Strategy

Strategy for picking the right stock

One method which is obvious, is to find the oversold stocks which have been punished for the wrong reasons. Many Aussie gold stocks currently fit into this category - so we may have to search for “degree of mindless or forced selling / punishment” due to some other factor than company risk or failure. But most of all I currently look for over sold, plus increasing production plus solid management as opposed to spectacular crash and burn operators. So you have to aim for producers that are increasing production due to their own internal success, slow and steady is fine as long as they begin to accelerate at the right time and you get on board as they leave the station. Technicals really assist in that timing issue but so does careful observation of a Companies progress.

NOTE: Make sure the stock is not in financial trouble and simply be failing to admit it. Find out FIRST if it deserves to be punished and makes your decisions accordingly.

Another strategy I like to employ is to buy in and really hit a key stock or two and hold for the longer term. I like to buy during a base formation on the chart and add purchases on price pull backs while I accumulate vastly undervalued special situations (which I will cover next paragraph). On minor price spikes I can lighten up if I wish. What I really aim to do here is to wait patiently until there is a considerable price spike where the true value of the company is finally recognized by the market. This will maximize returns through leverage. As price surges I can then sell a portion of these companies and reinvest or diversify into different assets if appropriate. Point is to get back initial capital and healthy investment returns and to also hold a portion for the final blow off spikes that lay ahead in gold.

Thanks to the long bear market from 1980 to 2000 there are some juniors who have been able to buy old mines with quality tenements and infrastructure in place. Mill, tailings dams, perhaps a decline or tunnel down to near other deeper resources, accommodation village, power grid, roads can be a huge time and cost savings not always reflected in the share price of a junior. Sometimes the old mine waste called a mullock heap or tailings can be lucrative enough to put through with higher grade ore because it will be right next to the mill and require no blasting to win it from the earth. The time taken to bring a project to fruition, production, profits and finally pay dividends can normally take nearly a decade. The special situation stocks can jump ahead of this process and time curve amplifying leverage for spectacular profits.
 
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Neil Charnock is not a registered investment advisor. He is an experienced 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 his current opinion only, further more conditions may cause these 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.
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