Rachel’s note: Before today’s dispatch, I wanted to remind you that today is your last chance to watch our colleague Jeff Brown’s free biotech masterclass.
Regular readers know Jeff sees a new wave of funding flooding into the space. That’s why he recently journeyed to the biotech capital of the world, to uncover one of the largest biotech stories happening in America today. And it has nothing to do with COVID-19.
Jeff believes a single biotech company is on the verge of making history with a new cure. When the news hits, this company name will be plastered across Bloomberg and CNBC. The stock could soar as high as 1,000% in a single day.
But Jeff says investors need to get positioned now, before the news is released, to see those returns. The announcement could happen at any moment. So go right here for the full story.
By David Forest, editor, International Speculator
If you think mainstream investing today is safe, you’re kidding yourself.
We’re all speculators now. The difference is that some of us know it.
If you have the courage, in this short essay, I’ll show you how to play to win.
Last week, gold hit a new all-time high of $2,070 an ounce.
This explosive move higher caught a lot of folks in the mainstream media off guard. But it shouldn’t come as a surprise to longtime Dispatch readers.
And as I’ve said before, gold stocks offer even higher returns than you’ll get on physical gold. As this rally progresses, that’s where the real life-changing gains will be found.
In the last four gold bull markets, gold miners handily outperformed the physical metal. Just take a look at the chart below.
And if you want maximum returns in the market right now… and are willing to take the necessary risks… I believe junior gold miners are the place to be.
In the past two years, gold is up 58%. But the VanEck Vectors Junior Gold Miners ETF (GDXJ) is up 83%.
A junior resource company is just a fancy term for a very small resource company. Most are exploration companies looking to discover a rich deposit of oil, gold, freshwater, etc.
The term also covers small producers. These are companies that have discovered a resource and are extracting it or tapping into it… but are still small.
Juniors often have market valuations of less than $10 million. Most have no net income and no meaningful asset value.
When the junior resources stock market is way down, some trade for less than cash in the bank. That means that the sum of all the company’s outstanding shares is less than the cash on its balance sheet.
Mainstream investors dismiss juniors as penny stocks. They think they’re too volatile to touch.
To a degree, that’s true. Some juniors do trade for pennies. And all of them, even the ones that trade for several dollars a share, are extremely volatile.
Casey Research founder Doug Casey calls them the “most volatile stocks on Earth.” He’s not joking… or exaggerating.
But this is actually a good thing if you know how to make volatility your friend.
We’ll get to that in a moment. First, let me explain something important…
These Stocks Are Going Vertical
Imagine a typical exploration junior miner. It has no income. It has no measurable assets.
Even the cash it has in the bank isn’t really an asset. It’s an obligation. The junior mining company will use it to drill holes in the ground, hoping to make a big discovery.
Now, what is this company worth?
The answer can only be zero.
But what happens if it hits paydirt? The stock will soar, of course.
At this stage, it’s impossible to put an accurate value on a mineral discovery…
How big is it? How deep does it go? How stable is the rock? How hard will it be to get metal out of the ore?
No one can answer these questions from just one drill hole. Any market valuation at this point would overvalue the discovery.
However, if the discovery does have economic value, that value will be greater than zero. And any value at all is infinitely greater than zero – so the change in value for a junior that makes a discovery is enormous. Its share price leaps.
That’s why we speculate on juniors. They have the potential to “go vertical” like nothing else…
Who Else Wants 1,000% Gains?
The junior sector is 10-bagger hunting ground. A 10-bagger is a stock that goes up 1,000%, or more. It sounds mythical, but they are real. We’ve bagged quite a few over the years.
This is why some see buying juniors as just gambling. In a way, it’s not a bad idea to think of the junior resource sector as a giant casino. It puts you on guard.
And it prepares you for the losses you’ll suffer on your way to big wins.
There is, however, a huge difference between gambling and rational speculation.
A gamble is essentially a game of chance. Sure, professional gamblers learn how to play the other players.
But unless they cheat, the heart of the gamble remains random chance. You toss the dice. You win or you lose.
A rational speculator does everything possible to stack the odds in his or her favor. This is not cheating. It’s research. It’s experience. It’s looking at trends. It’s looking at investments that should benefit from those trends… and picking the best.
All speculators take risks. But rational speculators use their intelligence and energy to minimize those risks.
Gambling is a game of chance. Speculation is an investment strategy that depends upon observation and intelligent planning. Chance can enhance or hinder it, but it doesn’t define it.
That’s why we’re here: we observe, strategize, and hunt for 10-baggers.
The Best Hunting Ground
The best hunting ground for 10-baggers is the Toronto Stock Exchange (TSX) and its venture division, the TSX-V.
London’s Alternative Investment Market (AIM) and the Australian Stock Exchange (ASX) are also friendly to junior resource companies. Some juniors list in the countries where they operate, such as Peru. The lion’s share, however, goes to Toronto.
The chart below shows the number of mining juniors listed in Canada and other countries.
Many successful juniors do seek U.S. listings. But the requirements are too steep for most juniors, even on the lower rungs of the New York Stock Exchange (NYSE). By the time a successful exploration company gets a U.S. listing, it’s no longer quite so junior.
Buy Low, Sell High
Here’s how to make volatility your friend: Buy low and sell high.
But that’s easier said than done.
Fortunately, the junior mining sector gives you ample opportunity.
Most junior miners trade on low volume. When a company has less than 50 million shares outstanding, fewer than 100,000 of those may trade each day. In some cases, fewer than 10,000 shares trade a day.
This results in frequent extreme volatility. And it creates frequent contrarian opportunities…
It’s gut-wrenching until you get used to it.
Shares in a solid junior miner with great management, cash in the bank, and a major new discovery unfolding can drop 20% to 30% just because a large shareholder facing a margin call is forced to sell. They can also soar 20% to 30% because of a spectacular drill hole.
So, if you missed the bottom of a mega-cycle, or even the current commodities market momentum trend, don’t worry. The extreme volatility of junior mining shares often creates last-minute buying opportunities for savvy speculators.
When to Pull the Trigger
Obviously, the best time to buy junior gold stocks is when nobody else wants them… But there’s more to it than that.
Start by asking yourself what kind of speculator you are. Then pinpoint the market trends you truly believe in.
These may seem like abstract ideas, but they are absolutely essential.
If you are cautious by nature, but you believe that gold will rise over the coming years, then focusing on profitable producers is your sweet spot.
If you’re keen to maximize gains and willing to take higher risks, early stage gold explorers are the way to go.
If you’re somewhere in between, like most people, advanced explorers moving known discoveries towards production offer high returns with reasonable risk.
If you think silver has more upside than gold, replace “gold” with “silver” in the checklist above.
Even the largest and most stable mining companies in the world are more volatile than what most investors are used to. The underlying commodities themselves are so variable that standard securities analysis just doesn’t apply.
You need to understand why you place the bets you do. If the stock drops despite the company delivering the goods, you need to be so sure of your premise that you don’t panic and sell (at exactly the wrong time).
This level of discipline is only possible if you are certain in your reasoning and your picks are sound. Even then, it’s hard. If it were easy, everyone would do it and there’d be no profit in it. That’s why you have to start with a little soul-searching.
Clarity brings confidence. Confidence enables discipline. Discipline is essential for success as a speculator.
Catch a Free Ride
We take profits whenever a stock doubles for the first time. We call this a Casey Free Ride (after Casey Research founder, Doug Casey). After recovering your initial investment like this, you ride whatever upside is left, 100% risk-free.
Nothing beats speculating when you can’t lose.
When the people who said you were crazy for buying gold juniors jump on the bandwagon, it’s time to head for the exit.
That’s how you buy low and sell high.
I’m not going to lie to you. Speculating takes courage.
If you start as we suggest, with careful thought about yourself as an investor, and determine that hunting for 10-baggers is not for you, you should hunt elsewhere.
Unless you’re truly comfortable with contrarian speculations, you are guaranteed to lose money.
But this strategy isn’t as risky at it may seem. Doug likes to put it this way…
Rather than risk 100% of your portfolio for 10% gains, risk 10% of your portfolio for 100% gains – or more.
If you speculate, you’ll have some losers. If you push for maximum returns, you may even lose on most of your picks.
But the doubles… the triples… the 5-baggers and 10-baggers… will more than make up for your losses.
If you have the courage, this is how you play to win.
To gain general exposure to the rise in junior gold miners, consider taking a position in the VanEck Vectors Junior Gold Miners ETF (GDXJ). Just remember to position size accordingly, and never bet more than you can afford to lose.
Keep walking the path,
Editor, International Speculator
P.S. Even with the recent volatility in the markets, my gold picks are winning. One of my recommendations is up 433% in just a few months… and another has soared nearly 500%.
But buying gold stocks isn’t the only smart move you should be making today…
I have an urgent video update I recommend you watch right now.
You need to see it for yourself (especially the first 47 seconds).
Because if you watch this demonstration – and take the steps I recommend – you could see up to 30 to 60 times your money… in months, not years.