When all boats rise

What follows is the intro section to IKN70, out September 5th. The only thing that's changed is that names of companies The IKN Weekly current recommends are blanked out, in respect to subscribers who pay good money for the information. In this note we explain two basic things that most newsletters wouldn't point out to people paying them money.

1) When all boats are rising in the junior market, you don't need to do much more than avoid the scams to be a winning trader.

2) You don't need to waste money on newsletters. Really.

Read on, dear reader. :

When all boats rise

We’re in a secular bull market for gold, but if you don’t believe me (!) here’s the chart for the gold ETF (GLD) from inception to last Friday. 

(Chart removed)

So while we’re at it, The IKN Weekly would also like to point out other glaringly obvious bull markets for copper, for silver and the decent recoveries in other metals such as Fe, Zn, Pt, Pd, Al, Ni, Mo..... (we can continue, but the point should have been made by now).

Now for sure we can chat about the late’08 deflation drop (and the chances of seeing one this year, perhaps a popular topic in the week to come now that Labor Day is upon us) and the rebound since then. We could note a few of the jitters we’ve seen since late’08 and the ongoing debate about macro recovery, macro inertia or macro double dip, however we’re going to cut straight to the chase and talk about what’s happening right now in the junior mining market. This can be summed up in a simple and oft-used phrase:

All boats are rising.

This is a good thing as far as we, retail investors in the juniors, are concerned. Over the last few weeks (and particularly noted by your author last week) a new underlying dynamic has been moving the market.

• It’s a junior? Got gold? Buy it.

• Produces silver? Makes a profit? Buy it.

• It’s an explorer? Big copper deposit? Buy it.

• This team successful before with other juniors? They run a new company? Buy it.

• Rare earths? No further comments needed, just buy it.

People aren’t asking too many questions. People want in to the market for gold, for copper, for juniors, for precious and base metals exposure. People with fresh money are suddenly finding great value in stocks that longtime followers of juniors saw as great value a year ago and at fractions of today’s prices. People are now willing to pay up for producers to new, more expanded PE ratios. People are looking at gold explorers and paying $50/oz in situ when just a couple of months ago others turned their noses up about paying $25/oz for the same stock. People that run gold companies are buying juniors at significant premiums (see XAU.to and AND.to for very topical examples, plenty more too). Here come some specigic examples:

Case in point 1: Riverside Resources (RRI.v). RRI had some decently good newsflow recently, especially the segments on its close-and-closer ties with Cliffs (CLF), but neither has it made a massive, gamechanging mineral discovery. Here’s the chart:

(Chart removed)

At the end of June, RRI.v stood at 58c. At the end of July RRI stood at 63c. It’s now 87c. And let’s state clearly that although I’m not holding RRI right now I’m very pleased for Jean-Mark Staude and all the RRI.v team. These are top quality people going about their business and getting deserved recognition, but why have they had to wait until now to get this much love?

Case in point 2: Oceanagold (OGC.to) (OGC.ax). Featured in a NOBS report just a couple of weeks ago, we liked the look of OGC and called it a “market perform” without adding it to our ‘Stocks to Follow’ list here at the Weekly. The date was August 15^th and the OGC price at the time was C$2.79. Here’s the one month chart:

(Chart removed)

We’re now C$3.54, which is 26.9% up in the space of three weeks. In that time, OGC has simply been going about its business correctly and mining for gold. What’s changed?

Case in point 3: Fronteer Gold (FRG) (FRG.to) and AuEx Ventures (XAU.to). This year-to-date chart below shows how the market has loved and appreciated FRG during 2010 while giving less appreciation to XAU.to. Then came this week’s buyout and suddenly the two stocks are (give or take a couple of points) equally excellent performers for the year.

(Chart removed)

What’s changed? Somebody stepping up and paying in a different manner than the above two examples, but in the long run it’s the same story.

We could offer up dozens of other examples, but stick with the three charts and four companies mentioned above because we’ve followed them on these pages, the management in every case do solid jobs and they’re all good winning trades, too. But also importantly, with the exception of Fronteer they are stocks that are not currently featured as open positions on The IKN Weekly ‘Stock to Follow’ list. This is also a theme that’s picked up in today’s ‘Market Watching’, where we review how some of the companies we’ve featured in recent editions have got on since getting coverage in the Weekly but without making it to the ‘Stocks to Follow’ list.

The basic point about to be made is straightforward but it’s also of fundamental importance to the investor. In times like these you don’t have to do much more than avoid the scammy stocks to make money in this sector. Make sure you do the necessary DD, miss out on the stocks run by people with bad track records and you’ll make money. When all boats rise, the best ones may rise faster (and if the tide goes out they tend to drop less) but the call on the sector is the most important one to get right. The fact that you’re reading these words means you’re in the right ballpark already, so do you really need to pay for something you understand already? “Buy juniors” is the bottom line message of any newsletter writer at times like these. It’s like paying someone to tell you “drink water” or “eat food” or “I advise you not to smoke”.

No guru

The message is simple. YOU DON’T NEED ME TO MAKE MONEY. You really, truly do not. All you need to do when times are good in the junior mining world is:

1)      Avoid the scams

2)      Be long

3)      Be patient

That’s all, folks. And even point 1) is somewhat debatable if the current bullish sentiment lasts for a protracted period, because once the “good’uns” have launched up and away, people sitting on fat profits will start looking around for stocks that haven’t done so well, with some of that cash getting poured into companies with dubious track records (to put it mildly). The herd is as the herd does, time after time.

There does come a moment when things like newsletter recos become superfluous. Why pay some guy like me $25 a month when you don’t need to do much more than buy a basket of stocks and see your net worth rise nicely? In the same way that you don’t need to read the latest repetition of “buy gold” from your favourite tinfoilhat goldbug writer who manages to wrap up that same message in myriad ways for years on end, you do not, repeat do not need to read The IKN Weekly repeating for the umpteenth time that XXXXXXXX is a Top Pick buy; for one thing it’s going to rise no matter what I say and for another its peers will also offer up solid gains (and by peers I mean good stocks like First Majestic (FR.to), on a most excellent run on solid fundy results recently). You don’t need me to tell you to have more money in XXXXXX than XXXXX even though both figure on the list. You don’t need me to explain how the thinking behind a long-term hold such as XXXXXXX is different to the short-term trade in XXXXXXXX or that they’re listed for different reasons.

Also, while considering whether you really want to continue paying this author $25 a month, please note that the ‘Stocks to Follow’ list is limited in its scope to a maximum of 15 names at any given time. This is a quite deliberate plan but also means that it’s going to miss winners in times like these when all boats rise. While we’re at it, note that the fare offered is largely LatAm only. No Canada, no Africa, no Yukon, no Mongolia, no Kaminak, no Volta Resources, no Inter-Citic, no Tasman.

But on the other hand, The IKN Weekly tries its hardest to treat its audience with the respect it deserves. An example of this is the way we feature interesting stocks and stories in occasional NOBS reports and in the ‘Market Watching’ section without them making it to a formal recommended status. We also run coverage on stocks that we advise against holding and explain why. These aren’t done as simple fillers for the Weekly but are always included for good reason. Your author is acutely aware that his, personal, final “buy/hold/sell” decisions are different to other people’s and for various reasons, but this shouldn’t stop The IKN Weekly from highlighting stocks that are interesting and may suit its readership down to a tee. A recent example of this is Batero Gold (BAT.v) which (as explained at the time) is not for me but may well suit you people, the subscribers. As it happens, BAT.v has risen in a pleasant though modest way in the two weeks since that first reco and if you bought at the time you’re holding a winner. I didn’t buy, but that’s no impediment to you! This author is never going to impose his investment style on his readership but he has no problem in relating good, interesting, meritworthy stories that others can profit from.

On moving fingers: Back to bullish thoughts. The famous line from Omar Kayyam’s Rubaiyat comes to mind at bullish times like these, even though it’s out of context:

“The moving finger writes, and having writ moves on.”

Last week the moving finger writ (or pointed) at XAU.to and at AND.to. The moving finger saw Minera Andes (MAI.to) suddenly catch a whole ton of bids when just 24 hours earlier it was operating at volumes ten times lower. Your author also firmly believes the moving finger will write the name XXXXXXXX clearly for all to see in the not-too-distant future and wake the stock up from its ongoing funk. But that’s just me and you may well have a different opinion, so again we propose that maybe it’s time for you to consider whether, in bullish times like these, it’s really worth paying a newsletter writer to tell you things that are either wrong or obvious.