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September 26, 2018 | 12 Rules For Investing In Junior Miners

John is author or co-author of five books, including of The Money Bubble, The Collapse of the Dollar and How to Profit From It, Clean Money: Picking Winners in the Green-Tech Boom and How to Profit from the Coming Real Estate Bust. A former Wall Street analyst and featured columnist with, he currently writes for CFA Magazine.

Stock discussion boards can be exhausting places, with nuggets of wisdom and occasionally actionable information buried in mountains of invective and aimless meandering. But the nuggets are sometimes worth the search. Here — courtesy of a poster called doourdiligence — are 12 rules for junior miner investing that would, if followed, make the sector a little less chaotic and stressful.

Some of the things i’ve witnessed across the junior mining sector in the last couple of weeks got me thinking about a lot of things and I decided to put finger to keyboard to come up with a list of rules. I believe by following these rules a junior mining investor has a pretty good chance of doing well and avoiding most of the really big mistakes that can happen in this sector. By no means is this a complete list, but I do believe it’s a great start and something which I will likely expand upon in the future.

Without further ado here are my Golden Dozen Rules For Trading Junior Mining Stocks:

1. Sell the news unless it’s orders of magnitude better than what was expected. To properly implement this rule one must have a fairly accurate gauge of market expectations and one must be able to remain objective in assessing both the expectations and the quality of the news.

2. Company NRs always paint the best picture possible, therefore if the NR isn’t spectacular the actual situation probably isn’t great. If the NR is dry then the actual situation is probably downright pathetic.

3. Do not own companies that “play games” in their NRs and in terms of their communications to the market (examples: blatant grade smearing, overuse of adjectives in NRs to paint a more dramatic picture, releasing an NR about releasing another NR a week later, etc.).

4. Place a premium on companies that clearly care about keeping their word (meeting timelines) and communicating with integrity to shareholders and the market.

5. The first loss is usually the best loss. What I mean by this is averaging down into losing positions is generally a very bad idea. It’s too easy to try to rationalize why we should buy more shares at ‘cheaper prices’ but what usually happens is a loss of objectivity and a long term marriage to the stock begins. This tied up capital not only typically leads to more losses down the road, but it also costs us opportunity (we could be investing in better stories that are more rewarding).

6. Most stocks will have at least two 50% corrections regardless of how high they eventually rise AND the vast majority of junior mining stocks that have parabolic rallies end up making a full round-trip back to where they began.

7. The biggest gains in junior mining stocks typically occur on a company’s initial discovery and the market can sometimes price in the entire discovery in a matter of months (even before it is confirmed to be an economic mineral resource discovery). Be realistic when choosing to stick around in a stock that has had a huge run and a ton of hype.

8. Rule #7 is the reason why “breakout charts” in the junior mining sector can be so fickle i.e. breakout charts can look fantastic and then suddenly suffer large declines when new questions about the viability of the resource emerge.

9. Prudent risk management dictates taking some off the table after a stock you own has experienced a large rally, regardless of how much more you love the fundamental story. There are far too many examples of junior miners that experienced 20x increases while the ‘story’ looked better than ever only to round-trip and give back all the gains. Do yourself a favor and cash in on some of the sunny days because you will probably feel a lot smarter when the inevitable rainy days come around.

10. Considering that a sub-$50 million market cap junior miner can easily experience a 90%+ decline in the worst scenarios it is unwise to allow a single position in a micro-cap junior to become more than 10% of ones portfolio.

11. Often times just when things are looking the brightest it is the best time to sell. Just as sometimes when things are looking the worst it is the best time to buy.

12. Get in ahead of the herd, and take some profits into the herd as it rushes in. This is easier said than done but there is no doubt that the biggest gains are made in under the radar stories that suddenly garner a much wider following. Sifting through charts of stocks that have broad basing patterns and then delving deeper into understanding their fundamental stories is one of the most effective ways I have found for uncovering under the radar stories that could have big upside potential.

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September 26th, 2018

Posted In: Dollar

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