Small Cap Stocks

By: David Morgan | Fri, Aug 8, 2008
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This week I spent most of my time in Vancouver, British Columbia, because I was invited to be on Business News Network ("BNN") television, doing the Small Caps segment. Later in the week I did a presentation for subscribers with the Coffin brothers and Lawrence Roulston at the Metropolitan Hotel. Gibson Marketing hosted this event.

What I found interesting about my interview on BNN was the amount of e-mails the producer sent me before I appeared on the show. I was asked to pick five or so companies that I could or would comment upon. There were 75 e-mails from viewers who wanted my opinion on junior resource companies. What was amazing is the fact that I had heard of so few of these companies. Certainly, with more than 4,000 junior resource companies, no one can know them all.

So, after reading all 75 e-mails, I actually felt relieved that I could comment with conviction on a few more than five companies. Taking junior resource companies at random and knowing about 7% in a significant enough way to comment is perhaps acceptable, but it brought to my attention the whole "investing/speculation" genre that surrounds the junior mining sector.

Many of us (and perhaps I am guilty as well) give a false sense of what most of the companies really represent. In many cases these companies are nothing more than a dream, and a good measure of hope is mixed in to keep investors holding their stock. I refer to these types of companies as "story stocks"; each one has a unique "story" -- about how it used to be a mine, or the previous owner did not perform the correct analysis or looked in the wrong place, or was right next to the greatest discovery in the history of mankind. On and on the stories go, and this is quite entertaining at cocktail parties. However, very few are bragging these days about the type of money they are making in these markets.

Last August I was interviewed on Michael Campbell's Money Talks and mentioned to the listeners that not only had the credit crisis begun, but also that some in the junior resource sector were done! In fact, I went out on a limb and said the uranium sector would be especially hard hit. Many companies would not be able to raise more money and subsequently would basically go out of business.

Here it is, a year later, and indeed numerous companies of all sizes are having trouble raising more capital. Further, the prices of many of these companies have retreated to levels that few would have imagined a couple of years ago.

During the BNN interview I ranted a bit, stating that when people buy homes, they purchase the best possible home for their money, and the same thing when shopping for an automobile. But when it comes to stock investing, many people look for the cheapest stocks they can find. This is not the way to invest -- to be successful, you want your money to purchase the very best companies as well. Generally, cheap stocks are cheap for a reason.

There is a paradox here, though, and I did not have time to state it on the TV show. Many junior and senior resource companies are at very attractive levels right now, and astute investors should be carefully selecting bargains at this time. August is historically the best month to buy in to the precious metals, and many of the better-run companies are selling at attractive valuations.

In summary, don't let the summertime blues get you down. Look at the opportunities available, but please, if you are deciding between companies where one sells at $5.00 and one at $0.25, be as certain as humanly possible that the cheaper one truly is superior, not just cheaper.

It is an honor to be,



David Morgan

Author: David Morgan

David Morgan

David Morgan

David Morgan ( is a widely recognized analyst in the precious metals industry; he consults for hedge funds, high net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, the author of Get the Skinny on Silver Investing, and a featured speaker at investment conferences in North America, Europe and Asia. You can receive a free 30 day trial subscription here

Mr. Morgan has been published in The Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron's, and The Wall Street Journal. Mr. Morgan does weekly Money, Metals and Mining Review for Kitco. He is hosted monthly on Financial Sense with Jim Puplava. Mr. Morgan was published in the Global Investor regarding Ten Rules of Silver Investing, which you can receive for free. His book Get the Skinny on Silver Investing is available on Amazon or the link provided.

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Because individual investment objectives vary, this Summary should not be construed as advice to meet the particular needs of the reader. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice. Any action taken as a result of reading this independent market research is solely the responsibility of the reader. Stone Investment Group is not and does not profess to be a professional investment advisor, and strongly encourages all readers to consult with their own personal financial advisors, attorneys, and accountants before making any investment decision. Stone Investment Group and/or independent consultants or members of their families may have a position in the securities mentioned. Investing and speculation are inherently risky and should not be taken without professional advice. By your act of reading this independent market research letter, you fully and explicitly agree that Stone Investment Group will not be held liable or responsible for any decisions you make regarding any information discussed herein.

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