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To: ms.smartest.person who wrote (1432)	9/22/2006 12:16:44 PM
From: ms.smartest.person	Read Replies (1) \| Respond to of 3198

Old-school investing calls for on-site inspections Information age has not deterred managers who like to visit companies DALE JACKSON - Thursday, August 31, 2006 The temperature hit a scorching 35 C in the high Nevada desert last week. It's not the sort of place anyone would want to be in late August, but it is a place Paul van Eeden felt he needed to be. The mining and metals analyst and president of Cranberry Capital was on a mission to check out four gold mining companies -- he was already invested in two and the other two were prospects. Mr. van Eeden made mention of the trip in Toronto a week earlier, in the air-conditioned comfort of the Report on Business Television studio during a segment of Market Call. When asked what he can learn from a visit to the desert that he can't learn from a press release, his response was terse: "You learn nothing from a press release." The information age has not deterred a loyal breed of old-school money managers like Mr. van Eeden, who insist on walking, touching and talking before investing. "A press release just tells you the results but it doesn't necessarily put the results in context," he says. As an example, he says, companies often report positive drill results without mentioning negative drill results. By physically appearing at mine sites he can determine the potential by the drilling pattern and success rate. "The resources may be there but the ability to mine them could be more difficult," he says. To help him put things in context Mr. van Eeden brought along renowned geologist and trusted adviser, Brent Cook. In the end he was pleased with the two mining companies he already owned and disappointed by the two prospects. He wouldn't discuss the disappointments but the two companies that confirmed his original investment decisions were Miranda Gold Corp. and AuEx Ventures Inc. -- both trade on the TSX Venture Exchange. Miranda's operations focus on 15 active exploration projects in northeastern Nevada's Cortez Gold Trend. Miranda's stock has risen 168 per cent since Mr. van Eeden first recommended it on Market Call on Oct. 1, 2004, and he is still recommending it to investors. AuEx currently owns 13 exploration projects on 40,000 acres in north-central Nevada. Its stock has been trading on the Venture Exchange since July, 2005. With a market cap of nearly $34-million (U.S.), AuEx Ventures' stock has climbed 277 per cent over the past year. The need to physically inspect a potential investment is especially crucial for smaller companies with very little analyst coverage and a short track record, according to Gavin Graham, chief investment officer with Guardian Group of Funds. "Knowledge is not widely disseminated and there are sometimes pleasant surprises," he says. Mr. Graham oversees nearly $6-billion (Canadian) in assets for GGOF. He's a manager of managers for funds that range from small to large cap, and Canadian to international equity. Before his managers book a flight and pack their bags, Mr. Graham says his team starts with common "screens." They compare a company's stock price to its earnings, book value and sales to see if it is undervalued by the market. They also look at the company's return on equity and capital, as well as the dividend yield. To that point it's all academic and he agrees financial statements don't always tell the real story. "You're dependent on the quality of those numbers," he says, preferring what he terms "unscripted" face-to-face meetings with management on a regular basis. Mr. Graham also stresses the importance of touring front-line operations. He points to a trip to a chicken processing plant in Indonesia owned by Philippine-based San Miguel Corp., the largest food and beverage company in Southeast Asia. Food processing plant workers in that part of the world are usually low-paid, young women but he noticed the work force was dominated by mature men -- signalling high-paying jobs and a stable and experienced work force. Warning signs, according to Mr. Graham, include inventory stockpiles, empty employee parking lots and swanky headquarters. "If you're spending a lot on headquarters, it's generally not a good sign because it could imply empire building," he says, adding that some of the companies with the most potential have their head offices in dingy buildings in cheap areas of town. "Generally, the more spending on a company's headquarters, the less value in the stock," he says. However, Mr. Graham prefers to save the cost of a plane ticket when it comes to most large multinational corporations such as banks and utilities. "It's not of great use to see companies the size of General Electric," he says. "Even if you saw all the divisions, there are so many moving parts that it's not particularly helpful when making an investment decision." One group that doesn't rack up any air miles visiting company sites are technical analysts. Technical analysis is a method of evaluating stocks through statistics generated by market activity. "Visiting a company will allow an investor to get as much information as the company will disclose," says technical analyst Ron Meisels. To make his point, Mr. Meisels cites the recent selloffs of Bombardier Inc. and Jean Coutu Group (PJC) Inc. stock for no apparent reason. Fundamental analysts would have had no insight into what was coming by visiting the facilities but technical analysts would have noticed that both stocks broke below their 200-day moving averages. "Watching the price behaviour of a company often gives an early warning of a significant change that is about to happen," he says. Technical investing certainly has its merits when it comes to returns. On Dec. 1, 2005, Mr. Meisels made Desert Sun Mining Corp. one of his Market Call picks at $2.38 a share. The stock traded at $7.67 a share last April 7 when Desert Sun was acquired by Yamana Gold Inc. During that time the stock appreciated 222 per cent. Mr. Meisels made his decision on Desert Sun without setting foot on company property. And to drive his point home that the come-see method of stock analysis is flawed, Mr. Meisels points to the legendary Bre-X fraud, where investors and analysts were brought to within 100 kilometres of a supposed gold mine in the Indonesian jungle and shown supposed samples. We all know how that story ends. Dale Jackson is a producer at Report on Business Television. globeandmail.workopolis.com -- © The Globe and Mail.