In the late 1990s, the Internet was brand new… and sizzling hot. And most people thought it would bring radical change to the world, practically overnight.
This is a common theme with disruptive technology. Enthusiasts often overestimate the impact of new technology in the short run, and underestimate its impact in the long run. Such is the case with AI today.
But the euphoria over the Internet in the 1990s compelled investors to pour money into Internet startups— companies with no profits, no cash flow, and no real business model.
In fact, a joke emerged from this era which perfectly described many of these infamous dot-coms: “We lose money on every sale, but we make up for it in volume.”
But it didn’t matter. Dot-coms were the meme companies of their day. And even the most ridiculous businesses that claimed to have anything to do with the Internet commanded outrageously high valuations.
Meanwhile, actual real businesses that didn’t have anything to do with the Internet, like boring old ExxonMobil, were completely ignored by investors.
Exxon was a great example because oil prices at the time sat at a modest $30 per barrel, and most people simply assumed that oil would stay cheap forever. So Exxon traded at just 11 times earnings, generated over $17 billion per year, and even paid a healthy dividend to the shareholders who had the foresight to own it.
Common sense eventually prevailed, and all of the pie-in-the-sky dot-coms went to money heaven. And the real businesses, like Exxon, survived the hype cycle and prospered.
Today, there are plenty of super sexy businesses which have become incredibly popular with investors. A lot of them are really overvalued.
And just like Exxon back in the late 1990s, nobody is paying attention to other profitable, extremely undervalued, real asset businesses.
Personally I think oil could get a lot more expensive from here. And there are some really undervalued oil companies to consider, just like there were in the 90s.
But the really obvious example I want to talk about today is gold.
Gold is still hovering near its all time high. And as we’ve discussed many times before, there are a number of catalysts which could drive the price much higher from here.
There has already been a coordinated effort by several countries to de-dollarize.
BRICS— Brazil, Russia, India, China, and South Africa— hold conferences explicitly discussing how to move away from the US dollar. And both the amount of global trade in dollars, as well as the share of American dollars held as reserves by central banks, has been steadily declining.
Central banks and foreign governments own trillions worth of US dollar reserves. And the reason the gold price reached this all time high, is because those foreign governments and central banks traded a tiny percentage of their dollars for gold.
That additional demand was enough to send the gold price soaring to almost $3,000.
So if this anti-dollar trend continues—or even accelerates— we could see $5,000 or even $10,000 plus gold.
These foreign governments and central banks, however, only buy physical gold. They do not buy shares in gold companies.
So while the gold price is near its all time high, gold companies are trading at ridiculously low levels.
Here’s a great example.
The company that we’re profiling in the upcoming edition of our investment research newsletter, The 4th Pillar, is one such undervalued gold business.
It’s a mining company with outstanding properties and a fantastic long term earnings horizon. It operates in an absolutely tier-one jurisdiction with minimal geopolitical risk— i.e. not the Congo or Nicaragua.
Its balance sheet is pristine with no debt. Yet they have a very strong cash position.
Due to their operating efficiencies, their production cost is quite reasonable at around $1,500 for every ounce of gold that they mine.
Yet the market is valuing them at a low, single digit multiple.
