-- Posted 3 October, 2006 | |
For resource investors acquainted with the structural problems just below the surface of the U.S. economy—and by extension, that of the world—the recent bout of weakness in gold and silver is to be welcomed, providing as it has what may be a “last train out” opportunity to load up on well-run junior explorers.
And load up you should; in the approaching monetary crisis, no other stock sector will provide anywhere near the same upside potential. In fact, most stock sectors will be decimated.
Even so, any stock that can offer you 100% or better returns carries a higher level of risk than garden-variety offerings. That risk comes in many forms, from the nature of thinly traded markets to geology to any number of other factors that are, simply, out of your control.
There is, however, one critical factor, discussed in the following cautionary tale by David Galland, that you can control that will exponentially improve your odds of success. You probably read a lot on resource investing, but I doubt anything you’ve read lately has the potential to make you more money than what you are about to read.
By: David Galland
Next to my desk, I keep a cardboard box. Into that box I toss all of the many stock promotions I receive in the mail. You know… those ubiquitous faux newsletters and research reports that breathlessly proclaim that this or that precious metals or energy stock is perched on the verge of making investors rich.
Before dropping each new promotion piece into the box, I note the date I received it. I do so out of a sort of morbid curiosity as to whether anyone would possibly buy a stock based on receiving a blind solicitation in the mail.
Want to know the result of investing based on these touts?
While I won’t share the name of the company involved, because it is really just one of many and there is nothing technically illegal about using mass media to exclaim the virtues of your company (as long as you include the appropriate disclaimers), below is a stock chart of one such company randomly dredged from my cardboard box.
Now, looking at the chart, can you tell me the month I scribbled on the cover of this particular “research report”?
It’s March, 2005—that’s when I received this apparently effective piece of fluff… coinciding almost to the day with the date that the stock spiked to the highest level it has been in two years, and will likely ever be.
If you had actually jumped at the opportunity to earn the “BIG MONEY” touted so loudly in the accompanying report, you could have lost as much as 96% of your money!
Which brings us to Lesson #1
Never, but never, buy a stock based on receiving an official-looking but unsolicited research report in the mail, or even worse, one that arrives in your mail box as spam.
This is not a lesson that I would think anyone would still need to learn, but obviously someone does, because these stock touts continue to arrive in my mailbox with the regularity of ants at a picnic.
As the gold and silver bull market heats up again—as it will—the number of these promotions will only pick up, as will the number of companies that are formed by the paper-pushers strictly for the purpose of picking the pockets of uninformed and gullible investors.
Which brings us to Lesson #2
Namely, the “secret” of selecting resource stocks with a better-than-average chance of actually making you 96%, versus the opposite.
The answer to that question is not so simple—evidence of which are the dozens of factors we here at Casey Research evaluate before recommending a company. But… if you had to focus on just one factor, there is no question it would be “People.”
By investing entirely in companies headed up by an individual, or individuals, with a clear track record of success, you can at least be sure of the following:
a) That the people running the company know how to competently run an exploration program. That alone eliminates something on the order of 90% of junior explorers.
b) Success is habit forming. Once successful, a person is far more likely to be successful again.
c) If the company fails to make a big discovery, they will have failed honestly and only after giving it their very best effort. For far too many mining executives, the whole purpose of the exercise is to stir around a lot of paper, making themselves and no one else wealthy in the process.
d) Most importantly, serially successful people inevitably look after their shareholders.
Recognizing the importance of the People factor, just over two years ago we started something called the Explorers’ League, an organization dedicated entirely to identifying the world’s most successful resource finders and following their careers on behalf of our members. The idea is simple: identify the winning jockeys, then bet on they’ll keep winning races.
The bar for induction into the Explorers’ League was set high. In fact, in order to be designated as an Explorers’ League Honoree, the individual first has to be deemed by a committee of their peers to have been instrumental in the discovery or development of a minimum of three economic deposits (most geologists or mining professionals will retire without a single deposit to their credit). It is no wonder, therefore, that only 14 individuals have so far been inducted into the Explorers’ League.
And what have been the results of this follow-the-leaders approach?
The list of successes enjoyed by the Explorers’ League Honorees, even over the short life of the organization, is too long to recap here, but I will share a few highlights.
- Companies run by Honoree Lukas Lundin have had an unprecedented string of successes over the past two years, with Lundin Mining up 275%, Tenke Mining up 324%, Pearl Exploration up 1,000%. Remarkably, the list goes on.
- Roman Shklanka, a behind-the-scenes man you may never have heard of, quietly developed a world-class laterite nickel deposit in Brazil, ultimately selling his company Canico to CRVD for $865 million, making shareholders rich in the process. Roman is now working on two new exploration/development projects. Over the course of the last two years alone, one has gained 98% and the other 133%. And the best for these companies is still very much ahead!
- Ron Netolitzky’s latest success, Viceroy Resources, developed the Gualcamayo deposit in Argentina, then sold the whole company to Yamana for over half a billion, rewarding shareholders with a 300% return over the past two years. For comparison purposes with the chart shown at the beginning of this article, here’s how the chart on Viceroy looks.
Psst… want to know how to make an investment fortune in resource stocks?
Start with management, and if the management doesn’t have a long career of success, move on. Oh, and an important nuance, success doesn’t mean a fancy title and collecting paychecks for many years at a large mining company. That only means a person is a reasonably good employee.
The kind of success you’re looking for is management that has made big things happen in the past, and the more big things, the better.
David Galland is the Managing Director of Casey Research and the Executive Director of The Explorers’ League.
[Ed. Note: On October 15 and 16 in Vancouver, for only the second time in its history, the Explorers’ League is holding a Summit where Honorees and investors come together to share ideas on today’s most prospective exploration plays. The Summit will feature Lukas Lundin, Roman Shklanka, Ron Netolitzky and other Explorers’ League Honorees, plus Doug Casey, Rick Rule, Bob Bishop and other top resource specialists.
To keep the Summit collegial and to assure one-on-one interaction between the presenters and the audience, attendance is strictly limited and seats are going fast. Learn more about the Summit and about attending by clicking here now. ]
-- Posted 3 October, 2006 | |