Warren Buffett is one of the world's most successful investors because he has two rules when investing:
Rule 1: Don't lose money.
Rule 2: Follow rule 1.
To follow rule 1 and achieve above average returns, the intelligent investor must invest with a margin of safety.
What is a margin of safety? Purchasing something valuable below its intrinsic value, thus protecting yourself from the downside risk and increasing the upside potential.
I follow several companies that exhibit an excellent margin of safety, my favourite being DuSolo Fertilizers.
For investors who've not yet read my analysis of DuSolo Fertilizers, I highly recommend you examine the investment thesis I put forward on the company (my favorite within the agri-minerals space). It can be found here.
The rainy season in Brazil is now at an end. Farmers will soon begin planting their crops for the coming growth season and to attain optimal yields, they'll need to supplement the soil with fertilizer. Quite a convenient situation if you're the only DANF fertilizer producer in the local area and you offer a high margin product at a significant discount to imported alternatives…..wouldn't you say?
The DuSolo management team are currently negotiating sales contracts for their Direct Application Natural Fertilizer products. There are several parties involved and it's my speculation that given the proven ability of management to secure deals so far, that an announcement of the successful signing of sales contracts will be made to the market relatively soon.
DuSolo is also in the process of expanding its production capacity to from 80,000 tonnes per year to 160,000 tonnes per year. The necessary equipment is at site and the Company is in the process of installing three additional hammer mills. Installation is expected to take 2 to 3 months.
Eran Friedlander, CEO of DuSolo has recently returned from the US where he's been actively marketing the company to institutional and individual investors alike. The accumulation of stock by several large institutions, coupled with the refusal of shareholders to part with their holdings below the current 52 week low, evidences the fact that the smart money knows how undervalued DuSolo is.
The company has recently been featured in publications by both Potash Investing News and The Energy Report, providing further exposure to potential investors.
If the resource base of the Bomfim project is drastically increased and defined with the release of an updated 43-101 due out later this year, this will in my opinion, provide investors with a truly religious experience in the form of an overnight jump in the value of their holdings.
I'm continuing to purchase at these levels and will back up the truck if I'm given one of those volatility moments that value investors pray for.
Disclosure: The author is long ELGSF.