Issue link: http://resourceworld.uberflip.com/i/1190748
22 www.resourceworld.com D E C E M B E R / J A N U A R Y 2 0 2 0 INVESTMENT A veteran broker's perspective BE A GOOD SELLER by Rod Blake A fter thirty-some years as a stock broker/investment advisor, it was recently asked of me: "What is the biggest mistake that most resource stock investors make?" And by far, I have to say that the biggest mistake they make is not knowing how and when to sell. Notice that I mentioned two parts to selling – How and When. Let's take a closer look at each. Most resource stock investors are very good purchasers of stocks. For the most part they do their homework on a particu- lar sector or company. They then watch the trading action of the company to find an entry point. Some will just take a posi- tion and wait while others will average in by accumulating positions over time. Both are good strategies and have their own merits and drawbacks. The key here, and to most buying, is that it is usually a slower or more timed process – except for trying to buy a stock when it is running up after a major news release. Buying a resource stock is usually a well thought out process. Plus, the very nature of the resource markets generally works in a buyer's favour. Resource markets tend to go into long bearish periods ranging from general investor disinterest such as the current uranium market to downright avoidance as with the current petroleum market. These long term bears obviously work in a buyers favour. How one sells a resource stock is usu- ally a very different animal. In selling, an investor has to keep in mind whether their company is in a bull or bear market. Bull markets tend to help selling a resource stock for two reasons. One is that their par- ticular sector may be moving up such as the current gold market. The other is that new investors looking for a reason to invest in that sector tend to increase trading volumes. Therefore, good news usually gets a better market reaction in a bull market such as good drill hole gold assays released on a day when the price of gold has improved by $20 or so. There is nothing quite as exciting as see- ing a junior resource stock surge up on increased trading volume after releasing positive drilling results. Selling in a bear market is completely different. Bear markets often go down for two reasons: you have the negative bias of a sector in decline weighing upon your stock – such as the continuous drop in the price of crude over the past two years. Plus, bear markets always have more sellers than buyers. There are always shareholders looking to exit from, what they believe, is a losing or underperforming position and they will use any positive event to facilitate this. In a bear market it is not uncommon to see a company's stock price drop even after putting out good news. Nothing is more frustrating than watching your stock go nowhere or even down on a good news release. Investors should also keep in mind that underlying the market there can be minor events that can relate to the duration or magnitude of the bull or bear market. These can be seasonal such as a spike up in the price of natural gas during a very cold winter, political – such as a new gov- ernment or a change in mineral policy or economical – such as the price of lumber during a housing boom or recession. Each event has its own obvious and underlying characteristics and a good resource stock investor would be well advised to be able to recognize these circumstances. How one sells means being aware of the macro and micro events that effect your investment. When to sell a resource stock can usually be narrowed down to expectations of actual or potential profit and loss. I usually tried to impress upon my clients that investment in junior resource stocks should be made with money they could afford to lose. This is because, by their very nature, there are more losers than winners in that sector. By extension, a shrewd resource stock investor should always try to get their cost base low as possible. This can be done by averaging in at ever lower prices as described above or by being a disciplined seller. A disciplined selling strategy can make