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Junior Miners..2008 Aftermath Time To Average Down?
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Well here we all are in 2009 in the midst of the worst financial crisis investors have ever seen in our respective lifetimes. So is the blood letting over yet? My answer is yes & no. I personally see it as a yes for certain Junior exploration players in PM’s, Base Metals & Energy, but for a few others it’s a death knell in the making. We all know the old adage of how ‘Losers Average Down on Losers’, ‘but’ - is it different at this historic point in time?
TSX Venture Exchange Chart-Courtesy: www.stockcharts.com
If one is playing the market as an ‘Investor’ as opposed to a ‘Day Trader’ the obvious answer after all the downside and oversold conditions we’ve experienced in almost all the juniors over the last few months is (in selective cases) a definitive ‘Yes’.
Further along I will set out some pertinent criteria I would personally look to for guidance on how to choose those juniors for consideration in this selection but first we should speak to the application of cost averaging a stock.
Many (almost all) financial advisors will tell you they regard averaging down as a fools bet, and advise selling losses and moving on. Yes, I would normally agree whole-heartedly with that advice under normal market conditions and especially when it related to some of the high flying juniors with past market sentiment cruising along at a strong level of confidence as seen over the last three years.
Now, at present, the confidence level we see is at an all time low and fear seems to be the guide for many. It seems anything and everything that has seen liquidity over the 4 to 5 months has either been sold off to new all time lows or as in many cases, has been way over-sold in order to raise funds for one reason or another by retail investors and especially stocks held in the realm of Institutions and Funds facing redemptions. My belief is that as controversial as cost averaging is, like anything else it still depends greatly on many governing factors when determining the wisdom of such a move.
So where should one begin when making hard choices? What sector will rebound first or be in the mix of those that do? Will it be hard commodities/energy/PM’s or what?
I think that answer should be fairly obvious. Crude Oil prices moving back towards realistic values will be the main bell-weather for renewed world growth expansion and Base Metal demand & prices will follow along as sure as the sun rises every day.
Nothing in the industrial world gets built w/o energy & steel along with all the other base metals these two industries use and encompass. As for Gold, well, having been an ardent Gold-Bug, Gold Miner and stock market player for a substantial part of my life, I still keep my hopes & expectations alive for much higher PM prices but also firmly believe the manipulators are still somewhat in control of Gold & Silver prices (for now) so hence my personal belief that PM’s will continue to bounce back and forth for the time being. When that all changes as it eventually will we will have GATA (Gold Anti-Trust Action Committee) at the head of the list to give thanks to.
When we invest in a publicly traded company we all use differing distinctions for their (and our) success. Some are in for long term, others look for quick turnovers (flips) and sometimes I think a few people just throw darts at a board or ask their pets opinion. Most astute/informed investors want the knowledge of experienced sound management first and then the company fundamentals w/ current project activities second. Couple these aspects with the future economic recovery of the respective sector and you have dramatically increased your odds for financial gains over more losses.
Following some simple guidelines can definitely make averaging down on an investment viable. In our current fiscal crisis environment with many sound juniors at multi year lows (it would appear we’re at the bottom for many) it appears quite possible we have a short window of opportunity in market history where ‘It is different’ this time around.
I also, like many others out there have stocks now down 60 to 70%, trading for mere pennies currently, that have seen past downturns over the years, survived them then, and will survive this one as well simply because of well seasoned management having sound advanced stage projects, a sound financial position and knowing how to nurture those funds while still making slow & steady advances on projects in hand.
There’s always a lot of what I call misplaced, but usually well intentioned ‘Fear Mongering’ out there and it’s now at an all time high. We all witnessed the markets turn upward for the first few days of 2009 and we heard ‘Dead Cat Bounce’ immediately from some pundits & media. Today as I write it’s retreating again (TSX). But remember this…’A Cat Has Nine Lives’ and he’s only used a couple of them from my perspective.
This feast or famine world may slow down for a time, but when we consider the vast rate and expanse of growth witnessed over the last few years while keeping uppermost in mind that it (growth) still has a very long ways to go for the developing nations like China, India et al and then adding US President (elect) Obama’s projected infrastructure spending into the mix (most other first world nations will be following suit) then we have a commodities market building steam for the next up-leg and it will probably start upward so gradually that few will notice until they realize they’re late to the party.
We all know from past experience it doesn’t take much trading activity for a solidly run, sound penny junior mining stock with a new discovery or potential mine in the works to make gains in the 100’s of percentage points in very short order when there is a level of confidence and excitement in the markets.
Among the things to look for when buying into or averaging down a stock---
- Management History (years in the business)
- Management Past Mines Brought to Production
- Lifespan of Company (view 5 year chart @ minimum)
- Stage of Projects
- Location of Potential Mine Projects
- Demand of Project Minerals Going Forward
- Funds in Bank
- Track Record For Raising Funds
- Personal Time Frames for Investments
- Liquidity
Remember, as I said earlier, the bell is tolling for certain Junior exploration companies and they may not survive this crisis, thus a few may well end up defunct because they can’t even afford to file Financials or pay the office & heating bills. Others will be just fine and among those, you may hold some that have never traded this low in many years. Among those there may be some terrific opportunities you already own as well as those you don’t yet own but should. As one example, among my personal favorites I hold one Venture Exchange Jr that has approximately $5 M (million) in the bank and two sound projects with very good potential, and it’s trading at $0.05 today. The man at the helm has 40 years of facing the market ups, downs and yet has multiple successes building mines. ‘Can you say Over-sold?’ Go figure! There ARE other stocks out there in the same boat. One just needs to find them and with a little concerted effort we can.
Many things are definitely different this time around especially when you see the TSX Venture Chart falling off a cliff as it has and ‘Averaging Down’ is definitely among those differences on my list. It may take a few weeks and maybe even months for a re-igniting of market confidence but rest assured there are ‘STILL’ ‘Trillions’ of investment dollars hovering around the globe, searching for a nest.
The short sellers & bears had their days in the sun in latter half of 2008, now it’s the turn of the contrarians with foresight and strength of conviction. Very few of us can ever hit the tops or the bottoms in the market, that’s a given, but unless you believe the market will collapse totally which isn’t even on my radar screen, I’d say we have a once in a lifetime chance to ‘BUY’ the bottom right now! Big money always runs in ahead of the herd and so do the contrarian investors.
As always: Thanks for reading….Ken Reser
Ken J. Reser
Research & Development Consultant
Office Ph: 403-844-2914
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