Thursday, November 29, 2012

Investment Trends

Did you invest in a one trick pony?

I often see comments on bullboards that suggest investors may have put their money in a "one trick" pony. This would hint that perhaps the show is over and we have seen all there is to see. This seems to be the case in some situations. It can be a reality in any sector. An exploration company hits one good hole and the stock runs to $1 a share only to retrace to 10 cents when they can't hit another good hole and can't even reproduce the original hit.

I would have to say that tech stocks may be a more regular performer in this pony show. This could be due to the fact that the tech sector moves so fast. You may have the best mobile communication devices but a month or two after they hit the shelf Samsung releases something that makes you look like a dinosaur to the industry. I can't imagine the pressure involved in not only coming up the latest and greatest tech product but providing on going support to the last models you have already released.

I watched the shares of RIM get sold off when the public perception seemed to be that the larger supporters in the tech world had placed RIM in a survive mode. The news media machine talked doom and gloom while independent analysts wanted to be the first to say that it was in trouble. This is exactly what the gold market does. If gold has a couple of good days then the analysts pile on to say we are heading to $2000 or even $5000 an ounce. Then those same analysts are quick to talk of a slide in gold and a massive retreat based merely on 2-3 days of consolidation 5% less than last weeks price. I am happy to say that RIM has had a nice bounce that a lot of people predicted. Where they will go in the next 12 months I am not sure but I like their chances.

If I had to chose a sector in this economy with talk of fiscal cliffs and trouble in Greece I would have to say its gold. With gold you either have it or you don't. Once a company proves its in the ground it won't erode over time or be stolen by the CEO in a run for the Mexican border. You just have to pick a good company with a great property and watch your costs going in. Once you start to hit its easy to calculate what you would be worth on the open market if a major wanted to take you out.

This is where it gets interesting for exploration companies. The majors don't spend on exploration like they used to. They know they have dwindling resources but wait out the juniors to see who ends up on top. This saves the major from drilling a million dead holes and the price to pay may be a mere $100 an ounce for the gold in the ground. A bargain when you look at where gold is and where its headed if you ask me. A lot of exploration companies do private placements to raise funds to keep the machines going to find the gold on their property. This is a given in the world of exploration. Don't count on overnight success but once again watch your cost average and when the cores start to come in you can make your move and see if its a production story or a buy-out. Most just want to polish up the apple and sell it in the market. Either way it can be less volatile than the tech sector and no one is going to beat you out because their gold is newer or  shinier.

Tech will have its day in the sun again but finding that one diamond in the rough is like finding hens teeth. You might find it but the shelf life to get it to the market is not very long and the team has to be so focused and driven. Bigger is not always better in any sector. If your company wants to grow at your expense then maybe you need to think if you going to be parking dead money while they figure out what their true business plan is.

I don't do a lot of investing this time of year. I like to sit back and watch the tax loss selling and decide who will be strong in late January. If your company is hurting bad right now then I am sorry to say it but maybe the real pain hasn't even started yet. If your company is holding strong or even going up you could be the darling of 2013. While all others fail or falter you have proven to rise above with a strong product, a strong team and a focused business plan. That's all I ask for when I invest. Don't tell me you sell hand cream and 6 months later start marketing car batteries. Don't tell me you sell computer parts but now your testing a new drug for colon cancer, yikes!!

Stay focused, communicate to share holders and they can be your best friend in this economy.

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