Is Your Stock Portfolio Under Water?

By: Dudley Baker | Tue, Jul 14, 2009
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Let's be honest, these are very challenging times to be an investor. Regardless of all of the positive spin from CNBC and from many newsletter writers and analysts this has not been the best of times to be 'in the game'.

For those of us who are 'in the game' the question now is what do you do? How do you proceed today? How can you limit your risk going forward?

Virtually every investor took it on the chin last September - October. That includes me as well but I have approached this setback in my portfolio as an ideal time to take advantage of the numerous opportunities that my service database has identified and, as such, have experienced numerous successes recently. Yes, I put my money where my mouth is.

What do you do?

I suggest that you evaluate your current stock portfolio to determine if there are any stocks that should be sold which would allow you to re-invest the monies in opportunities with more potential?

In my case, I have many small positions which are selling for only pennies per shares. If I sold them I would receive almost nothing and of course, we still have to pay commissions; therefore, I have chosen to hold my positions in these companies. If these companies are able to survive, I am 'hopeful' the share/warrant prices will increase with the markets in the next year or so and I will be rewarded for holding my positions. If I sell these positions, the game is over. I will have taken a major loss with no chance of a recovery and I will have received very little cash had I sold these positions to re-invest. I am very comfortable taking this position, but you must make this decision for yourself.

How do you proceed today?

Each investor must have an opinion on the overall trend of the market. I am now speaking specifically about the precious metals sector, gold and silver.

I am more confident than ever that we as investors are on the right track by investing in gold, silver, the junior mining sector and specific long-term warrants.

This confidence allows me to be patient and still sleep well at night. Sure I would have loved to have been rich yesterday, but my patience will get me there.

You must decide for yourself, not relying on me or any other analyst or newsletter writer, your own level of confidence in the markets. Remember, the markets usually do everything possible to trick and deceive investors, throwing them off the horse before the big rise. Many times investors sell out early out of frustration and thus are not 'in the game' at the time of the big up move.

This is not easy folks, but you must have strong beliefs that we/you are on the right path.

If you have additional monies to invest today, you should consider averaging down on some of your favorite positions and/or entering new positions which have a great probability for success.

How can you limit you risk?

You can limit your risk by investing less. This is not meant to be a wise-ass answer so listen up.

Strange as it may sound to you, using long-term warrants or perhaps LEAPS can limit your risk exposure to the markets.

In a very simple illustration, let's take one of the major gold producers which trades on the TSX and also the NYSE and closed Friday at C$49.00. They have a long-term warrant which closed at $19.50. This warrant has over 4 years of remaining life and will greatly outperform the common shares if our rally unfolds in the coming months and years. There are also numerous LEAPS available on this company which will expire in January 2011.

In effect, we/you have taken a position in this major gold producer for only 40% of the cash outlay as opposed to buying the common shares and our potential gains will be much greater. You have thus greatly limited your risk my investing a smaller amount of monies.

One cautionary note: the warrants and LEAPS are thinly traded on this particular company we advise the use limit orders in the placement of your trades.

In our service, in addition to our warrant database, we also have a separate table of all of the natural resources companies with Options and LEAPS - a valuable resource for all investors.

Our current market view

Even though gold and silver have been hit hard over the last few weeks we believe the longer term uptrend is still intact. There is a good probability we will see higher prices in the coming days and weeks. But we need gold to break thru $1,000 to really get this party going again. A solid break of $1,000 will attract new investors around the world and then it will be 'game on'.

To Summarize

These are challenging times and while we may not have all of the answers we strongly believe in our current positions and have the patience to ride out our convictions and for numerous reasons (another future article) we see a top between January 2011 and January 2012 in the precious metals sector. Can you hang in that long? That is a question only you can answer.

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Dudley Baker

Author: Dudley Baker

Dudley Pierce Baker
Founder/Editor - Guadalajara/Ajijic, Mexico
A Market Data Service for Warrants

Dudley Pierce Baker is the founder and editor of Common Stock Warrants and its predecessor, Precious Metals Warrants and a 1967 graduate of St. Mary’s University in San Antonio, Texas with a major in accounting.

Disclaimer/Disclosure Statement: is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed herein are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

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