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Are You Ready For Gold Rush?
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(Following is the fifth in a series of article on gold by Chuck Cohen, a financial consultant and investor based in New York City.)
Last week, I explained why junior and exploration gold-mining stocks will be spectacular investments in the impending 21st Century gold rush. I will discuss specific stocks in the weeks ahead, but first let's talk about how to accumulate them. Because juniors are quite different from other stocks, the best approach to building a portfolio is to stick with a game plan formulated in advance. For starters, you should look for stocks of companies that hold the most resources or have the greatest potential relative to their market capitalization. There are some companies that have a $10 million capitalization, with good results and the potential for one to three million ounces. If the price of gold were to rise to $1,500 or $2,000 next year, odds are excellent that such stocks would increase in value by five or ten times.
Spread Your Risk
Jay Taylor, one of the best and most successful stock pickers, recommends that you initially try to put five percent of your funds in a single stock. This is an excellent way to start.
If you put too much in one or two stocks, your gains might be greater, but so will be your risk, and this could lead to emotional decisions. If one or more stocks go up a lot, you can sell some and put the proceeds into others that haven't moved. Remember, with most of these stocks, you are playing the odds, and some will soar while others will lag. It's okay to increase your position size if the results better your expectations, or if the company has bought a lot of contiguous property. This last point is usually a tip-off that management is very encouraged by what they are finding. Persistent buying by management in the open market can be a very positive clue. Canadianinsider.com reports management transactions. Periodically review your holdings and weed out disappointing holdings. Don't let yourself be married to a dog.
Quirks in Buying or Selling Juniors
On the whole, juniors are much less liquid and have greater volatility. And because they trade mainly over-the-counter, they tend to have wide bid/asked spreads. If you're careless or impatient, you might be very disappointed with your executions. You must approach them differently than when buying a listed stock or a mutual fund. But many of you know this and very likely have your own stories to tell.
Remember, smart investing is about playing odds and doing as much as you can to turn them in your favor. Each of these points can move them more in your favor. Not every moment or even day is a good time to buy. For instance, over the past eight years, Friday has been consistently a poor day to take a positions. You should also beware of buying on gaps, since sooner or later, they usually get filled. Some other tips: Take advantage of unusual drops in stocks you wish to buy or accumulate. This is doubly true if the volume is high for more than one day. That might mean that the stock has been downgraded by some analyst, or that an institutional holder has decided to get out pronto, for whatever reason.
You should never buy on good news, especially if the shares have had a good run immediately before the announcement. You should approach buying as though you had your eye on some retail item but were holding off until a discount temporarily knocked its price down. Also: Always place limits on your price. If you don't get filled, sometimes you can pull the order and put it back in later.
Picking Bottoms and Tops
If you get in within 15% of the bottom , or, more importantly, out within 15% of the top, you will be doing well. A lot of this is luck and good guess-work. Remember, these stocks can be volatile, and once they start to move, the top might be fleeting and occur at a much higher price than you'd expected. Finally, you should cultivate patience and discipline, sticking to your game plan. If you would like to consult with me on a personal basis, please e-mail me at ikiecohen@msn.com. Seeking the help of a professional is akin to calling an expert when your roof starts to leak. You could try the do-it-yourself approach, buying a ladder and going up in the roof yourself with supplies purchased at the local hardware store. Unfortunately, this is how many investors handle their portfolios. When it comes to gold stocks and especially the different world of juniors with their market liquidity problems and other peculiarities, most players will decide to do it themselves and usually get a price which several days later appears to be a mistake.
NEXT WEEK: What to look for when selecting stocks, including a look at some charts.
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Midnight Briefing Tonight
There’s good news for traders who were unable to attend the Morning Briefings that Rick held in June before the opening bell. To gauge demand for a late-hours briefing, especially from traders in Europe and Asia, Rick will hold a Midnight Briefing on three successive days his week: tonight, Wednesday and Thursday, August 4,5 and 6, starting just after midnight EDT. Click here to sign up.
These 20-minute sessions will begin at 12:01 a.m. EDT (GMT-5:00). During this time, we will attempt to identify timely trading opportunities mainly in the E-Minis and Comex Gold. Last month’s briefings were enormously popular, drawing as many as a thousand traders on some mornings. To reserve a place, register now.
(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)
Rick Ackerman
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company.
Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary.
All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com
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