Monday, September 27, 2010

12 essential junior investment rules to follow

To be successful at making money from junior resource stocks you need dicipline. This requires rules that you must follow religiously.

Rule #1: Do not be emotionally connected to your money. Your money has no emotions so neither should you. If you can master this you will find that you don't get the high from a stock that is rising and the lows from a stock that is in a losing position.

Rule #2: You can always buy a stock, but you can't always sell. This being said never hesitate to take some winnings off the table when they are presented to you. There is an old saying that goes" if you found twenty dollars on the ground would you leave it there anticipating that there will be sixty dollars around the corner."
Do not forget there is only one reason to buy a stock and a million reasons to sell it.

Rule #3: Never fall in love with a stock. It will drain your savings and break your heart.

Rule #4: Talk is cheap. Stock promoters always talk a story, that's their job. Always discount what they say. If they tell you the stock is going from 10 cents to a dollar, it probably won't get past forty cents.

Rule #5: Stay clear of the Over The Counter and the Pink Sheets in the USA. Most unscrupulous stock promoters that once operated on the VSE have moved their practice to these exchanges. Anyone that gives me a OTC stock tip, I usually stop them mid pitch and tell them I am not interested.

Rule #6: Plan your trade and trade your plan. Study the stock charts and buy when people have lost interest or selling for tax loss purpose. Sell when the drills are turning or the promotion starts. Don't worry if you really like the company's story you can always buy it again in a future date.

Rule #7: Do a bit of due diligence. Do yourself a favor research the management and see what their track record is. There are two types of management, one that uses the public company as an ATM forever issuing stock to pay management fees and to live a lifestyle. The other is a company builder. These guys have real experience in creating value for shareholders, stick with these guys. If they made money for people in the past they will have full support going forward.

Rule #8: The wall of cheap paper. Once again visit SEDAR and download the financial statements. See how many cheap shares, warrant and options are due. Nothing worse than walking into millions of cheap shares hitting the market.

Rule #9: All juniors have a cycle. A tax loss cycle, a money raising cycle, a news release and news vacuum cycle, winter spring summer fall cycle and a major distribution of paper cycle. Typically I like to buy my stocks in December. Not only is a tax loss cycle but a news vacuum cycle also. The saying "sell in May and go away" holds true for the most part. Stocks generally rise in the spring when companies are trying to raise money. If they plan a drilling program generally the results are not published until September or October. Leaving  a news vacuum over summer. But lets face it, any buyers with money are usually taking the summer off and not paying attention to the markets. Learn the yearly cycle of a stock and you can make lots of money off it.

Rule #10: Geo politics matter. Ask anyone who invested in Venezuela, Democratic Republic of Congo, Bolivia or Mongolia. Sure there can be some spectacular plays in these countries today but they can easily be taken away tomorrow. Try and stick to western friendly countries.

 Rule #11: Listen to the little voice. How many times have I told myself this "woulda coulda shoulda". Learn to recognize that instinct, it will save your bacon.

Rule #12: Open and trade through a Tax Free Savings Account (TFSA). This is the best thing that the Canadian Government ever did for the investor.

Rule # 13: When stocks make a large run up, the run up can usually sustained  a 3 day price surge before the buyers fatigue.

2 comments:

  1. I'm finding your blog to be very informative; love your rule list especially #9, 12 & 13 so true!--in fact, all of them are good to know.

    Also, found your comment on Aldershot Resources noteworthy, I just recently bought some shares, J.Caddy is up to something.

    ~cheers!

    ReplyDelete
  2. Thanks for the comments, Hopefully I can sell my $0.10/share warrants exercised and sold.

    ReplyDelete

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