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Strategies & Market Trends : Winter in the Great White North -- Ignore unavailable to you. Want to Upgrade?

To: marcos who wrote (799)	5/30/2001 1:35:19 AM
From: marcos	Respond to of 8273

Market Summary MARKET Shares issued 0 1899-12-30 close $0 Friday Mar 2 1990 Daily Market Report In last Monday's market summary, we reprinted the second of John Kaiser's three part discussion about picking quiet stocks on the VSE - longshots, as he calls them. He dealt with a company's people, its structure, its story and its capital. This week Mr Kaiser will conclude with his thoughts on two types of stories, experiments and projects. There are generally two types of story: the experiment and the project. Resource stocks usually conduct experiments while non- resource stocks are engaged in projects. An exception are resource stocks that already have a deposit which they are developing. An experiment is the testing of an hypothesis. A wildcat well or exploratory drill program will be undertaken after the geologists have used scientific methods such as seismic and geophysical surveys to collect data, analyzed the data within the context of established geological understanding, and come up with the hypothesis that a target has a good chance at being an orebody or oil reservoir. All that remains is to test this theory. If it is true, there is a quantum leap in the fundamental value of the company. If speculation has already given market value a big push, and the results prove negative, down goes the price. Promotions based on experiments tend to create volume-price triangles with short time bases. The potential exists for a stock to go from $0.50 to $20.00 overnight. Promoters use this sense of urgency to build up excitement about the exploration play. The odds of finding a mine, however, are poor. Consequently the street has developed a trading maxim for experimental stories: buy on mystery, sell on history. Longshot players follow a slightly different maxim: buy on structure, sell on mystery. One-shot experiments are risky speculations. Preferable are companies conducting numerous experiments; a large portfolio of farmed-out properties improves the odds of a successful experiment. Less risky are projects, which involve a carefully crafted plan to gradually develop the fundamental value of a company. Projects are less risky in the sense that news of their failure is not delivered overnight. Sometimes failure is obvious right from the start. Other times impending failure becomes evident with missed or delayed milestones whose anticipation had been carefully cultivated by the promoters. Just as a project story takes time to assemble, so does it take time to fall apart. That give speculators lots of opportunities to make decisions. The market behaviour of projects typically resembles a tiered pattern, with volume triangles occurring when important milestones are reached. The stock's price jumps up and settles at a new level where a new wave of investors comes on board with expectations about the achievement of the next milestone. Each milestone represents a step in the project's fundamental development, boosting confidence in the story's ultimate success. To assess how long and high a project story can go one must consider the scope and plausibility of the story. The scope of a story refers to the potential numbers involved if it becomes a success. Heap leaching a deposit of 500,000 tons grading 0.05 opt gold has far less scope than heap leaching a 20 million ton deposit on a much larger scale. Finding an instant cure for the common cold has much greater scope than developing an antidote for the venom of a rare poisonous snake. A story's scope can range between open-ended and very limited. The former make good speculations, the latter at best good investments. Shareholder expectations are closely linked to the story's scope. Questions to ask are: how big is the potential market and what is the most optimistic revenue and earnings scenario? Is the story's scope a function of consumer appetite for the company's products or services, or does it depend on management's efforts in acquiring hard assets for shares or debt, as in real estate development? Understanding the scope of a story will help a longshot player estimate how high investor expectations about a company's prospects can reasonably be expected to grow. Another limiting factor besides scope is the story's plausibility. Common sense is the most obvious measure by which a story's plausibility can be ascertained. One problem is that it is tougher to predict a story will succeed than that it will fail. After all, the uncertainty about the success potential is what makes the story speculative. What investors can do is watch for warning signs that the story will fail. Research analysts will visit the property or production facilities, conduct detailed investigations of the operations and do background industry research. Investigating the fundamentals is not, however, feasible for the average investor. A more practical way to check for implausibility is to watch for defects in the story's presentation. Questions investors ask should pursue a strategy of finding out how well management has thought out the development of their story's fundamentals. Vagueness about the mechanics but crystal clarity about future profits is a danger signal. Fuzziness about implementation schedules also suggests that the story's logistics are not fully comprehended. Ignorance about competing or substitutional products is another bad sign. And an inability to explain and contextualize the story for lay people indicates that this group will not have great success promoting the story. Once again, the five points used to analyze speculative stocks are background, structure, people, capital and story. The analysis should reveal where a company has been and what life cycle stage it is currently at, whether insiders have sufficient incentive to give the company a new life, who the insiders are and what one might expect from them, how available funding is for the story's development, and what the company hopes to accomplish, including the scope, plausibility and timing of the story. Understanding the Longshot List is to grasp the basics of how speculative markets work. (c) Copyright 1990 Canjex Publishing Ltd. (c) Copyright 2001 Canjex Publishing Ltd. canada-stockwatch.com