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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Investor Survival Message

InvestorEducation / Learning to Invest May 05, 2008 - 12:25 PM GMT

By: Neil_Charnock

InvestorEducation I am a private investor, a writer (to state the obvious), a gold trader, Investment Newsletter Editor and now a web site manager of sorts. All of these activities are related to investment. Part of my purpose is to educate investors about gold / silver and gold related opportunities such as the mining sector. From what I have seen over the past six months I just have to write this essay for many of my subscribers and potential subscribers. Highly experienced investors might like to skip down to market comments below as the following may not apply to you.


Education
Developing an investing style that works for you is an ongoing learning exercise. Less experienced investors often choose higher risk investments because they believe they will bring them up to financial security in a shorter time frame. They may see an advertisement for a CFD seminar, or read a book on options trading, or buy the latest “sure fire” share trading program and decide this can get them out of that job they hate and into the lifestyle they desire. They may also buy into the margin lending / leverage angle looking for such a short cut.

Let me step back here a moment - my point here is about risk. Instead of choosing a lower risk activity the less experienced investor will invariably go for the perceived quick route to riches. Often they have limited resources so they feel the need to grow their investment capital up to a more viable level as fast as they can.

Let me point out something else important here - they are usually very smart and attempt such a pathway with apparently sound analysis. I admire the power of their conviction and ability to take a chance.

I see too many people too afraid to take a chance in life. So they sit in a rut in a job they hate or worse still don't even leave home or get a job. The unhappy worker can go from home to work and back again wishing they could win the lottery. This lifestyle is fine if you are happy in your work – I refer to those that wish they could escape. People that take a chance to jump in and learn about investing are the part of this group that have the spirit and will to succeed.

I have a purpose to assist all investors, from the highly experienced right down to the inexperienced. Therefore I have to provide a large range of information and communicate same carefully in order to reach my target audience. I have to address all asset classes and now I see a further need to cover divisions within these classes. For instance share trading.

The higher risk end of this asset class is the micro-cap explorer in a fashionable investment wave. We saw such a wave in uranium stocks here in Australia a year or so back. The lowest risk end of this asset class is the heavy weight corporations that generate a stable yield.

Options have deep in the money high cost positions and you may also “invest” in short dated cheapie contracts that are far out of the money – these are deliberately simplistic terms for the sake of education. With options you can take a high risk naked position by betting one way on a move or use a hedge technique to minimize risk. Derivatives are for the experts and producers – caveat emptor – you get my drift I hope. It is not within the scope of this article to fully cover this topic so I have to skip forward.

Investment intelligence takes considerable time for most and is accumulated on a gradient. Caveat Emptor rules the day and it means buyer beware. I have long noticed that “fair” has nothing to do with how the world distributes opportunity, wealth, ability etc but for the sake of the less experienced investor somebody should write a rule book on what investment vehicles are allowed for each level of investing experience.

I have the pleasure of working with seasoned professionals and some highly savvy private investors. The most astute of all have a broad understanding of asset classes and how they interact. They have the ability to interpret over weight investment classes on an ongoing basis and can anticipate where the money flows will naturally head next. They also understand how the larger players in the markets think which is vital due to the weight of their influence in the markets. This is the elite end of investment understanding, knowingness about how it all fits together.

When investors come to the realization that balance sheets are malleable and that P:E ratios change and that an ounce in the ground is not an ounce of bullion or money... they realize that fundamental analysis is an art form as much as technical analysis. I believe in both techniques and use them to mitigate risk however I have to point out they are art forms in that it depends how you interpret the data you are able to collect.

This is also why savvy investors follow management that has a sound track record – they know it to be a fairly reliable measure. They carefully investigate the ground position of the company to establish that a viable deposit may or does exist. I have just pointed to a vast number of areas, pitfalls and concepts to gain understanding of, that I have merely drawn attention to and cannot cover in less than a book. Even then it would still take practice and patience and attention to turn the information into profits on a consistent basis.

On a closer / less general note I want to make the following as clear as I can too. The more experienced end of the investors that have subscribed to our Newsletter service understands that my Author is a highly trained and successful expert and they highly his commentary. Colin is a high level professional and writes the GoldOz Newsletter part time, therefore it can be delayed at times. We make allowances in subscription time frames in order to adjust for this and to ensure we deliver value. He is in the markets doing what he is talking about – he walks the walk. He has done so at the highest levels for 25 years and therefore has great wisdom to share.

Anybody that has already picked up on the gold bull is ahead of the pack. They are the sentient beings that realize they need to learn more and are willing to pay for it. Many lack time and do not have vast experience however I am glad to see them learning as we are all on a path of learning. We all make mistakes and should learn from them and use the experience gained to modify our individual styles to improve our own performance in the markets.

Of this latter group I see a tendency to invest in the smaller end of the gold equities market and often they will request our coverage – which we are happy to provide – after a large move to the upside of the share price. As a technical Newsletter we cannot offer individual or specific advice to clients due to Australian financial service regulations. What we can deliver for low cost is general education about asset classes – the depth of the wisdom of which may be easy to miss at times and a broad coverage of stocks in the mineral resource sector in Australia . I see an excellent array of high potential companies hard at work on excellent ground positions here in Australia – it is a land of rich mineral endowment.

Direct advice requires personal data on an individual's circumstances and is the realm of the investment adviser / broker who will charge accordingly at a far higher rate than our services. They may not be as independent as you might wish unfortunately so remember - caveat emptor.

The ultimate solution in my opinion is to get educated yourself. You may skin your knees occasionally when branching out into a new asset class so I recommend that you enter cautiously. With mining stocks it may be better to stick to the big cap stocks to begin with and build your skills with a small portion of your capital. Take responsibility for your own mistakes in order that you can learn from them.

Certainty and confidence comes in time so don't despair – if you are on the path in the first place then you have the right idea.

Market comment

Shares as an asset class have been under severe selling – back in November when I mentioned that the ASX resource stocks had to correct now I did not realize the depths they would explore. As we have pointed out in our Newsletter the share price action is not about what is happening to the operations of many of these badly sold stocks.

Colin put it very well in our latest GoldOz Newsletter - Australian small caps have recently been bashed about by the exploding margin lending accounts of the traders and speculators here – the high risk hot money – this has been across the board with these facilities – but of course highlighted in a big way by ANZ/Opus Prime, Tricom and Lift Capital all blowing up and some forced selling and some potential forced and cut selling by holders. This is still a weight and a risk on many stocks and technicals get disrupted by what is often is a decision to just cut and run due to other financial circumstances and issues of the end holder of the stock rather than anything related to the actual company.

Now what to do about this situation – if you are caught you can trade the bumps down here by selling into rallies and buying back the dips in order to accumulate more stock or just sit. If you have capital to invest then opportunity is smiling on you. Many companies are trading at unrealistically low levels due to shareholder circumstances and forced selling. These are generally in the smaller cap end so beginners have to go in cautiously with only a limited portion of their capital if they dare to dabble.

Yes stellar returns are possible provided you can buy and sit long enough to see this eventuate. I am keeping my radar on and doing my homework on some early producers that have massive potential over time. Examples of this include; a 10M ounce deposit, a high profile identity developing previously unloved or under capitalized mines, a brand new gold / nickel producer, a high grade refractory ore gold operation, miners ready to go underground at higher production and a vast array of medium and longer term opportunities.

On the technical front there are some obvious base formations with powerful divergences – some of which are on mid cap lower risk stocks (lower risk in price terms than smaller cap stocks). Reversal patterns in some stocks have already appeared and excellent gains have been made bottom picking the forced sale situations as base value is re-established.

A comment on hedging – one stock I follow closely has prudent and cautious management and have just entered a small hedge position as required by their lending institution. I do not see this as a particularly bad development even if I would prefer it were not necessary – for I am not a big believer in this practice generally speaking. There may be a prudent time and place for legitimate gold hedging as we go forward. To put all this in perspective it is worth noting the following.

Back when gold prices were at or under the floor in the late 90's many companies were trapped short – literally – as cost of production later moved above the price they had tragically pre-sold their production at. Oil price was low and the cost of production was relatively low and sentiment was poor – but the key point was that the gold price levels provided no room for production cost increased at the hedge levels taken at that time.

This is not so today as robust returns over the next two years have been locked in by this company at around double the current cost of production. Hopefully the early call clauses which also caught some companies – clauses that allowed for forced early settlement at disadvantageous price levels – are long behind us too.

I will get back to some big picture market commentary and technical reports in addition to some very useful additions to the GoldOz web site in the very near future. Should investors be interested we are running a special 3 month bargain price on our Newsletter at present – only AUD$90 – limited time while we reassess our product range.

Good trading / investing.
Regards,
Neil Charnock

By Neil Charnock
www.goldoz.com.au

Copyright 2007 Neil Charnock. All Rights Reserved.
REGISTERED ADVISOR – WHO THE ADVICE COMES FROM IN THE GOLDOZ NEWSLETTER: Colin Emery is currently a Branch Manger and Senior Client Adviser of a Stock Broking Company in Queensland Australia. Prior to his work in Share broking he spent nearly 20 years in Senior Management and Trading positions in Treasuries for major International Banks such as Bank Of America, Banque Indosuez, Barclays Bank, Bank Of Tokyo and Deutsche Bank AG. He spent a number of years as a Senior trader in New York , London , Singapore , Tokyo and Hong Kong with these institutions. He also was Global Head of emerging energy, emission and commodity products for the leading Energy and Commodities brokerage firm of Prebon Yamane Ltd – Prebon Energy for four years before moving to Cairns in 2003 to focus on the Stock market and Private consulting work. The private consulting and advisory work currently undertaken is with companies involved in Resources, Energy and Renewable Energy and Forestry.

Neil Charnock is not a registered investment advisor. He is a private investor who, in addition to his essay publication offerings, has now assembled a highly experienced panel to assist in the presentation of various research information services.  The opinions and statements made in the above publication are the result of extensive research and are believed to be accurate and from reliable sources. The contents are my current opinion only, further more conditions may cause my opinions to change without notice. The insights herein published are made solely for international and educational purposes. The contents in this publication are not to be construed as solicitation or recommendation to be used for formulation of investment decisions in any type of market whatsoever. WARNING share market investment or speculation is a high risk activity. Investors enter such activity at their own risk and must conduct their own due diligence to research and verify all aspects of any investment decision, if necessary seeking competent professional assistance.

Neil Charnock Archive

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