Thanks, Aitakahashi. A well thought out post which deserves a well thought out reply:

ebear, you ask some good questions. agoracom is largely about canadian small and micro-cap resource stocks, and most of us came from the aurelian forum, so that would explain the bias toward mining issues here.

Logical. That would make me the exception I guess. I found Aurelian while researching uranium in connection with the nuclear industry. I saw a good chart worthy of a trade, and wouldn't you know it - a week or so later they struck at FDN. (I guess that's why the chart looked so good...heh. Try keeping something like *that* under your hat)

The rest as they say is history, but I had only a passing acquaintance with mining when I came into this thing. Most of what I now know was acquired as follow-up to ARU. In other words, I swapped my trader's cap for an investor's beret and dug into the detail.

as for the much thornier question of why we prefer mining shares despite all the problems you mention: that is a matter of individual preference. my finance professor in college said there are two ways to make money in the stock market:

1) the top-down approach. follow the economy cycle through its boom and bust cycle. start out defensive when it's in recession, move into the broad market, and on into the inflation hedges when the economy starts to overheat. try to predict the surprises that will impact the broad market, and

2) the bottom-up approach. learn all you can about a company and an industry. look at all the information on the internet and in the trade publications so that when a company issues a news release you'll be able to read the jargon and understand what happened.

OK, relating this back to what I just said, why can't you do both? For example, my study of uranium followed the realization that we could soon face an energy crisis of enormous proportion. This is as top down as it gets, since everything in our global economy depends on energy, especially oil.

So, from a top-down study of energy sources, to a recognition of the importance of nuclear power, from there to uranium mining and a bottom up analysis of the companies involved.

All this goes to say that it's not an either-or choice. You need both to be a successful investor, and you have to develop a sense of when to move from one perspective to the other. This would be true even if you limited yourself exclusively to mining. You need the macro raison d'etre to be there in the first place, plus an understanding of finance, the political landscape and so on.

so why do we keep beating our heads against this wall after all of the insider deals, manipulation, and outright corruption, on top of a decline in the entire resource market? i think we are in a long-term bull market in commodities, perhaps half way through it. i think we will see stagflation like the 1970's, only worse, and gold, silver, oil and gas will be the best investments for the next several years.

Now let me ask you, did you reach this conclusion from your own top-down analysis?

there will come a time when bank stocks are attractive, but i think most of them will go bankrupt or be acquired first. i personally don't know that much about auto companies, biotechnology, telecommunications, or any other industry you'd care to mention, and i think investing money in a company you don't understand is a sure way to lose it.

Which is why I learn everything I can about a company, once my top-down analysis has led me there.

in addition, not every mining company gets stolen from its shareholders. there are companies like agnico eagle, yamana, and goldcorp that grow to be large producers, even if their share prices don't reflect their success at the moment. there are companies like minefinders and silver standard that didn't take the money and run. they did the hard work to bring a mine into production instead of selling out.

Clearly the case or there wouldn't be an industry. The important thing is the ratio. Is there more fraud and outright corruption than in, say, the wireless sector, or biotech? Intuitively it seems so, but then I have an axe to grind, having once owned Aurelian.

i'm not saying you can throw darts at a list of mining stocks and anything you hit will be a winner. if it were easy to make money in these stocks, everyone would be doing it. but if the silver and gold prices recover as i expect, the well-managed mining companies will do very well in an inflationary economic environment, and there aren't a lot of other industries i can say that about.

OK, I detect a bias here. You say inflationary, but it's a bit of a circular argument in the gold community, no? Are you drawing that conclusion from outside the industry? I've looked outside and I find convincing arguments to the contrary. I've also read gold pundits that claim both environments are gold-friendly...

Not trying to be cute here... just saying I don't see the picture quite so clearly as some gold investors. The monetary arguments I understand - I just don't see where the excess dollars chasing fewer goods comes from in an environment of mass unemployment with global industry awash in excess capacity. That's what I see developing here. Again... top down.

i don't see how the united states can honor all of its commitments to social security, medicare, and everything else without causing rampant inflation, and exporting it to the rest of the world. years from now, when the world is solvent again, banking, basic manufacuring or technology may be the way to go. anyway, that's just my two cents.

Appreciated, and you may in fact be right. I'm sure none of those obligations will be honored in the spirit intended, just as the gold backed dollar wasn't honored. The problem I see is that nothing viable exists as an alternative, and I include gold in that list. My reason would require yet another essay <g>, but it boils down to the point that no government will ever willingly accept a currency they can't manipulate for political ends. In that sense, the USA, China, Russia, etc. are all on the same page, and can all, ultimately, be expected to support the dollar.

Of course it's possible to imagine a situation where the international order breaks down, but in that event wouldn't you be better off owning farmland, horses and guns?

ebear