Venturing Forth To Learn About Investing

I recently attended the International Metal Writers Conference in Vancouver, which is put on by Cambridge House. This organization was founded in 1993 by Joe Martin and is now overseen by his son, Jay. The focus of the gathering is on junior miners, almost exclusively on the Venture exchange. They normally have a few of these gatherings every year, including Toronto and San Francisco.

Given that we do not dabble in the Venture, several people asked, “Why are you here?” Besides the hope of signing some subscribers and selling a few of my best-selling books, Joe and Jay have always put on a great show. The gathering always has a number of excellent speakers. Some include Brent Cook, David Erfle, Mickey Fulp, John Kaiser, Peter Schiff and yes, even yours truly, Benj Gallander, and over 30 more. Much of the discussion centres on gold, silver, lithium, graphite and copper and most of these people have much greater knowledge than me in this field. Getting out there in a world that one does not normally spend much time in offers a tremendous opportunity to keep learning.

Most of the attendees are commodity bugs, with gold being the major attraction. People rhapsodized on how they love the action in this sector and no question, companies in this domain can gyrate swiftly in price. A gain of 50+ per cent in a day is not uncommon. Granted, sometimes that means a stock jumps from eight pennies to 12 pennies, but still, that is the equivalent return of a company going from $8 to $12. Oh yes, sometimes their valuations drop like a stone.

While our methodology seeks out companies that have been around for 10+ years but are currently having difficulties, there are many ways to make money in the stock market. In this land of resources, some enterprises do it by discovering properties and either selling them or bringing them into production. Others purchase promising assets and develop them. Of course, this land of the penny stock is also littered with corporations that are not playing much more than a shell game, with speculators effectively forking over money that goes into salaries rather than the drill bit; buyers must be very wary as promoters are rampant.

One gent of this ilk explained it this way a few years ago. “I dress up a company, put it in a mini skirt, make-up and lipstick and then I pimp it out.” Uhm, sure. Ultimately at the end of the day he has had some real success stories. Other enterprises though have been absolute stinkers. One could go as far as to think of them as frauds.

Attendance at conferences like this ebb and flow with the world of commodities. When gold miner Bre-X looked like a find for the ages before morphing into a major fraud, people were flocking to gatherings like Cambridge and PDAC, the latter being the largest mining conference in the world, which happens in Toronto every March. Alas, when this deception was discovered and gold prices were sheared, attendance plummeted.

Lots of the enterprises at Cambridge’s gathering have $0 revenues. One of the major dangers, therefore, is the possibility of dilution if they want to bring a mine to production. That is why we choose to wait until these enterprises have sales before we’ll dive in with our capital. That metric is key to sorting the wheat from the chaff and dramatically reducing risk.

Another way is by following people who have already had triumphs in the commodity patch. Lightning in this sector can indeed sometimes strike twice and even more. Choosing to follow those with a good pedigree can dramatically increase the chances of success.

Times have been harsh for junior miners. At this event, there were still over 100 companies shining up their wares, although many that would have had their own booths in the past have teamed up with other small fry to share. Other enterprises have shaved the size of their stands since cutting expenses has been critical to their survival.

But it is worthwhile to note that over 600 enterprises that were once fledglings on the Venture, now make their home on the TSX. For those who need more convincing that sometimes big returns can come from the Venture arena, about 20 per cent of companies on the S&P/TSX composite index are alumnae of the V.

People regularly ask us at Contra the Heard what to do to improve their investment returns. We suggest that they read widely. Getting out and talking to people at conferences like this is also on our learning list. Though given our methodology the odds of discovering an enterprise here to invest in is much like looking for a needle in a haystack, people with different strategies might indeed find some gold in them thar hills. Certainly, many people have fattened their bank accounts heartily by focusing on this arena and playing it well. Even if they do not, they are bound to learn something, which will help them in other market forays.

Benj Gallander, MBA, Co-editor of "Contra the Heard", Toronto, Ontario. Email gall@pathcom.com.