Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Dudley Baker on Gold Stocks Warants Buying Opportunity

Commodities / Gold & Silver Stocks Nov 18, 2008 - 06:15 PM GMT

By: The_Gold_Report


Best Financial Markets Analysis Article“It's either the end of the world or a fabulous buying opportunity”

His pitch is irresistible: “Buy a basket of juniors with warrants and it could be the easiest 500% you'll ever make.” In this exclusive look at one of the most overlooked and misunderstood investment vehicles, Dudley Baker of explains to The Gold Report exactly what warrants are and how they increase the odds of winning vastly higher returns. With a little arm-twisting, Baker even reveals some of his most prized “unbelievable” opportunities.”

The Gold Report: Could you start by explaining what a warrant is and how it differs from a futures contract?

Dudley Baker: A warrant is basically a security. It gives the holder the right, but not the obligation, to purchase the underlying stock at a specific price within a specific period of time. It sounds very similar to a call option except that it really is a security and a warrant will trade in much the same way as common shares. A warrant is assigned a symbol and will trade on the exchange or, in the U.S., it will have U.S.-assigned symbol where it can be traded over-the-counter.

TGR: Are all the warrants traded in the over-the-counter market?

DB: No, no. Most will always be private. Many precious metals investors know ‘warrants' because they are frequently issued in a private placement. But most of those warrants never trade on any exchange and they're not transferable. On my website only cover those warrants that are trading, the ones you and I could go out and buy. For example, Warren Buffet conducted a private transaction with General Electric and Goldman Sachs. There will never be a market for those. That's the distinction, whether it's a warrant with a private placement or an initial public offering. In rare cases a company can get the warrants listed if they were issued in connection with a private placement.

TGR: So Buffet purchases the stock and then is awarded the warrants. Is it GE or Buffet who decides to make those warrants transferable?

DB: In this case it probably would be Buffet. Since he actually owns those warrants it's his decision.

TGR: Let's to back to the private placement example. Aren't warrants used as a sweetener for a private placement investment? In that case, who makes the decision as to whether those warrants are transferable?

DB: The company will make that decision. In Warren Buffet's case, let's say that he's the only holder of the Goldman Sachs and GE warrants. Even if the company said we want these to trade, there's nobody to trade them because there's only one guy, Buffet, who owns them and he's probably not going to trade them. The chances are that he would just convert the warrants or the company would buy them back at some point. But in the case of the private placement of a mining company, there may be hundreds or even a thousand participants. If the company decides to list those warrants, those 500 to 1,000 individuals could decide to trade them. So now we've got some liquidity. And we always need that liquidity. So there are a lot of opportunities even for the bigger companies that have warrants trading.

TGR: So when warrants are initially issued, they could be privately placed, or publicly traded.

DB: Right.

TGR: Are most of the warrants that are publicly traded related to financial transactions other than mergers?

DB: They could be issued in connection with the financing for an initial public offering. A lot of warrants start with the private placements, the initial public offerings, and mergers. So warrants that are trading come about through a number of different circumstances.

TGR: Given the current stock market and the merger and acquisition environment, would you expect increased interest in the purchase of warrants?

DB: You mean what is the future for warrants?

TGR: Yes.

DB: Let's put it this way. The most important thing is to have a solid understanding of the underlying fundamentals of the company. Do they have a good story? Is there potential for the stock to greatly increase in value? And then we have to ask, maybe before we buy the commons shares: will trading a warrant give us a lot more leverage? If so, what is the remaining life of that warrant? It is especially important in this environment to have as long a life on a warrant as possible. Many of the warrants in our database have three years or more of a remaining life, which is really great. Some of them have four or five years. One actually has an 8-1/2 years going out to 2017. I see great opportunities going forward.

Are we going to blast off in a rally this week, next week, next month? I don't know. But I'm very confident that in the coming months and years that gold and the junior mining shares are going much, much higher. So I'm very comfortable buying warrants in the juniors. It is critical to have as long a life as possible. I cannot stress enough how important it is to look at that underlying common stock. If the company's common stock does not go up, there's no way the warrants are going up. So we have to be confident that the company will be able to execute its business plan. Then we hope for a skyrocketing market here in the coming months and years.

TGR: So the real advantage of a warrant as opposed to the common shares is the leverage.

DB: Exactly and that's why we'd start looking at a warrant. It gives us a lot more bang for our buck, a lot more leverage. I'm always looking for a minimum of two times the leverage. So if we're looking for a common stock to go up 100%, I'm leveraged to make at least 200% by buying the warrant.

TGR: How would you compare a warrant to a call option?

DB: Good question. A call option is just going to trade on the Chicago Board Options Exchange, whereas a warrant is actually going to trade like a common stock on the TSX. The main difference we've got is time and we always want as much time as possible. There are so many call options out there on the mining shares, but maybe they've got 90 days or 180 days, one year at most. That's not enough time for me. In this treacherous market environment that we've had over the last two years, options are really just speculating. I like to think that if we can find a long-term warrant on a good company that has a two-year minimum life—if not three years or more— now we're investing. This way, time is on my side. On my website I've got some examples of my trades and the common denominator of those that generated roughly 1,000% or more return was the fact that all of those warrants had over a three year remaining life when I bought them. Time is the key to my success with warrants.

TGR: I would think time really plays very well right now with the market being at 52-week, if not 5-year, if not 30-year lows.

DB: Incredible, yes.

TGR: It probably can't go much lower in the next three years.

DB: That's exactly how I see it. You can make a blanket statement that nearly all of the juniors and warrants are off by at least 90% in value. Either you believe this is the end of the world and the game is over or this is just a fabulous buying opportunity. I was buying this morning. I've usually do several transactions each week, so I just continue to build inventory, accumulate mining shares and warrants, which I'll sell in the future at substantially higher prices. So, if we can find a warrant that, say, has a three-year or longer remaining life, it's going to be hard to imagine how high it might go in a few years. It used to be that if a stock were trading for less than 10 cents, you'd be crazy to consider it. In this environment, a lot of juniors are selling for less than 10 cents; good companies with cash in the bank. The opportunities out there today are truly incredible.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in