Q&A with Tolga Kumova

An introduction to Tolga Kumova

I first heard of Tolga due to his huge success in SYR which ran from 6c to $6.50. This stock made him rich as well as famous in the ASX micro-cap space. When you read of these sorts of gains you think of the money, cars and houses. What you never really think about is the pain and anguish that it took that ultimately led to the success.  

I’ll admit Tolga’s history shocked me as it didn’t fit the bill of a high flying director and investor who just made one of the largest returns in the history of the ASX micro-cap space.

There aren’t many people that can lose their own money, their parents life savings and their clients money and not throw in the towel. That’s exactly what happened though during the GFC. If he had given up, he would have been one of the many stock brokers and investors during that time that changed careers because it all got too hard.

With no further ado let’s find out more about Tolga’s incredible journey so far.

Tell us a bit about you and what got you into the share market in the first place? 

It started with me putting in year 12 elective subjects late. The chemistry subject was full so they made me choose another elective. The elective coordinator said I might enjoy the economics class. The teacher Mr Wilson inspired me through the way he explained how supply and demand worked.

From the age of 15 to 17 years old I was working as a spruiker at the fruit market so I clearly understood what happened when you move prices up and down. After one year in his class I went from wanting to do a computer science degree to committing to becoming a currency trader.

I can trace back my fascination with this back to my childhood when I used to wait for the end of the news and wonder why the price of America, Germany or Japan went up or down. 

Post high school I accepted an offer to Banking and Finance degree at Monash University but at the same time my best friend (he is now an auctioneer on the Block) and I started our first business. It was a car wash at Doncaster Shopping Centre.

We had quite a lot of very successful customers bringing in their high end cars. We obviously developed relationships with quite a few of them. There was one Korean client with a brand new BMW M5 who would come in every Saturday morning.

One morning he asked me if I had a share trading account. So I opened an account with Commsec and bought a share called Senetas (SEN) under his advice at 20c. Almost a year later he told me to sell them around $1.60. From that moment I was hooked.

Can you give us a summary of your trading strategy?

This is a difficult one as it has evolved over the years. During my life as a stockbroker I had different clients with completely different strategies so I have seen it all and how they have worked and not worked in different market cycles.

I had private clients trading +$100m large cap cash equities portfolios, clients position trading options books over indexes and equities and some clients trading/investing large books purely spec resources market. 

My clients were diversified from ASX 200 executives to guys trading scrap metal. The reason why I am telling you all this is because I got to see risk versus reward through different personalities working different strategies and figured out what works for me. Believe me everyone is different!

I am not a trader. I take positions in micro-cap mining/exploration companies which have the ‘potential’ to discover something large. I am looking for hungry management teams that have large potential targets within their portfolio.

I am sure traders make a lot of  incredible returns trading stocks that I am taking positions in however, I need the management team and the company to actually deliver on their promises for me to make a return. It’s also important to remember the probability of this happening is usually skewed against me.  

I do enough homework with the people I work with to try and get the risk versus reward as much in my favour as possible. The people I trust for advice have various skill sets. In most cases I have known them for 15 years.  They  are geologists, geophysicists, mining engineers and mostly investors (some call them company promoters) to share their ideas and thoughts on different projects all over the world. 

I then cross check one person’s idea with the people with other skill sets I have access to. Sometimes the question is easy if the management team actually finds something but I also need to determine if I think they will ever be able to profitably develop it in the jurisdiction the deposit is in. 

Is the metallurgy right? Is the ore body uniform? Are their indigenous issues? What view does the government take? Is the scale of the deposit large enough? Does the grade work? Is their infrastructure sound? Would I like to have a beer with the management team to celebrate if they do actually pull off what they say they are going to. The list of variables will go on and on. 

It is also important to note I am doing this over a portfolio of positions as not every management team will be able to deliver on their promises. Those companies eventually realise mother nature isn’t on their side and they need to raise funds and look for a new project and in my portfolio strategy this is perfectly acceptable and commended by me. 

I want my directors to cut spending on projects as soon as they realise they are not going to become large discoveries. However, every now and then one of them gets ‘lucky’. Well that’s what people call it when management teams actually do what they say they are going to do and mother nature ensures their theories are right.

I don’t want to tell you how much money I have blown funding drill programs to get ‘lucky’. I suspect I have gotten better at listening to people and understanding if the risk is in my favour or not. Just like everyone else I am always learning and developing my strategy.

Tell us about your biggest winner? 

I spent 9 months in 2011 running around Africa looking for exploration projects. I went to Indaba Mining conference in Cape Town from there I went to Western Ethiopia looking at gold projects around Tulu Kapi and then down southern Ethiopia to a place called Moyale. 

At the time Ethiopian mines department was so corrupt that every licence that was available and that I put an application for the next day was already issued to some influential Ethiopian businessman.

I then flew to Burkina Faso and Mali trying to do deals on other gold exploration licences where a couple Australian geologists took advantage of my trust and tried to sell the licence I paid for to someone else. I only found out because they tried to sell the assets to one of my shells. So clearly that opportunity fell through. 

I then went to Mauritania looking at more gold exploration licences around Tassiast gold mine. Hours of driving over sand dunes the only thing I could think was do I think I have the capacity to build a mine in the middle of the Sahara desert and the solid answer was no. 

I then went back to Ethiopia on the promise of the head of the mines department helping me overcome those issues I spoke about and wasted a few months there again. I then went to Mozambique with my business partner at the time who had done a deal with a UK group who was selling Jacana Resources (our private vehicle) some dud uranium licences but in effect sold us the world’s largest and highest grade graphite deposit. 

We sold Jacana Resources to Syrah Resources for shares and options. On the back of the electric vehicle thematic Syrah share price went from 6c to $6.50. I raised the funds to build the world’s largest graphite mine on the basis it was to supply the impending electric vehicle revolution.

The revolution has taken a lot longer to come than I and the investors expected. I had resigned through construction and sold my holdings about 8 months later with the view of retiring. Clearly the retirement was very short lived.

Tell us about your biggest loser and how did you mentally recover from that? 

My biggest loss actually didn’t have anything to do with my investment strategy. It had everything to do with Opes Prime. As a broker as few of my clients had used their service and I was looking for a facility to be able to borrow shares in companies which had listed call options.

My strategy was to short sell shares and buy the company call options with the arbitrage skewed in my favour. This only occurred when people were happy to sell options lower than the intrinsic value. During the GFC people were desperate and I was giving them liquidity at a cost. Most of my portfolio was held at Opes prime.  

One morning on the train heading into the office I get a call from Shaw stockbroking MD saying ‘Tolga Opes has gone under and they own your assets’. I responded ‘no they don’t it’s on my HIN with them’. Well I was misled like a lot of other people and lost my shares and cash that was with them.

At the time it felt like the end of the world because not only did I lose my money but also my parents’ life savings was with Opes also. In hindsight Opes was the best thing to happen to me. Ended up getting 39c in the dollar from the Administrators.

From that point anything I didn’t really understand I tried to stay away from. Also taught me the biggest threat to any business or investor is leverage!

My biggest losses didn’t just have an impact on me, but also on those that trusted me with their money. After explaining to my parents that their life savings was effectively gone I actually would have preferred to not be living. My father worked the night shift as a Taxi driver for 20 years. 

He had a hard life coming to Australia as a migrant in 1977 not being able to talk the language.  Having witnessed everything he had been through to take care of his family and to lose everything he had worked for was devastating.  My father naturally and deservedly let me have it. 

My mother on the other hand sat me down that night and said ‘son you are incredibly intelligent, you are talented. You absorb information and make decisions so quickly you will be great. Don’t worry about the money you lost today, the day is going to come where you are going to spend that amount just for fun and then again the next day and the next. You are my son and i am proud now dont cry just go get it back’. 

My mother inspired me to believe in myself.  I couldn’t sleep so I ran. I would run for an hour at 11pm at night trying to tire myself out so I could fall asleep.  The side positives of running was my body became extremely healthy and I just thought about the markets with no interruptions. 

The other very important point is when you’re at the point I was almost happier to not be alive you also have nothing to lose.  Someone who has nothing to lose who is incredibly fit is going to focus their energy on the task at hand.

Lets just say that I proved my mother right. In 2018 I took my family, parents friends and 20 of my good friends to Mykonos. Had my mother danced on the table in the middle of Nammos beach restaurant she pulled my head over and whispered in my ear “Son I know why you’re doing this”. I said “why am I doing this mum”. She responds with tears in her eyes “You are proving me right”.

Can you go from nothing to >$10m again? Starting today?

Well after Opes I did actually start from nothing as the Liquidators didn’t pay anything out for almost a year after. As a broker I was earning a significant income. Over a couple of months I saved enough funds to start investing again. In the middle of the GFC one of my whale clients was writing bear spreads.

Eventually the option strategy went against him and had to pay out.  When that happened he called as he said ‘someone smarter than us is buying the market the bottom is in Tolga go long risk’. Risk in my mind was junior mining. I clearly listened to this.

A little while later the MD of Shaws calls and tells me I am on a flight in the morning to Perth to see if I can find any junior exploration companies to fund. I got on a plane to Perth the next day after almost missing my flight. I walk into an office in West Perth and there are two guys sitting there ready to present an opportunity to me.

I recognise one of them as Heath Hellewell, one of the founding geologists from Independence Group. Automatically I thought I would back this guy. I know he has had success before. The other was Allan Kelly and from memory he was one of the main geologists from Dominion mining and Head of North America for WMC.

I said to myself here are two guys who have done it before and know a lot more about geology than I ever will. I am going to do whatever I can to fund their company. Later than night I copped a lecture from an older broker at Shaws around the ‘young bull, old bull’ story. Young bull ended up getting his way and Shaw stockbroking listed Doray Minerals. I took seed and the IPO with most of what I had saved post Opes. 

Everyone in the office laughed at me saying that the ground in Meekathara had been worked over so much all we would find is drill lost piping. 20c IPO trading at 14c with no buyers on the screen except a couple token personal orders at 10c.

Once they had announced the results of the first drill program the share price was $1.60 and Ramelius Resources were buying all of mine and my clients shares on screen. This was going from basically zero to a large enough to finance my expeditions in Africa.

Now that I have explained how I went from zero to where I am now the first time.  If i was to do it all again I would be looking to take calculated positions in funded junior exploration companies with little downside in valuation looking to execute high impact drilling programs. 

I have the experience to know if what they hit will attract large institutional investors.  If they dont I would sell immediately and move on to the next opportunity.  If they did hit something I thought had the capability to grow I would patiently watch the project grow.  This takes nerves as you watch the share price go up and down like a yoyo whilst the management team executes their growth plan.

I would like to thank Tolga for his willingness to share his time and experiences as a guest on The Spec Investor. We both hope you enjoyed this Q&A!

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