Wednesday, September 9, 2015
If you're a regular Growth Stock Wire reader, you know we think junior miners are about to break out.
Junior mining stocks have plummeted in recent years. Many are now penny stocks, with share prices of less than $0.10. And right now, nobody wants to own these companies.
That's exactly why we're interested.
But before you invest in the sector, please remember small resource stocks are among the riskiest companies in the market. They are much more volatile than blue-chip stocks like Intel or McDonald's. It's simply too volatile an area for conservative investors.
In fact, most investors who deal in this sector are constant losers. To succeed, you need to master two vital things...
The cycles. If you understand the "boom and bust" nature of the resource business, this industry can make you millions of dollars. If you don't understand the cycles, you're toast.
You see, natural resources – along with companies in the sector – are tremendously cyclical. They go through huge cycles of boom and bust.
The key to making big gains in natural resources is to buy assets that have been in "bust" mode. Once a natural resource is left for dead, things often get better and prices eventually boom... along with the share prices of companies in the sector.
Take 2009, for example. Back then, junior miners were coming off one of the worst bear markets in their history. At the time, the world was recovering from the 2008 credit crisis. The S&P/TSX Venture Index fell nearly 80% during the tough times. Since people were reeling from the crisis, no one wanted anything to do with natural resources.
But then, things got less bad... and the S&P/TSX Venture Index rocketed 256% higher over the next couple of years. Many junior miners rose hundreds of percent.
Right now, we're seeing a similar setup. With many natural resource prices down double digits over the past few years, nobody wants anything to do with the sector... and assets are cheap.
Management. Most junior resource companies aren't worth the time it takes to learn their names. The resource business is full of corporate managers who are inept, crazy, corrupt, or a mix of all three. If you stick to just the best companies, you'll make plenty of money. As our friend and master resource investor Rick Rule says, succeeding in the resource sector isn't just dependent on "know how," but also on "know who."
In short, if you're going to invest in any junior mining company, you'd better make sure it has a great leader. This is one of the most important rules that every one of our resource experts follows.
Experienced executives know how to cut costs when things don't go right. They have key contacts that can help with financing. And most of them employ the best geologists in the industry.
While history doesn't guarantee future success, experience is critical. In mining in particular, we see certain people or groups succeed repeatedly. Those people get my attention immediately.
Meeting these folks is a guiding principal of my job as an analyst... because investing alongside them significantly reduces our risk in the junior mining sector.
Using those two principles, you can set yourself up to make extraordinary returns in junior mining stocks.
But remember, the risk you're taking with these companies is not small. If you're going to invest, make sure you use proper position sizing and stop losses.
After resource stocks bust, they can go from "bad" to "less bad" quickly... and deliver big gains. Learn how to spot these setups in this classic interview with Editor in Chief Brian Hunt.
Before you invest in natural resources, we recommend checking out our interview with master resource investor Rick Rule. In it, he reveals everything you need to know to master the resource market's cyclicality. If you catch one of these big cycles at the wrong time, you can lose a fortune. But if you catch one early, you may never have to work again... Learn more here.
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