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Gold/Mining/Energy : Kensington Resources Ltd. (V.KRT) * Diamond in the rough! -- Ignore unavailable to you. Want to Upgrade?

To: bob lawrence who wrote (1418)	3/28/1998 9:16:00 PM
From: Clark Kent	Respond to of 5206

Bob, you asked.... Due diligence. The buzz word of the 1990's. What does it mean in this business. You can talk to the IR people, the company president, the president's secretary, the barber who cuts the IR persons hair,you can even visit the site where the work is being done. But if the play is a scam all your DD is worth squat. The following is with thanks to Eric Lyseng, June 1997....... DUE DILIGENCE Hi Robert et al: I don't think dd is overrated but I think the term means more to some people than others. Many think that understanding a company's properties and prospects is sufficient dd but of course that is a recipe for disaster. We've all stopped counting the number of mining and exploration plays that have tanked even though "I know they have the goods". To me the geology, history and stage of exploration of a property is only about 40% of the equation. I place much more emphasis on a combination of many other factors: - stage of the promotional cycle - it's chart, some basic TA trends and recent volume - finding out the company's insiders and players, their past history, and when they are buying and selling - review all news releases over the past 12-18 mos. along with price action before and after release - past and current newsletter coverage - this can be very indicative of the stage of the promotional cycle and when to expect a distribution phase (i.e. high volume/rapid climbing price over a short period of 2-5 days followed by quicker selloff and declining price) - comments of friends and contacts in the investment business. Once in a while somebody knows something which might warn you about staying out of a particular stock which you had not uncovered. NEVER buy based soley upon what a "friend" says, or even worse what an investment newsletter hypes. - use Canada Stockwatch to monitor trading activity (trade w/s) over the past 6 mos (min) and recent activity. Know which houses are the players for your stock and know when they are buying and selling. Don't fight the Yorktons and Canaccords of this world. If they want a stock to go down and they comprise over 30% of the selling volume then what chance has the stock to go up in the short term? Sometimes you might even get to know which houses major shareholders or insiders trade through. - Don't fall in love with any one story or stock. Don't allocate more than 20% of your speculative investment dollars to any one stock and always take out your initial investment whenever possible. I usually follow the basic advice of cashing in 50% after a double, but lately have been cashing in more like 70% after 30-40 % gains. Liquidity is very important in these times. Many of the stocks we're playing with right now will not be around in 12-18 mos because the volume of all spec. stocks has gone down 30-50%. Even what you think are the "safest" mining and exploration plays will experience pullbacks and re-entry points. The market seems to be stuck in this "sell on news" trend where regardless of how good results are the market's expectations were higher and the pros are shorting into results driving prices down. - Know mgmt of the company, their past and other dealings at present. With strong mgmt you are not guaranteed of success but without it I have learned the hard way that you have very little chance, regardless of the potential. - Perform adequate financial analysis and read recent annual reports to understand the company's working capital, commitments, share structure and rate of dilution, what their non-exploration expenditures are per month or year, etc. You don't want a company wasting too much non exploration funds but you like to see adequate promotion that gets results when they want them. - Know the area play you are investing in. Has it had past or recent success making it a hot area? Is it dead (i.e. Indo) because of recent failures or political problems? What other companies are drilling in the immediate area and what success or stage are they at? Follow the bigger players in your area play because they will often have a trikle effect on your stock when they have results. Know what seasons your area typically drills and when they are shut down for winter, rainy season, etc. Nothing drifts a spec. company into a dormant shakeout faster than a prolonged period of no activity. There are probably many more examples of what dd means to others and I likely have missed some key steps that I perform. I have made huge profits by not performing all of the above steps and I have lost bundles even after performing extensive dd. That's the nature of this beast. I still improve my odds of eventual success by knowing as much as possible about all aspects of my speculative plays. This is what that overused phrase dd means to me... You can also try this helpful SI post..... techstocks.com