Four Mistakes that Kill Resource Speculators’ Gains—Part 1

Mining speculation can deliver life-changing returns.

What mining executives and less scrupulous analysts don’t say is that there’s no guarantee that your life will necessarily change for the better. In fact, most mining investors will experience an excruciating loss at least once in their lives.

This is the nature of the game. Resource speculation is a high-stakes business.

Here at The Wealthy Miner, we share our knowledge and experience to increase the odds that your next investment will change your life for the better.

But before we talk about upsides, let’s clear a couple of misconceptions that can ruin your portfolio.

This is the first part of a two-part series.

Misconception 1: Penny Stocks Are Cheap

A lot of early-stage resource juniors trade at share prices below $1. That’s why they are called “penny stocks.”

(There is no single definition of a penny stock, but $1 is one of them. It’s useful for our purposes.)

Trading at such low prices, they look cheap. And it’s not too difficult to understand why. It’s easier to imagine a company’s share price going from $0.50 to $5.00 than from $500 to $1,000.

The dollar difference in the first case is smaller than in the second one.

But investors should think about returns, not absolute values. In the first case, we’re looking at a 10x return. These are rare. In the second one, it’s “just” a double. Still hard to pull off, but not impossible.

A cheap stock isn’t the one that’s trading for pennies. It’s the one that has powerful catalysts that the market has been ignoring.

When it comes to resource juniors, the catalysts are more or less well-understood. A discovery, for example, could add massive value to a company. A strategic investment from a potential commodity buyer is a vote of confidence. A change in environmental law is great. Soaring demand for the commodity the company is looking for or producing could provide a powerful tailwind.

But without a catalyst, there’s no upside. So a $0.50 stock could actually be expensive—or overvalued—compared to its catalysts, because they are either weak or non-existent.

A resource junior with no cash in the bank and an untrustworthy management team with a track record of failures may not be worth much at all. Its fair value is zero.

This is why, here at The Wealthy Miner, we don’t look at absolute prices. We compare them to the value the company can realistically create and start our research from there.

Misconception 2: Trends Are Your Friends

If you invest like everybody else, you’ll get average results—at best.

Investors who want to get outsized returns should look for opportunities where the rest of the market doesn’t.

But the market is great at generating buzzy trends and highlighting success stories.

Take critical minerals. It’s a buzzword description of a huge list of commodities at this point. The list includes copper, lithium, rare earth metals, and others.

Occasionally, you hear a story that, for example, the US government has invested in a lithium producer, and its stock soared.

Does it mean that you should buy it? Should you look for other lithium companies?

Yes and no. The critical minerals trend could work in a company’s favor—but only if it is already a good investment. It needs to be a solid, well-run business. Then, if it happens that a company fits into a trend, it’ll get a boost. Afterwards, however, it may become too expensive. And expensive stocks won’t produce outsized returns, as a rule.

A trend could go against your portfolio if you invest in bad companies, hoping that the rising tide will lift all boats. It won’t.

What investors forget is that rising tides lift only those boats that don’t have holes in them. If they do, they go underwater immediately.

This is why trend-based investing is tricky. Of course, it’s better to look for stocks in high-demand industries and sectors. But there are no shortcuts. You still need to either do your own due diligence or rely on experts’ work. Otherwise, trends could send your portfolio deep underwater.

Resource speculation can be life changing. The Wealthy Miner is here to help you make the right calls and get the changes you expect.

We will continue talking about ways to protect your portfolio and increase your chance of making a winning bet in the next post.