A short article to go along my recent interview with friend, colleague & FF opponent of the weekend, Trevor Hall
Where to start looking
1. Related stocks – From the stocks you already hold;
- You can look for other regional players in the area
- Other companies where BoD or mgmt is involved
- There often is a “peer group comparison” slide
2. Conference attendees
Just this week SOAR Financial held a virtual conference with 10 companies presenting their company in 15 minutes each. I have a position in three of those stocks, so I found it wise to make some time to hear the other stories as well. Interest by association.
3. Fellow Speculators
While this ‘income stream’ takes a lot longer to build (who can I trust?), once you make some connections (it could even be as a passive reader/follower) you can learn what they are looking at and refine your own research methodology. After a while, you’ll see with whom your own investment style aligns the most (risk appetite, trade vs buy&hold, position sizing, trimming, geographical interest, etc.). The power of leveraging select people’s due diligence can’t be understated for this first filter. I can build up a relationship with 1-10 CEO’s and share some comments occasionally, if I find 10 others for similar interesting stocks, I’ve access to 10-100 mgmt teams just one connection away.
A comment I get a lot “when this, that, and that guy are talking positively about the same stock, the seed is planted, the stock goes on my watch list”
4. Breaking news
Finding “breaking news” isn’t the difficult part, it’s reading, understanding and deciding if it’s worth a/ an immediate stake (last example: Kodiak) b/ Short follow-up c/ Nice, but not for me, enjoy the ride d/not so breaking after all. Here it could be helpful to know which fellow speculator’s to ask for their opinion (or follow their comments). For Kodiak, I had no less than five good sources jumping on the news, so I knew I was in good company. (NO substitute for forming your own opinion).
Layer 1 – What to look at
You got some tickers on your watch list, now what? The basic due diligence, in reality this could make me spend 1 (red flags) to 60 minutes (interesting). I’ll keep it short as this is nothing new.
Asset – Ownership level, potential prize size (target dimensions strike length, depth &width), location, previous field work, recent results, etc.
Team – Mgmt. & Bod – Appropriate track record for this asset (location, commodity, deposit type, experience & success), ambition & market savvy
Structure – Who is in it with you, what’s the recent supply-demand? Is there a recent seller feeding the market, subduing the price? Is the order book balanced? Are their any shares becoming ‘free trading’ anytime soon? How was the last financing set-up (timing, amount, warrants, participants)
Layer 3 – Deeper due diligence
Those companies that survived your initial “layer 1” filter end up on your second watch list.
Reading through the entire website, past news releases, dive into Sedar documents, history of the asset, warrant situation, G&A spendings, local articles (opposition?), past financing details, basic TA, etc.
One eye on value, one eye on potential (buried) red flags.
Layer 2 – Markets & portfolio allocation
Timing – All is well, but should I own it TODAY?
Often neglected as in “If I really like a company, I hit the ask.” Even if this is often in tranches, i want to take it a step further under impulse of Luc Ten Have and Gold Ventures.
It’s often cheaper to pay more when certain milestones are achieved & risks reduced. The risk:reward ratio is at play here. If the risks is reduced the potential reward reduction should follow (higher SP), if not, it’s often cheaper value-wise to buy AFTER the de-risking event. Easy to write down, hard to value in the moment.
One personal example: When pitching Regulus resource to a more seasoned speculator, he told me plain and simple, “Good company but complex, i’ll look at it again when they start drilling their main target” (so after the financing & permitting risk is mitigated). It saved him from 2 years of non-action (SP wise, excluding the COVID dip)
On a broader note, does this new pick fits into my portfolio? Commodity exposure, Country/Region, Expl/Dev/Producer, Market Cap size, etc.
I’ll leave it here as the weekend is knocking on the door and it brought beer,
Cheers, Pete
Excellent advice. And concisely written which is nice. Well done and thank you! I found the reverse type is hard on my eyes. I believe your readers would prefer black type on a white background. Worth checking.