset to approach investing. That’s probably why I still keep getting recommendations from friends in the field. It has become fairly timeless. I’ve cobbled together some of my notes and summaries of the key insights by chapter. Hopefully this is useful for some, and I dig any feedback from anyone who is interested. I’ll post several chapters at a time as I go through it. Introduction: “People who want to know how stocks fared on any given day ask, Where did the Dow close? I’m more interested in how many stocks went up versus how many went down. These so-called advance/decline numbers paints a more realistic picture.” Dow may be up, while certain stocks are down – it’s all about averages. Introduction 2: Hanes and its L’eggs – use your eyes to look at your immediate surroundings, who appears to be buying what? Is the activity consistent? Often that is enough evidence to justify more research to see if the story behind the activity is potentially profitable. PART 1 – PREPARING TO INVEST   Chapter 2 – Wall Street Oxymorons Portfolio managers for the general public tend to fall prey to a bandwagon effect. Fund managers have an incentive not to buy the lesser known or exciting stocks because then he will be less scrutinized if those stocks fail. At least if others are theoretically “in the same boat” when purchasing popular stock, then his reasons for being wrong can appear “out of his control” to a larger degree, therefore he is individually less at fault. In other words, if you want an edge, it certainly won’t come from fund managers without an incentive to look at the edge. “In our business the indiscriminate selling of current losers is called “burying the evidence.”” The point is that nothing might indicate a problem with the fundamentals of the company, but from a manager’s perspective and incentives he faces, he’ll be compelled to sell anyway. (pg. 62) Some rules and regulations prevent a fund from capitalizing on small fast-growing companies. For instance, say the fund won’t invest in any company with a size below $100 million. They are barred from investing in the company with 20 million shares outstanding that sell for $1.75 a share because the company only has a market cap of $35 million – it has to be avoided per the fund rules. Let’s say the stock triples to $5.25 a share, now the company can be purchased because its market cap is $105 million. But! This has created a “strange phenomenon: large funds are allowed to buy shares in small companies only when the shares are no bargain.” (pg. 64)   Chapter 3 – Is This Gambling or What? “These days, bond funds fluctuate just as wildly as stock funds. The same volatility in interest rates that enables clever investors to make big profits from bonds also makes holding bonds more of a gamble.” The line between “investing” and “speculating” shifts over time – when common stocks reached the status of a “prudent investment,” this marked the point at which the market was paradoxically overvalued and therefore riskier. “Stocks are most likely to be accepted as prudent at the moment they’re not.” (pg. 73) Gambling versus investing is dependent not on the type of activity (buying bonds, stocks, horses, etc.) but by the “skill, dedication, and enterprise of the participant.” The discipline, knowledge, and preparation of the individual determines whether any given activity is investing or gambling. No generalizations possible. Chapter 4 – Passing the Mirror Test Lynch asks 3 questions to gauge my mindset as I enter this strange world: Do I Own a House? (I’m totally baffled by this section because it clearly reflects a pre-2007 perspective. Peter views houses as a form of leverage and as an asset. The housing boom and bust happened and it became clear that this was not a good assumption. I’m still learning so I won’t offer insights as to precisely why he’s wrong beyond this, but I would treat this section cautiously.)   Do I Need the Money? “Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.”   Do I have the Personal Qualities it Takes to Succeed? Ignore “gut feelings.” Investor sentiments – information (in 1989) moves slow, therefore when it is received, the underlying realities may have changed. For instance, “when enough positive general financial news filters down so that the majority of investors feel truly confident in the short-term prospects, the economy is soon to get hammered.” Humans are bad at timing market. 3 Emotional States: concern after market drops or economy falters which keeps him from buying otherwise good companies at bargain prices. Then, he buys at higher prices, then gets complacent because stocks keep going up. Stocks fall to below what he paid, he capitulates and sells quickly. Contrarian investor – not someone who takes the opposite side of a popular issue, but someone that waits for “things to cool down” and buys stock that everyone else ignores or disregards.   Chapter 5 – Is This a Good Market? Please Don’t Ask Lynch’s summary: Don’t overestimate the skill and wisdom of professionals. Take advantage of what you already know. Look for opportunities that haven’t yet been discovered and certified by Wall Street – companies that are “off the radar scope.” Invest in a house before you invest in a stock (!!!!!) Invest in companies, not in the stock market. Ignore short-term fluctuations. Large profits can be made in common stocks. Large losses can be made in common stocks. Predicting the economy is futile. Predicting the short-term direction of the stock market is futile. The long-term returns from stocks are both relatively predictable and also far superior to the long-term returns from bonds. Keeping up with a company in which you own stock is like playing an endless stud-poker hand. Common stocks aren’t for everyone, nor even for all phases of a person’s life. The average person is exposed to interesting local companies and products years before the professionals. Having an edge will help you make money in stocks. In the stock market, one in the hand is worth ten in the bush. (pg. 90)

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  • I read an article on here today attempting to make the case that time is a valuable resource that can be owned and stolen, this couldn’t be more incorrect. I wouldn’t have made so much of this but a lot of people agreed with the article, titled ‘Are You A Time Thief’. “Time, like real estate, is valuable—primarily because there is a limited supply of both; there’s no way of producing any more of either.” Time is not like real estate. Time is a measurement, real estate is an objective rivalrous good. Because of this time is not ownable property while real estate is. The author claims ‘there’s no way of producing more of either’, this is false. More and more real estate is produced every day and is unlikely to stop being produced, and time is the way that humans measure the existence of the cosmos, as long as humans exist, the measurement of time will continue, and it is unlikely humans will stop producing more humans. There is no property right in ‘value’, therefor it is not ownable and can not be stolen. You have a property right in your real estate, you don’t have a property right in the value of your real estate. Your real estate can be stolen, the value in your real estate can not be stolen. For example, you may value your time at $30 an hour, but if I show up an hour late, am I $30 richer? Are you $30 poorer? No and No, because ‘time’ can’t be stolen and value is subjective and not property. Further, even if I do show up an hour late, while it can be an annoyance, I never initiated the use of force, so you wouldn’t be justified in any retaliation, like suing me for $30 or something. And I’d even argue that if you did, you’d be the one initiating force against me. Now stop calling people thieves.

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  • In a libertarian utopia, many libertarians will run their own business, perhaps even more than they do today.  In our world today there are many rules and regulations in effect that are imposed on businesses, and many of those fall into a category we could call Consumer Protection, or Consumer Rights. As a person who has owned and operated a successful retail business, I’d like to get other views on what customers might expect if I were to open a business in a completely libertarian world. Consider this scenario.  Suppose I decide to run a tire store and  also install the tires which I sell.  Under normal circumstances I would hope to have that person come back and purchase tires again but that would not likely happen for possibly two or more years.  What obligation do I have to that customer after they have satisfied themselves that they were installed on their vehicle,  paid for them and driven away from my shop? Based on your own experiences as a customer, what obligations, if any, do you think I would have to you and why?

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