It’s very important for investors to certain key, fundamental concepts before investing in resource companies, and that is especially true if you are investing in junior mining stocks. I promise you that introjecting these following suggestions will pay you huge dividends unless you are completely impervious to very, very big market swings or else don’t check your portfolio for another year or two. Some of these ideas can mean the difference between boldly weathering the storm and looking for a bridge to hurl yourself from!
For starters, we need to be open about the fact that we are speculating. Having said that, we need to be sure that we are not mistaking speculation for gambling. I’ve been there, and I’ve thrown money to the wind with “investments” that were more like lottery tickets. But those days are over. With skillful assessment and wisely-deployed capital, I’ve seen my portfolio put on dozens of triple digit winners, even seeing 4-digits returns. So, I suppose this wasn’t so much one of the mining share market tips, but it was a way to set the stage.
Mining Share Market Tips – Volatility
Okay, now here’s my second point. You need to understand that you will be investing in the most crazy volatile subset of investments I’m personally aware of. If you are positive you cannot handle the jolting moves of this investment roller coaster, it may be best to pass on this one. The swings I’m talking about are not 5%, 10%, or even 20% moves. I’ve seen stocks routinely move up and down 30, 40 or 50% in short order and in both directions. This is probably the most important of my mining share market tips for you to master. If you are expecting these stocks to perform like the normal NYSE company, forget it.
This is so critical that I really want to make the point further about this most important of my mining share market tips. In the meltdown of fall 2008, the liquidity crunch meant things were sold indiscriminately and I saw some of my mining positions drop by 90% or more! Okay, since you’re still reading, just know that there can be so much red on your computer screen that your room lights up like a stop light. Far from panic, I went in with all my dry powder and bought great companies on the clearance rack. Today, I’m swimming in handsome returns. The point is that these are not small cap companies. These are even tinier than that. Since they are so thinly traded, it will not take a lot of movement to see big swings in both directions. But I see this as great news. A 10,000% return sounds impossible, but that only take a $.40 stock to forth bucks. But if the stock was already at $40, it would have to become worth $4,000 a share to register a 10,000% move. Ever seen that before?
Mining Share Market Tips – Trading Tips
For the third of my mining share market tips, I want to flesh out how this volatility can impact your approach to trading. Once upon a time, I was cranked to have discovered the trailing stop, so I could trim my losses and let my winners fly high. Frankly, trailing stops in this game will get you killed. I remind you that these stocks can move wildly, even to the downside, and yet there is basically no change whatsoever with the company. In fact, I’ve seen the fundamentals of a company improve over time, only to have their share price be lower! It doesn’t always make sense, but you’re in it for the fully play and so you can pick up deals when other people are fearful. Trailing stops in such a situation will only serve to get you thrown out of a good investment unnecessarily, and you’ll just hand money to the market makers for no reason at all.
Patience sums up the fourth of my mining share market tips. Once you are confident you’ve made a solid investment, sometimes you simply have to be patient. I recollect once getting a bit impatient with a certain company. A lot of my other positions were moving up just fine. This company, by contrast, was actually down a bit from prior highs. Ironically, the company was actually in better shape than before. On one given morning, I was actually tempted to liquidate some or all of the position and move to greener pastures that were currently making hay. Just later that very same morning, everything changed. The company took off like a rocket and never looked back. It doubled in just a couple of months. If I had caved in to my impatience, I would have been running behind the bus trying to grab the bumper, and that’s never a good position to be in. That company will most likely never again be at the price it was either when I bought or where it sat that very morning. I like to say that you simply have to be at the party before it begins in order to have all the fun.
There are a few more mining share market tips I want to relate today. For the fifth one, note that junior resource stock investing can feel a bit like trying to catch a falling knife. You may be inclined to chase a quickly moving stock. Learn from my experience when I tell you that I’ve sometime set stingy limit orders, only to regret not being willing to pay the extra penny to get on board.
Specifically, I remember once being able to get an attractive company at $1.09, but I stalled. So, I wasn’t willing to buy a bit later at $1.38, since I could have gotten in 19 cents cheaper! The stock lifted to over two dollars next. Needless to say, I was most willing to get in at $1.71 when the stock retreated a bit. By the same token, I’ve gotten on board with stocks all excited, only to watch the price fall back notably. A strategy I often use when I’m feeling torn is to just take a partial position. In other words, if you can’t decide whether to get in or wait on the sidelines a bit, simply to both. Take an initial stake and then keep some cash handy so you can jump in if it retreats or you need to scale in. If the stock moonshots into the stratosphere, at least you got to taste the action. If it pulls back, average down with glee.
Mining Share Market Tips – Market Order Mistake
The last of my mining share market tips has to do with market orders. When you are trading these stocks on the pink sheets in America, you really don’t want to use market orders. There is usually a wide spread in the bid-ask figures and you will end up overpaying. The market makers will make the biggest returns that way. If you use limit orders and keep my other mining share market tips in mind, you’ll be fine. Keep these things in mind and all will be well with your portfolio.