An ASX rare earths miner that did 17,000% - the stock that got away

Even the world's greatest investors have their fair share of misses, but what's important is what you learn as a result.

But it takes a brave investor to share those stories, and an even braver one to let it be published for a wider audience and help other investors improve their own decision-making.

In this series, we speak to some of Australia's leading fund managers on an investment opportunity that slipped through their fingers and the lessons they took from it.

Here, Marcus Today's Henry Jennings recounts the tale of a small Aussie miner that look dead and buried but managed to dig itself out of trouble and then some.

He also tells the story of a few of the other notable financial decisions he now regrets, from selling London property to an ill-fated vintage sports car.

The other ways that got away 

As the song says, "Regrets, I've had a few, but then again, too few to mention", and I have been asked to write a piece about the one that got away.

Now, throughout my life, there are several that spring to mind, and not all of them are in the stock market.

One of my biggest regrets was selling my three-bedroom terraced house in South West London in the early 1990s after I came to Australia. That £97,000 seemed a great return considering I had paid only £60,000 for the house and then proceeded to renovate it. That house is now worth in excess of £1.2 million, so clearly that one got away.

Another of my non-sharemarket regrets was selling my 1957 Porsche 356A, which I bought from a bloke called Robin Hood at a car yard on the Parramatta Road for $20,000. After several years of ownership, I decided I needed an upgrade in terms of speed and modern driving comforts in a 911, and sold it to a friend for $22,000, making a nice 10% profit. Again, inflation and various other factors have pushed the value of these cars to around $250,000.

What was even worse was that the guy I sold it to wrapped it around a lamppost going up Spit Hill in Mosman. I even saw the result of the accident as we drove past one afternoon. My wife remarked, "Isn't that your old 356?" and yes, it was.

However, some of these pale into insignificance compared with one stock that got away.

What was the investment idea?

Back in 2014, Lynas Rare Earths (ASX: LYC) was a struggling rare earths company saddled with debt and producing something that nobody really knew what to do with. We all knew rare earths were important, but their uses were harder to identify and certainly harder to monetise in those days. As a result, LYC was on life support, with the Japanese providing that support in the form of loans.

The whole EV theme was still in its infancy, and it is fair to say that LYC looked destined for the corporate rubbish heap.

However, things changed, and they changed rapidly.

I should have seen it coming. In fact, I did.

I bought quite a lot of LYC for myself at under 10c, in fact, well under 10c.

What was your reasoning at the time?

A former colleague of mine joined the company around the same time that Amanda Lacaze arrived as CEO in June 2014, taking responsibility for corporate affairs. I emailed him for his thoughts on her appointment and his initial impressions of the new CEO.

His reply was simple: "Tough as teak."

To say Amanda Lacaze has done a good job would be a gross understatement. She pretty much saved the company from extinction. She leveraged the rare earths story, stared down political opposition in Malaysia over the LAMP facility, kick-started production, stabilised the company, expanded Mt Weld and pushed into the US. 

When she took over the gig, LYC was valued at around $133m and on a ‘knife-edge’ in her words. It is now capitalised at $16 billion. Within 18 months, she had the Malaysian plant up and running. Importantly for my thesis, the fact that she was moving her whole family to Malaysia. That showed commitment. And that commitment and passion have been one of the reasons for the success of LYC.

Why did you exit?

Unfortunately, I am a trader rather than a buy-and-hold-forever investor. Having bought a large parcel in the mid-single digits, I felt an overwhelming compulsion to take profits along the way and sold out, from memory, between 13c and 19c.

I don't have the records to hand. It was a long time ago, and my memory is not what it used to be. But I do know that I left an awful lot of money on that 'teak' table.

The reasons I bought it were straightforward. There was a change in CEO, the EV story was beginning to unfold, and the investment case for rare earths was becoming clearer as investors started to understand how they could be monetised.

What happened next? How did it perform?

The stock simply kept moving higher.

Obviously, it helped that China held a near-monopoly on rare earth production and exports, and LYC became the only viable alternative for investors who stayed the course.

There are not many stocks that have delivered gains like that, at least until recently, when we saw some of the extraordinary moves in semiconductor stocks in Korea and elsewhere.

Were there any lessons you took from it?

At Marcus Today, we have one member who turned a small amount of money into a very large fortune by buying and holding LTR. We have written about it many times and, as I have said repeatedly, the trick is not buying a LYC or an LTR.

"The real trick, as I found out to my detriment, is not selling."

If I had simply held on and believed in the ‘tough-as-teak’ story and the rare-earth growth narrative, I probably would not be sitting here today writing this article.

I would most likely be drinking margaritas on a beach somewhere with the LTR man, toasting our success.

But hindsight is a wonderful thing. If I could do with hindsight, what I could do with foresight, I would be a darnsight better off by a long sight.

But then again, who wants to drink ‘Margies’ all day on a beach? Hands up?