Why Is It So Difficult To Make Money In Gold & Silver Mining Stocks?

By: Kent Willis | Wed, Dec 22, 2004
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Before I receive tons of e-mail flames, daggers, and brickbats, hear this: I like gold/silver mining stocks. I manage many THOUSANDS of shares of several VERY CAREFULLY SELECTED companies. Some you know well, some you have likely NEVER heard of. Some I trade/sell when the profit target I sought is reached, others I hold until kingdom come. If I make a bad choice, I quickly cut the losers from the stable. PAY ATTENTION: I will take a locked-in, KNOWN LOSS over any "wait and see, she might recover" nonsense ANY DAY. Some stocks are clearly suited to trading in and out of, with caveats, while others are only good if you hold them forever. NEVER treat all gold stocks the same by holding them all or trading them all. If you are very conservative and want to sleep at night, then, in the current phase of our very young bull-market in metals, it is OK to HOLD them all, for now. I recommend selected offerings to many, but not all, of my clients. I am NOT your advisor, so please don't e-mail and ask for specifics. You couldn't pay me what I am worth...you know; you can't get around the minimum wage laws and all that. The clients that I tell to avoid stocks are commanded to hold bullion coins in the amount that is right for them and their objectives. I don't know yours.

Many financial advisors and monthly newsletter gurus have plenty of industry knowledge, street smarts and are excellent writers. I love their sense(s) of humor and acerbic, mercurial, esoteric, acrimonious and even platitudinous witticisms. (I throw these in so maybe you will grab a dictionary instead of writing me a nasty e-mail...Wow, all this great advice and a FREE vocabulary lesson, this guy is too much!). But I often pay more for their literary talent than their market savvy. I often feel that something is missing. Of course, Dan Denning at Strategic Investment is excluded (note: this is an uncompensated, shameless plug). I find myself either ripping apart the envelope of the newsletter, or getting out my trusty 10 power magnifier hoping and believing there has GOT to be something else still hiding in the envelope. There just has to be something valuable hidden in the fine print...AAAACK!...no dice...I paid TWENTY FIVE BUCKS FOR THAT?!? Financial WISDOM is a very scarce commodity indeed. Even rarer than a "I hope I get a home run ten-bagger with this one" junior/exploratory miner. I offer what I believe is a bit of wisdom. For free. What other advisor/broker/guru ever gave you for free that which even compares with what we provide? Your only investment is the time it takes to read the rest of this. If you're a speed reader, you will assuredly get your money's worth. If you're still "hooked on phonics", I apologize in advance. The cheerful optimists say "the best things in life are free", while their anti-matter counterparts, hiding in the gloomy clouds of cynicism say: "well, that stuff was worth exactly what you paid for it". You decide.

With all the hand-wringing about why the "blankity-blank gold and silver stocks are way behind bullion" currently festering, we seek to calm some of your fears. Go to Hollywood with Frankie and Relax. Take a breather from stocks and pile into physical for a short while. At least with future investment funds. Hold your existing stocks. Actual, fully paid-for, low-premium bullion coins in your tight little hands are always a safer investment, especially so for the smaller capitalized/beginner investor. Gold and silver coins may not be quite sexy enough for many investors, but I'll take their girl-next-door beauty everyday over any sultry siren promising more than she can deliver. As long as we know the stock risks and their potential rewards, they are FUN to play with. So, let's all pile into the sandbox. Watch out for the evidence of kitty cats.

Let's take a look at the long, long list of things that have to go exactly right in order for you to even have a cool, shiny gold coin in your sweaty little palms. Join me as we plunge hand-in-hand down the mineshaft:

So, how do we distill all of the foregoing blather into a few generic "tips"?

  1. Look for the names of well known, respected successful geologists and consultants in the press releases, offering prospectuses, 10K filings, quarterly reports, etc.
  1. Avoid the regions of the world where political and social unrest, as well as dubious law-enforcement, confiscatory royalty mindsets, minority empowerment attempts to right 100 years of past exploitation in one week, nationalization "rumors" and self-defeating taxation schemes are becoming the modus operandi. Remember, a rumor is a rumor until it's officially denied by authorities. THEN YOU KNOW IT IS THE TRUTH. Do not be deceived by thinking: "Gee, these folks want all of that foreign investment capital to flow into their country. They won't do inane things that will scare away the cash they desperately need to expand their industry and grow their economic base". I say, in Mogambo-Speak: HAHAHAHAHAH! For the short list of places that are in my OPINION, slightly less risky (and not in any particular risk order), try:
    1. Canada
    2. Australia
    3. New Zealand
    4. Papua New Guinea
    5. United States
    6. Tanzania
    7. Thailand
    8. Vietnam
    9. Myanmar
    10. Romania
    11. Mongolia
    12. Brazil
  1. Wait until a comprehensive drill program is COMPLETED before loading up on the stock. Of course the stock will cost more at this point than if you bought it totally "blind", 20 minutes before two scruffy prospectors sped back to town in their rusty pick-em-up-truck screaming EUREKA from one end of the village to the other. Make sure the explorer drilled enough holes carefully to truly gauge the scope of the ore body. Make sure diamond drill core samples have been independently audited/assayed by at least two respected assay houses and compared to a controlled, locked up reference if there are any disputes about the "richness" in grams per ton, etc. I am sure there is a "Son Of Bre-X" out there somewhere, lurking in the pink sheets. We won't know until after it is too late to recover our capital. Every mania (and IT WILL BE A DOOZY) brings the charlatans and thieves to a heady froth. This chapter in our eternal gold story will be no different.
  1. If you want to play with mining stocks, as a very crude rule of thumb and not financial advice, you, in my opinion, should keep a portfolio of about 10 stocks. With any less, your risks would be too large. Never buy just one, even Newmont. Don't try to handle more than 10; you can't keep up with all the details if you have a life outside the fine print of the WSJ. TALK TO YOUR OWN FINANCIAL ADVISOR; I AM NOT YOURS. A strategy that has served ME well (don't know about you, so again, this is not advice) is to pick the 10 this way: Throw Newmont (NEM) in at the top of your list. At the bottom, pick one of the sub $1.00 per share puppies that has found great ore bodies, has survived infant mortality, and is going to be actually producing good quantities of metal within a year or two at most. I like New Guinea Gold (NGG on Vancouver) here. DISCLOSURE NOTE: I LIKE HER AND OWN MANY THOUSANDS OF HER SHARES. She is one of my long shots with blue sky potential, but anything can happen to her. I won't warn you before I buy more of her or dump her. But since she didn't cost me very much, I will not toss her out easily. If she vaporizes, my life won't change. If she goes to the moon, you will never see another article written by me....What's that I hear...some of you are praying for her to go up now....? I also like Tan Range Exploration (TNX on Toronto) here too as another long shot because of their integrity, board of director savvy and massive potential. I don't own her yet. I may next year. I may not. Next, into your stocking stuff  Kinross Gold Corp (KGC) in the middle of the pack. She is hard to beat as a mid-level player. I own her. If you like silver also (or better than gold, as some of you clearly do) toss in Hecla (HL) or Coeur d'Alene (CDE). Now it's your turn to have some fun. Do your own due-diligence type homework and pick the remaining five or six. Choose carefully only after reading EVERYTHING PUBLISHED YOU CAN FIND ABOUT YOUR PROSPECT. Diversify geographically throughout some of the suggested areas listed in number 2 above. Call the investor relations office and chat with them about anything you don't understand in the published literature. Visit the place if you can on your next vacation. It's a blast. Yes, it will be expensive, but the most fun you can have with your prospecting boots on if you really enjoy the mining stock casino.
  1. The hardest part is NOT the BUYING of the stock, it is ALWAYS the SELLING. Greed and fear kill everyone. No exceptions. You must decide what you want from any given stock before you reach those bony fingers for the phone or the mouse button. If you have made a good profit either from dividends, if any, or through simple price appreciation, SELL ALL OR PART OF YOUR HOLDINGS when her price is strong and her volumes are decent and take money off the table. If the trend for gold overall or that specific stock is still strong, you can buy her again and repeat the process. With the upcoming volatility it may be difficult and you could leave some money on the table, but so what?  Many fools watch real profit vaporize because they don't get while the gettin' is good. Cut losers quickly from the stable before growing losses make you emotionally determined to hold her until she comes back. Don't confuse tech fund liquidation of huge blocks of your little darlings, cartel cabal malfeasance, price manipulations or negative newsletter "top-picker" sentiments with a real dog that isn't doing well compared to other shares, who are in marked contrast, prospering in the same negative environment. Now, ignore this rule with the sub buck a share long shots. If you bought them in intelligent quantities, you don't care if they go to nothing. You only bought them instead of a lottery ticket, which will usually be a better bet. Even the best stock pickers get massacred now and then. I have had my head ripped from my shoulders on many occasions. All metal stocks are volatile and as you well know do CRAZY things like lead bullion when they should lag and vice versa. I HAVE NO CRYSTAL BALL. BUT IF I MAKE MONEY ON HER BY SELLING TODAY, I DON'T NEED ONE. I am taking it off the table. What is a decent return for me may not be enough juice for you. I have no way of knowing. It's a free country, do whatever you want; it's your money.


If all of this is just too much for you, simply buy low premium, well known/popular gold and silver bullion coins from a reputable dealer, tuck them away safely and be patient. With gross exaggeration, of course, about a billion things need to go exactly right to ever make a predictable, consistent profit from a mining stock. With finished coins, everything that needed to happen HAS happened. Think about it. With real bullion coins in your hands, the only thing needed now to make a respectable profit is that somebody, somewhere wants the gold more than the paper dollars they exchanged. And currently, about 3 billion people on the planet do. Wake up now or sleep forever. Get on board with stocks or coins; the Auric-Polar Express is leaving the station.

Trust Governments For Nothing. Trust God For Everything. Trust Gold Somewhere In Between.

Happy holidays to all. Be well and prosper. May 2005 find you content in all things.


Author: Kent Willis

J. Kent Willis,
AGAPI Financial LLC

J. Kent Willis is a Financial Advisor, Licensed General Securities Representative and the President of AGAPI Financial, LLC. He specializes in tangible assets, biblical faith-based investing seminars and balanced life strategies. He has traded gold and silver since the mid 1970s and resides in Kentucky. He can be reached at jkentw2@aol.com. This work may be reprinted and distributed freely to all hard money, "gold-bug" and related websites provided credit is given to the author and the website from which it was originally posted.

Copyright © 2004-2005 J. Kent Willis and AGAPI Financial LLC

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