Home > Articles > Business & Management > Finance & Investing

Buying at the Point of Maximum Pessimism: A Rare Opportunity

Rare-earth minerals are used in everything from cell phones to Toyota Priuses. The rare-earth industry presents a growing opportunity for investors to participate in the rapid growth of technology.
This chapter is from the book

In 1992, Deng Xiaoping, the man who led China into its free-market reforms, made a rather arcane statement: "There is oil in the Middle East; there are rare earths in China." While only some observers might have understood the implications of this proclamation a few decades ago, chances are that nearly everyone will come to view Deng's words as prophecy in time.

To begin, a reasonable question may be, What is rare earth? Depending on your perspective, rare earth could refer to a rock band that had a few Top 40 hits for Motown in the early 1970s, or a set of elements clustered on the periodic table that you probably studied in high school chemistry. Not to take anything away from the band, but this chapter focuses on the rare earths from the science classroom. In practical terms, rare earths are actually nothing more than some ore materials that are mined from the ground. Rare earths, or rare earth metals as they are also called, are found in the third column of the periodic table. Typically, they are identified by their silvery to gray color, luster, and high electrical conductivity.

What makes them so relevant to the world we inhabit is that in spite of their "rare" name, they in fact are highly ubiquitous to the daily experience of most humans. Incidentally, rare earth applications comprise some of the basic raw materials of technology and have done so for decades. In a trivial sense, people may have marveled back in May 1953 at how scientists at RCA came up with the first color television. However, the answer is simple: a new application of the rare earth europium was used to form the red phosphors of the TV. Likewise, many people have seen video footage or photos of the early computers, which appeared to be the size of 18-wheelers, consuming an entire room, weighing many tons versus pounds, and containing thousands of vacuum tubes, flashing lights, and controls. Today, people have computers that are exponentially more powerful that sit discreetly on their desks, thanks in part to advances in rare earth applications such as neodymium, which drove the miniaturization of the magnetic disk drive. Far from even recognizing the critical role these metals play in their lives, people might be surprised to discover that without the rare earth europium creating the red phosphor in the cathode ray tube and the LCD display, there could be no color televisions or computer screens. In a similar vein, without the rare earth erbium, there could be no fiber-optic cables connecting the world in a dazzling web of efficient, high-speed communication. Most developed-market consumers take for granted their cell phones, TVs, and iPods, even as these devices become increasingly miniaturized. Miniaturization in consumer technology devices is often the result of a new rare earth application such as neodymium magnets in the iPod. The medical field uses rare earth applications in its MRIs and CT scans, and sophisticated defense departments use rare earth applications in their guided missiles, lasers, and smart bombs. With that said, it should be apparent that people come into contact with rare earth materials daily whether they realize it or not. Much of our modern economies and societies would be crippled without their applications. We have all heard someone proclaim that he does not know what he would do without his cell phone, or he could not live without his computer. We can see that a critical rare earth application lies behind many of the technological advances and devices that citizens of the twenty-first century now take for granted.

Demand for Global Technology Remains Strong

To be sure, we can expect demand for technology, and therefore its raw materials, to continue to grow at a steady pace. This will be particularly true as we look to emerging-market consumers as a source of future growth. Consider a simple proxy for technology demand, such as cell phone handsets. We can see that in large developing markets such as China and India, cell phone penetration rates remain well below developed-market standards and still have much room for future growth as their economies continue to advance. For example, cell phone penetration rates in China and India are approximately half those of the developed-market levels found in North America and Western Europe, as shown in Table 11.1.

Table 11.1. Selected Global Cell Phone Penetration Rates
























Northern America








Western Europe








If we turn to other major consumer-driven technology categories such as LCD panels, we discover a similarly low base of penetration. Based on research from Morgan Stanley,1 the rate of LCD panel penetration is currently about 10% in China, and the installed penetration base of other televisions is closer to 80%. This suggests that there will be much additional room for growth in this industry as consumers over time replace their CRT TVs with LCD TVs.

Irrespective of the compelling data that suggests continued technology demand growth in the emerging markets, these are just two simple proxies for future growth in consumer technology devices. In the cases we just discussed, we highlighted the demand for technology among emerging-market consumers who are still entering the modern economy through the process of globalization. Still though, even within the broader confines of technology across all profiles of economies, whether developed or developing, there is scope for continuous new demand thanks to the critical role of innovation in the field. So although the developed markets may possess cell phone penetration rates of around 100%, we would be remiss to think that product demand does not ebb and flow on the basis of innovation in these markets. One fine example comes from the emergence of the smartphone within the mobile device space, since these products are continuing to redefine the capabilities of handheld technology productivity. Technology producers continue to bring new value propositions to end users by offering them increased computing power, messaging capabilities, video and audio capabilities, and mobile Internet. As long as this happens, it is probable that even within a mature market such as the United States, demand can be created anew for rare earth applications on the basis of these devices. So in this sense, technology is a unique industry because of its constant upheaval and obsolescence. This reality poses challenges and risks to investors who are unable to detect or anticipate these technological advances. At the same time, the constant drive toward product innovation generates a steady demand for the rare earth materials that drive innovation or that remain essential to the device's construction. So in other words, no matter what device comes into the fore of industry demand, there will likely be a continued new source of demand for rare earths, since these materials are often essential to the device. In the case of the smartphone, Figure 11.1 shows that, based on a collection of industry sources, this product is projected to represent 24% of global handset volume, or more than twice its 2007 level. From the perspective of a rare earth supplier or fabricator, even demand in the mature markets will continue to grow thanks to the role of innovation alone.

Figure 11.1

Figure 11.1 Global handset volume mix in 2007 and 2015, estimated

Source: Gartner, CSFB

Based on our discussion of demand drivers, we can now appreciate that technology demand can occur from two principal backdrops: increased access from new users, and upgrades from existing users as new technologies unfold in the market. Thus far, we have discussed rare earths and their end products only from the standpoint of consumer handheld devices and TVs, which is, incidentally, a narrow focus. This does the materials a disservice, because they are critical components of yet another developed-market demand driver that has taken on greater social significance. With that said, these raw materials are also significant because of growing demand from a trend that is under way in the developed markets relating to energy conservation, eco-friendly practices, and, generally speaking, all the manifestations of environmentalism in the form of technology application.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020