Resource World Magazine

Resource World - Dec-Jan 2020- Vol 18 Issue 1

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D E C E M B E R / J A N U A R Y 2 0 2 0 www.resourceworld.com 23 money in a bull market and preserve cash in a bear market. PLEASE LORD, JUST GIVE ME ONE MORE BULL MARKET AND I PROMISE THIS TIME I'LL SELL Selling in a bull market is always preferable and gives the investor the best chance of making money. In my career, I found that commodity-driven bull markets tended to be few and far between so that selling into this strength was all important. In our effort to get our cost base as low as possible I usually suggested that clients sell half of their speculative positions at or near a double so that their cost base effec- tively became zero. From there the next times to sell can depend on a number of things such as the nature of the resource involved, further stock price increases, the price of the underlying commodity, the size of the client's position, other non-mar- ket events and, most important, a client's risk/reward make up. Average out in much the same manner as you averaged in. SELL ON RUMOUR – BUY ON NEWS Markets seem to know when good news is coming and tend to migrate higher antici- pating the event. Unfortunately, unless the news is spectacular, stocks often decline temporarily once the news is out as there are few buyers still in the market to carry on the rally. Selling a portion of your posi- tion into the pre-news rally and buying back after the news is out is usually a prof- itable strategy. MIND THE GAP Sometimes the price of a stock gaps higher, usually after a trading halt on positive news. Always sell part of your position above a gap and be ready to buy it back later at or near the pre-gap price. This is because stocks nearly always fill in the gap. That is, the stock price will eventually come down to trade at the levels left open by the gap. This facilitates the theory of an orderly trading pattern of a stock. Unfortunately, as we have seen in the past few years, resource markets can go into lengthy bear markets, leaving inves- tors buried in underperforming positions and little free cash to work with. Selling in a bear market takes on different men- tality as the goal here may not be to make money, but merely to free up cash to be re- allocated later at lower prices. During a bear market and more so in an extreme bear market, I would often advise clients to sell some of their position into any significant rally. This is because the negative bias of the bear market would inevitably pull the stock price back down again so the position could be bought back at anticipated lower prices. This procedure often lets an investor accumulate more of a position without having to put any more capital towards the holding. Many times I would get clients wanting to sell on bad news. I wasn't a great fan of this strategy particularly if the news was poorer than expected drilling assays. The biggest problem with selling on bad news is that it tends to be a herd mentality and one is competing with many others trying to obtain the same objective. This tends to create an oversold condition in the stock that usually reverses itself to some degree once the selling rush has subsided. Much like stocks gapping higher on good news, they can also gap lower on bad news, and this gap will usually be filled as well. I always thought it was better to try and wait for the selling rush to subside and then sell into a more orderly market or hopefully a recovery bounce. Mineral ore bodies are built one drill hole at a time and naturally there are going to be some bad assays, particularly in step-out holes or holes at the fringes of the discovery. Resource markets can give you a chance to make a lot of money, sometimes a little and sometimes the best you can do is try to break even or negate your losses. While astute buying enhances your chances of success – only perceptive selling can lock in those profits. Knowing how and when to sell can go a long way on improving your odds. n INVESTMENT

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