Cipher Research: Value Investing by Investors for Investors

Vancouver-based Cipher Research is a new research company with a unique perspective on the mining and metals sector. It's been making a name for itself by developing comprehensive valuation models using the disciplines of economics, geology, statistics and finance. To learn more about Cipher's work, the Investing News Network spoke with Rod Husband, a partner at the company. He explained that part of what makes Cipher different from other research firms is its focus on investors. "First and foremost, we're independent research," he said. "We go by the motto 'by investors for investors,' and a lot of other newsletter writers or analysts — they provide paid-for research." He added, "we're investors ourselves, and we want to share our knowledge with other investors like us." Husband also noted that Cipher is all about value investing, meaning that its strategy is not to tell investors what price to buy stocks at. "We give you a fundamental value for the company, and if the company is trading below that, then essentially it's a buy. And each individual investor can then determine the risk that they want to take in terms of potential return," he said. Explaining how Cipher determines the fundamental value of a company, Husband said that "statistical analysis of historical transactions" is the key. Cipher is also very technical, and Husband cited his experience as a geologist as important to the company's work. In closing Husband gave an overview of Cipher's portfolio and the company's strategy for rebalancing it. "We focused on advanced gold exploration and development companies to start with, and we evaluated 250 companies that had a resource and an engineered resource ... then we developed a model to determine if that project had the economics to succeed." That model involves running a company through five tests. Companies able to pass the top four tests are added to the list of companies Cipher likes. "Of those 250 companies that had an engineered resource, only 44 met our criteria," said Husband, also stating, "and of those 44, when we started doing this in 2013 until we established our portfolio in November, 18 got taken over. So that in itself was evidence that we had a pretty good model." Cipher's portfolio currently contains 23 companies.

Comments