The Irony of the 1% Doctrine June 27, 2006March 4, 2017 THE IRONY OF THE 1% DOCTRINE This book by Ron Suskind will surely be #1 on the best-seller lists. The 1% Doctrine holds that if there is even the slightest – one-percent – chance a terror threat may be real, America will take action as if it’s a 100% certainty. The implications of that – and of our not having known it was our nation’s policy – seem to me to be huge. But for the sake of argument, let’s just buy it for a minute. (And then read the book and spend many hours debating it with everyone we know, because what debate could be more important?) The irony is that when it comes to terror threats, the Administration has decided that a 1% chance is enough to impel decisive action. But when it comes to the global climate change that could wipe out most of the world’s coastal cities and threaten civilization itself, even near certainty is not enough to provoke action. If they made a movie about YOUR HOUSE, would you go see it? Well, they have. BOREF Joey: ‘I bought more BOREF at 9 today. Is this the end?’ ☞ Me, too. I doubt it’s the end. More likely, if things go badly, it will be years before Borealis completely peters out. When we started with all this, the stock was $3.50 or so and – with 5 million shares outstanding – the whole thing was valued at $17.5 million. It had a lot of wildly grandiose claims and projections (wasn’t it supposed to be making $1 billion in profit by now, or some such?), but who knew what else. Progress has been maddeningly slow, and there is still the real chance we could lose all our money; but the stock price does not necessarily reflect the odds. In the short term, the stock price represents the intersection of impatience and greed – impatience on the part of whoever sold a few shares the last few days at $9 (having perhaps bought them at their all time high of $21 a year or so ago); greed on the part of whoever bought those shares (well, Joey and me, for example). Consider that Borealis owns about 5 million shares of Roche Bay, Ltd., the Arctic iron ore speculation. Since Borealis is divided into 5 million shares itself, each Borealis share in effect represents, among other things, one Roche Bay share. And Roche Bay was also trading at $9 or so yesterday. See where I’m headed? If Roche Bay shares are actually worth $9 – a big if – a buyer of Borealis at $9 a share got, for his money, $9 worth of Roche Bay – and the rest of Borealis for ‘free.’ Of course, it’s possible all Borealis subsidiaries will ultimately prove worthless, and the parent company with it. But you have a savvy British money manager investing a few million dollars to do preliminary testing on what may be a gigantic commercially exploitable iron ore deposit on the Atlantic coast of Canada . . . and you have a significant British steel company agreeing to buy 20 million tons of ore if it does prove to be commercially viable. So that’s one reason to hang on for a few years. And you’ve got the electric motor that drove the 767 around the tarmac like a golf cart, with all the potential implications endlessly discussed here over the past year. Will any of this ever pan out? Nobody knows. But . . . sometimes . . . patience pays off. A long time ago, a real estate fiend of my folks told me about a company called Tejon Ranch (TRC). They owned a gigantic piece of property on Interstate 5, between Los Angeles and San Francisco. The stock was $20 a share, which worked out to $60 an acre. Something crazy like that. I don’t remember the exact numbers, but it was pretty easy to figure out – just multiply the stock price by the number of shares and divide that by 270,000 acres. And for the several years I owned it, I would do that calculation frequently. Shouldn’t that land one day be worth a lot more? For years, the stock didn’t budge. But then one day it began what I recall as a rapid quintuple. Thirty years later, the company is valued at $2,460 an acre. So in this case, the potential turned out to be real. But people are not keen on waiting. Or take Texas Pacific Land Trust (TPL). It owns a lot of land in West Texas. The stock was $14 in 1993. Today: $148. The point isn’t that any stock you hold a long time will rise sharply in value. Clearly not. The point is just that where patience is required, investors sometimes show little interest. And therein – sometimes – lies an opportunity. To me, BOREF at $9, down from the mid-teens a while back, doesn’t signal the end; it signals a (highly speculative) opportunity.