Gold and Silver Equities: How to Identify Winners and Avoid Losers
While there is a ton of upside potential in gold and silver equities it can be really tough to invest in them. And if you’re a generalist investor like me it’s easy to get fooled.
Most companies have corporate presentations that look great, they say they have tier 1 assets or the potential to get there, they have highly experienced management teams, have great relationships with the locals and so on. Everything looks amazing, you’re really bullish and you buy the stock. But then you might be the last one to hear about a terminal flaw in that company and you’re likely to hear it when the stock is down 50% in one day.
I think unfortunately, this is a common experience for us generalist investors in gold and silver equities. If we’re not careful, we can quickly go out of our circle of competence by investing in these companies without understanding all the nuances or partnering with a professional and usually the results are not great. But sometimes the opportunities for outsized returns in this sector are so great that it would be foolish not to participate and I believe there is still a massive opportunity in the junior mining stocks. But you have to educate yourself first.
You have to at least know enough to avoid the lowest quality companies and how to identify professionals in the space you want to follow and partner with. You have to understand the risks involved in each sector that you’re looking to invest in and understand what you’re comfortable with. Do you have the cold, probabilistic mindset required to invest in exploration companies and are you able to think rationally through the intense volatility? Or should you stick with more stable investments like physical metals, ETFs, producers and royalty companies?
If you’re going to invest in individual equities you have to understand which companies are actually going to make it and provide high enough returns to compensate for the risk involved. There are a lot of things that can go wrong between the time you buy low and hopefully, are able to sell higher later. Here are some of the things that you have to look for in order to lower your risk and improve your upside potential:
Management team quality
Project geology, metallurgy and economics
Location, jurisdiction and geopolitics
Local politics and relationships with the local communities
Capital structure and financing options
These are really tricky to assess and therefore active management is very important in this sector. But if you get most of these right and are able to buy equities cheap, the upside can be incredible.
Here at Value Discovery Media we partner with what we consider to be the best experts in the sectors we’re investing in in order to provide education and actionable insights to help us navigate these markets. We recently helped Don Durrett of Goldstockdata.com and John Feneck of Feneck Consulting set up an event on investing in gold and silver equities. We are incredibly happy with the event as they delivered a master class for attendees interested in gold and silver investing.
They covered a lot of ground including making the case for the current precious metals equities bull market, identified risks to the thesis and talked about John’s top 5 gold picks and top 5 silver picks. All of these sections were incredibly good and they are packed with valuable insights and actionable ideas. But the most valuable chapter if you’re looking to learn how to manage your mining portfolio was when Don went through the rules and methodologies he uses to manage his portfolio, identify potential winners and importantly to avoid potential losers. Some of the topics he covered were:
The best time to buy and when to sell
How he buys stocks and when he buys a dip
When he averages down
Rules he uses for portfolio allocation
Walkthrough of what he looks for and what he avoids in explorers, developers and producers with example companies mentioned
Don literally wrote the book on gold and silver investing and having the ability to hear how he manages these is pure gold for anyone looking to get educated on mining investing. I have personally listened to the replay a few times and learned a ton about what to look for and what to avoid in mining equities. And the best thing about having the replay is that you can listen to it again and hear how they apply these lessons in their analysis and discussions during the rest of the event.
The replay is available for purchase now, click here if you’re interested!
Disclaimer: This article is for informational purposes only and does not constitute investing advice. Please consult with a qualified financial advisor before making any investment decisions.
