ACCUMULATE!

By Dr Russell McDougal

Speculating in resource exploration stocks requires a vastly different approach than traditional investing in the markets. But you can learn this approach, modify it as desired, and incorporate it to achieve maximum profit potentials.

Let’s take an interesting detour first and then return to the fascinating topic - speculation.

Twenty years ago, I was made aware of a survey that asked 75- to 80-year-old men and women what they regretted most about their lives. Profound question, no?

The most common response can be summed up as follows: “I played my life too safe, never really taking any chances or following my dreams. In essence, I failed to fully live my life.”

This simple query of the older generation literally changed my life. I vowed to never find myself late in life having to live with such regrets. This decision has subsequently impacted every aspect of my life - personal, professional, as well as financial.

Yes, speculation was definitely part and parcel of that decision. It could mean something entirely different for you, however, as each of us must determine our own tolerance for risk.

Exactly which stocks should we accumulate? Wall Street will tell you that you must have diversity within the portfolio to avoid risk. Famous global investor and author Jimmy Rogers advises otherwise, as discussed in a Larry LaBorde article on 321Gold.com:

“Jim Rogers (www.jimrogers.com) said diversification was something invented by stock brokers to protect themselves. He said the best way to get rich is to put all your eggs in one basket and then watch the basket. Invest in commodities such as: grains, metals and oil.”

You are thus much better off taking a specialization approach with funds allocated for speculation. It is strongly recommended that you rely on some form of professional advice as to what positions to take and when to sell them. Trusted sources will be your greatest ally. Bad advice can be exceedingly costly.

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It is also recommended that you own only those positions that you can closely follow. For some, this might be as few as six. For others, 20 or more. Learn as much as you possibly can about each company and get in the habit of talking with company representatives.

Once you know which companies you want to buy, another tenet is acquire as many shares as you can as cheaply as you can. Buy predominately companies that adhere to the project generation mode. Thus you will have maximum leverage as well as staying power with your “lottery tickets.” Own enough shares of a company to make a significant difference in your portfolio should that particular stock outperform.

How about using stop losses? Frankly, when stocks are capable of turning in a five, 10, or more times return, they simply must be allowed some downside volatility as well. Pick your company and be prepared to happily average down if you see prices go lower. This is the Buffet approach advocated a long time ago.

There are likely more market price anomalies to be found in the resource sector than any other market niche. You want to recognize them and take advantage accordingly. Do not second-guess yourself when the entire precious metal or resource complex is selling off en mass unless something has changed fundamentally. The same guidelines apply to a particular company.

Will you end up being wrong on occasion? Absolutely. It’s called a tax loss. Overall, though, the pedal-to-the-metal approach should serve you well.

Remember that bull markets end with the precious metals on the cover of Newsweek and broad public participation. You’ll know by developing your Frothometer {link to Keep an Eye on Your Frothometer}. Until then, you can identify market anomalies and accumulate. The end of the bull is still nowhere in sight.

It requires patience to be a value investor and even more patience to be a value speculator. In fact, it requires more patience than most participants in these markets have. That is exactly what makes speculating in resource exploration stocks so appealing.

How about using technical analysis? It’s a great tool if you have such expertise, and the technicians among us are to be admired. Still, no chart can tell when a particular company is about to make a discovery, and exploration is largely discovery based.

Bottom feeding is an art form and is highly recommended in this sector. Even the pros are susceptible to the disgust factor and sometimes give up on a company exactly when they should be buying. It is wise to follow a lot of companies (I track around 100) and continually be on the lookout for perceived bargains as well as new opportunities.

We are in tax-loss selling season right now and there are always numerous price anomalies to be found during this particular window of opportunity.  It’s a good time to employ these buying strategies.

In summary, your best money will be made in the buying and your greatest leverage will be in applying accumulation techniques.

Invest Resourcefully,

Rusty

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Market Watch

The Doomed Dow

By Charles Delvalle

The art of technical analysis relies on strict buying and selling rules. That’s why I had no technical reason to sell the Dow Jones short even though I felt that it was in a rally it could not sustain.

My rule went like this: I’ll bet against the Dow if the price falls below the 20-day moving average for two or more days.  Why two or more? It keeps false breakdowns or breakouts from messing with your investment.

This rule kept me from being burned when the Dow Jones penetrated its 20-day back in early November. And it is this same rule that dictates whether I should bet against the Dow Jones today.

The Slow stochastic tells me that there is plenty of potential downward movement, so it’s likely that the Dow Jones will continue its slide lower.

But I’ll wait until the Dow has stayed under its 20-day for two or more days before I make any trading decisions. And I suggest you do the same.