Sunday, October 21, 2012

Was your stock caught in the last bubble?

This is not an easy question to answer. Analysts can be quick to call a market run on certain sector stocks a bubble. This can be a wide spread generalization that will push your stock up or drag your stock down depending on the point in the curve the bubble is at. It will also depend on the time of year. For example if the general opinion is that your in a late stage down turn of a market collapse in the tech sector and its now fall. Common sense may dictate that your sector will see a strong sell off heading to tax loss selling season. Most techs have sold down this year and a lot of people are under water clinging to the hope that they will bounce back or that the company will magically spin something positive out of the past year of collapse.

I always tell people there is no Santa Claus. No one is riding in on a white horse to magically bring your stock back to early 2011 prices. Many of the demands in the tech sector have blown past old levels and are now searching for something your company may know nothing about. This is one of the problems of getting caught up in a tech stock that specifically targets something it feels is hot.

I think its fair to say Social Media is here to stay but how Social Media is dealt with and capitalized on is the bigger question. Few made money on this phenomena, and fewer understood its value. By the time some switched up to claim they were heading into the space it was cluttered with companies that were not long ago in something unrelated.

This is a parallel of sorts to what happens in mining. A company will go into a hot area and suddenly a large group of dog companies will claim to be close to the hot company's property and try to pump up their share price and raise cash to prove up the new claims they just made. Mining can get away with this strategy easier than tech stocks because luck may actually strike in that spot where the new claim was made. As for the tech stock shifting to a social media angle it is unlikely to capture a market share since it doesn't even fully understand the model it wants to represent.

In December of 2008 I found a small tech company dealing with alternative fuels. The company had hit some hard times financially but was otherwise strong in the space they were in. People were aware of their product and contracts were coming in. They were about to hit a curve of growth that no one saw coming and it ended up spelling disaster in the long run because they couldn't handle the volume. Trying to get too big too fast has been the kiss of death for so many in the past and I watched this company head down that same path. The only difference was I timed my investment perfectly.

The stock had bottomed out at 2 cents and I had been following the company for a couple of years. After contacting the company for an update I decided to take a leap of faith based on my due diligence and throw all my eggs in one basket. I had just returned from a venture in South America that left me all but broke and my savings were drying up. I put it all in at about 2 cents a share and waited while I took on a new position as an investigator for the government. About two months went by and the stock had moved up to about 7 cents and I felt good about the future of this company. I had once purchased shares at over $1 a share and lost most of my investment so I wanted that money back.

A couple more months went by and the stock was now hovering at its 52 week high of 36 cents and I decided to move on. I still liked the company but I couldn't say no to those kinds of short term gains and this would finance a later move in my 5 year plan. That company ended up dropping dramatically right after I sold. I think a lot of investors jumped on board in penny land and when I moved out so many seemed to follow suit. As I watched the stock head into the low teens I had an idea. I decided to take a gamble and buy all my stock back. I must have either timed it right or got in ahead of the other sellers rushing back in, either way in hours I doubled my money and sold again. You can't really teach a trader instinct and I have probably been wrong as many time as I have been right but your never really wrong if you run with good profits.

Along the road I have been lucky enough to enter a few tech stories and ride the wave but not get caught up in the hype. The sky is not the limit in most cases and too many traders get greedy and when the stock is up 500% or even 2000% they seem to get caught in the excitement and now feel this could be the one stock that takes them to early retirement.  Then they ride the stock all the way back down. I can think of at least 10 stocks that had their day in the sun the past 2 years and now hover near the bottom as investors wait to see if there is one last run in it before it collapses under the shear weight of its own outstanding share count.

Learning to identify the end of the cycle for your sector is the key. With Potash I thought the government blocked sale of Potash Corp was the big turn and down she went and it dragged down a lot of others while global demand seemed to hit an all time low not long after. Key indicators may be lost in all the noise being made in the markets. If your in gold then a collapse of the world gold market would be an easy signal to see but was the attempt by Facebook to hit it out of the park the last indicator that something was wrong? I had already felt that Social Media was slipping through the fingers of so many and in my opinion the reason Facebook launched when it did was because they saw the slow down coming and this was a last ditch effort of cashing in on what they had done.

This year a lot of investors went to cash early and waited out the troubles in Europe in hopes of a grand entry that would save what was left of 2012. Now the year end is approaching and I think its safe to say a lot of people will now wait until February to make a move back into their favorites. This could mean your about to get more bad news before you see any profits. The gold juniors have started to get more attention and buy outs are on the rise once more. Any depressed share price can be an open invitation to a larger company sitting on cash in need of a larger land position.

I always like to watch for emerging companies that have a low market cap and a nice property. The following three companies have reached the top of my watch list and may remain there through 2013.

Kesselrun Resources is a newly formed Thunder Bay, Ontario-based mineral exploration company focused on growth through property acquisitions and discoveries. Kesselrun's management team possesses strong geological and exploration expertise with particular experience in Northwest Ontario. For more information about Kesselrun Resources, please visit our website at

Red Eagle Mining Corporation is a well-financed gold exploration and development company with an experienced mine development team. Red Eagle Mining is currently developing the Santa Rosa gold project located in Colombia. Santa Rosa is an intrusive hosted structurally-controlled quartz stockwork system within the prolific Cretaceous Antioquia Batholith. Gold mining within the Santa Rosa project pre-dates the 16th century when an estimated 30 million tonnes were mined. Santa Rosa is located 70km north of Medellin near the town of Santa Rosa de Osos in a region characterized by gently rolling hills and excellent infrastructure. Santa Rosa is also located 50km west of AngloGold Ashanti's Gramalote gold deposit (2.5 million ounce M&I resource grading 0.8 g/t Au) and 60km east of Continental Gold's Buritica gold deposit (1.6 million ounce M&I resource grading 13.6 g/t Au). Red Eagle Mining also holds an extensive package of exploration ground in Colombia, including the Pavo Real project in the Mid-Cauca gold belt.
For further information on Red Eagle Mining please refer to our website

Starcore International Mines. As a growth-oriented mining company, Starcore is focused on continued mineral production and development at our San Martin Mine, while aiming to identify, acquire, and develop additional high-quality gold and silver properties. Starcore intends to remain a leader in the Mexican mining industry by combing an unwavering commitment to social and environmental stewardship with a proven mineral production and exploration model. With significant land holdings, totaling 12,992 hectares, San Martin maintains strong operating reserves in addition to excellent exploration potential.


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