Are You Ready for Mining Shares? Calling all Beginners!
You may have been attracted to mining stocks for different reasons. Maybe you think precious metals prices are going higher and you believe mining stocks will give you greater leverage. Perhaps you are attracted to the spectacular gains of companies like Diamondfields, Aber, DiaMet, Francisco, or Western Copper. Or maybe you just love penny stocks, with their rollercoaster volatility and excitement.
Whatever your motivation, there are a few things you'll need to know before you start. Ready? Better take notes.....
1) Mining stocks are VERY volatile. Did I mention VERY? These are not for the faint of heart. Following the stock price every day may make you queasy. If you're not a risk-taker, then don't buy mining shares. Just don't. And BTW - the smaller the company, the more volatile the stock price (rule of thumb). The largest mining companies in the world (BHP, Barrick, etc.) usually have reasonably stable prices; but 99 percent of mining stocks are decidedly UNstable.
2) Most people who put money into mining stocks lose money. They just do. It's that simple. But if you are willing to learn, be patient, and be smarter than average, you stand an excellent chance of being one of the few mining stock investors who'll do alright. You may even be bragging at the next Gold Show. Decide in advance whether you have the patience and interest to succeed.
3) Mining share investing requires work. On your part, not just your broker. You must perform your own due diligence. At the minimum you need to subscribe to a few of the best analysts/newsletters...you don't always have to follow their advice (hey, I know I don't..) but you should pay attention to their comments.
4) Thinking of putting $10K into a hot mining stock? Don't. Especially not in the beginning. First, lie down and wait for the feeling to go away :) If, after a day or two, you still want to invest, and you've done your due diligence, put $2K into it instead of 10. Really. You'll live longer.
5) Accept the fact that you'll need to invest in at least 10 of these stocks in order to hit a winner. That's assuming you've done your due diligence and have made good choices. Sounds funny, I know. So, if you've decided to plunk a total of $20K into mining stocks, split it 10 ways, and do so carefully. I can't stress this enough. No matter how sure you are that XYZ is going to the moon and you want to put your whole nest egg into it, don't. I've seen this sort of thing happen way too many times -- these stocks are unpredictable. Even the "sure things."
6) Take a buy and hold strategy. Be prepared to hold your investment for 1 to 3 years (a long time for the typical mining stock investor).
7) Remember, mining companies are a misnomer. They don't usually "mine" anything. They explore. They drill. They collect rocks. And 99 percent of the time they find nothing of value. They usually run out of money every year and have to raise more money by issuing more shares. This means dilution for existing shareholders. For these reasons you must buy only those companies who have lots (i.e. millions) of dollars in their treasury, and a management team with a history of success and credibility. This immediately excludes 90 percent of all mining exploration companies from your buy list.
8) Take profits when you've got them. Gravity has a huge impact on mining stocks. Much like a rollercoaster, the ups and downs never seem to end. Got a double? Sell half. Get your initial investment back. Always.
9) A good broker can be a real asset, IF he or she knows mining stocks. But, he or she (most importantly) must know you. Trust is everything. Most brokers are not trustworthy, and the trustworthy ones are not always knowledgeable. I know of only a handful mining share brokers who I trust and who know the business. And I've met hundreds.
10) Never buy a stock on a tip. Especially mining stocks. I know plenty of insiders, so you'd think the 'tips' I get would be worth something, right? Wrong. They're almost always bogus. I never buy stock on a tip, and I never buy stock being touted through free direct mail pieces. Neither should you.
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