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ounces per dollar, does not make it better buy. Some ore is easier to extract, some is easier to refine,
other areas are easy to clean up and restore and others are not. The most important fact is whether the
mine is an open pit or underground mine.
Diversification Still Tried and True
It is important to diversify in the metal area for several reasons. Any investor knows diversification is
important and it applies to mining stocks as well. However, having lived through the first secular bull
market in the metals, much of what I have written can be discounted by what I am about to write. The
best market students study human nature because that is the key to understanding how and why
markets move.
A personal experience may illustrate better. The year was 1979 and many of the mining companies
that I followed were exploding in price. I had a friend that was "late to the party", so to speak, but
could not help but get caught up in the excitement. He had asked my thoughts. I received a phone call
from him about a month later, it was now 1980. He sounded very excited, yet a little relieved. I asked
Phil, "What was going on?"
"Well, you know what you said about choosing a mining company?"
"Yes," I answered.
"It just did not sound right to me. I looked at what you said, but so many of those companies had
moved up so much. I finally found one of the American exchanges and it was still around two bucks
per share. It was named gold something. I bought it and for days later sold it for four dollars per
share."
"Great," I exclaimed. "Sorry, but I never heard of that company."
Phil replied, "That is the craziest thing. They weren't a mining company at all. They just had gold in
their name. Guess I sold it to someone else that thought it was a mining company too?"
So the story goes. Phil was lucky. The point is that in a bull market, people can be swept away with
emotion. Phil's research was based upon a cheap stock that had gold in the name. We have
experienced similar situation with dot com stock issues. Fear and greed motivate people. In fact, they
can motivate normally sane people to do something that they might not ordinarily consider.
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As an investor, it is most important to maximize your return while attempting to minimize risk as
much as practical. There are several mining companies that offer ample opportunities for speculation.
This is the case now. Near the end of the coming mining boom, there will be several times as many
companies. This will be an indication that the investment cycle has run its course, but I don't expect to
witness this for many more years.
A word about Cheap Stocks
It has been my experience that most penny stocks in the mining industry are too risky for the
average investor. The problem is that many "investors" read speculators in this area, love cheap
stocks. The odds are stacked against you as an investor. For every 2000 mining claims only one
actually becomes a mine. Most of these companies raise money, and promote and drill at the
same time. The drill results for an exploration company are what usually move the stock price
up or down.
Human nature seems to love the idea that by investing in the right company, one can become rich.
This does happen, but it is rare. However, people seem to zero in on this rare event and think, me too,
my little junior exploration company is the next big winner.
Certainly there are a few exceptions in the industry that have better probability of success than others.
In some cases, an unknown company holds a well-defined asset, or perhaps a major mining concern
has signed over a well-defined project to a smaller company because it is leaving the region.
A good rule of thumb for any junior mining company is to simply adhere to strict discipline and
speculate with money that you can afford to lose. As the precious metals sector continues to gather
more interest, more money will flow into the mining shares and cheap stocks will get a lift.
If history repeats itself and the precious metals market repeats itself by ending in a mania,
similar to the internet bubble, almost any company with gold or silver in the name will shoot up
temporally. As a very astute observer once said, "When the wind is strong enough, even the
turkeys will fly."
A final note on investing in precious metals:
Mining equities can be fun and exciting, especially when you have a stock that is appreciating in
price. It must be known that nothing can be more disheartening than being correct about a sector, for
example the precious metals sector, and seeing you precious metals stock not keep up with the overall
sector.
This can and does happen, and therefore empirical evidence demands that you spread out or diversify
in this sector. The investor should also do his or her own due diligence and is height recommended to
use an investment professional.
There is some help available through various sources such as independent newsletter writers that can
offer opinions on various aspects of the markets. These have been useful but these should be used, in
our view, as a tool or starting point for the investor.
It is well understood that the most important investment to be made in either the silver or gold, is
in the metal itself. This point has been made several times, but it bears repeating. There have been
many times in the monetary history of the world when only the real metal is of any practical value.
For example, when the "boat people" were leaving Vietnam, gold coins could buy passage - but those
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who tried signing on the back of their stock certificates as a means of payment are still waiting for the
boat. Most investors know that, in order to build a well-structured metals portfolio, you need a
hierarchy. First real metal, bought and paid for; secondly, the shares of top-tier mining
companies; and lastly investments with extreme leverage, but only for those with adequate risk
capital.
(Basically, purchasing mining shares is more risky than purchasing bullion itself. Secondly, the
government can confiscate shares of mining companies, if government or charge huge gains tax
, if the government decides to adopt a gold / silver standard. So most individual small investors
should stick to physical bullion. If one decides to invest in mining shares, then first one should
invest a large percentage in physical bullion and invest the remaining, that one is willing to
gamble / lose, in mining shares. Watch the video www.youtube.com/watch?v=_jV9iZtxnPo for
details.)
Chapter 10 - Other Leveraged Silver Investments
As if mining stocks did not provide enough leverage, there are still other avenues that offer even more
leverage than mining shares. The decision to use leverage in a precious metals purchase is a decision
to accept a greater percentage of risk relative to your capital outlay.
The potential is for an increased opportunity to earn a greater percentage of profit. The use of leverage
should match your risk tolerance, both from a financial and psychological point of view. The
increased risk is using leverage is not worth it for most people.
It is in my opinion that more damage has been done to the precious metals markets and in particular [ Pobierz całość w formacie PDF ]

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