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Investors who bought at the peak of the frothy commodity rally are now panicking or kicking themselves. Neither activity helps an investor or trader to think straight. Below are a few tips to deal with the current market shakeout.
1. If you believe you are investing in the right stocks, turn off your computer and do something enjoyable. Exercise is a great stress reliever. The market has already started to shake. If you haven’t been stopped out or put a stop earlier, your best opportunity is to buy additional shares at a much lower price. Most experts we interviewed say the next rally should start sometime between late July and Labor Day. In a conversation with uranium guru James Dines at the end of May, we were told, “Call back in a couple of months.” This was a useful hint that the markets were not very exciting. Mr. Dines is usually eager to be interviewed, but he has not been interviewed recently.
2. Do you believe that the fundamentals that caused the commodity boom have changed? If not, then the rise is just taking a breather. We don’t see a fundamental change in the markets. Russia still wants nuclear power and oil production may be peaking. China has not announced the end of its nuclear expansion program. India wants to spend 40 billion dollars on new nuclear reactors. If you are invested in uranium stocks, spot uranium rose another dollar last week to $45/pound. The bull market is far from over.
3. If you are concerned about your investment in this or that stock, stop following the stock label and focus on the company’s fundamentals. Is the story still true or has it changed? See 7 points A, B and C below.
4. There is an old cliché: Buy time is when you want to divest everything you own in the category. At the moment when you want to sell your entire portfolio of uranium stocks, it may be wiser to add to your holdings. This is especially true for individual investors. Most of the professionals sold at the top and are now slowly accumulating shares of the naive who waited until the crash to start selling.
5. Has a major, earth-shattering event occurred? The last bull cycle in uranium ended with Three Mile Island (TMI). The last good rally in the precious metals markets fell off a cliff after it was revealed that Bre-X Minerals had committed fraud over its gold ‘discovery’ in Indonesia. Something important and newsworthy always comes out and it is also far-reaching. That is the trigger. As with TMI and Bre-X, these were the first shots that started the chain reaction that would later end these bull markets.
6. Ask yourself before pulling the sell trigger: Do I really want to give these shares to a bargain hunter who will make a killing on my losses?
7. Since most of you will still be in a panic, please review the following basic information for any of the uranium companies you have read about:
A) How much cash does the company have in the bank? Cash is king during shakeouts. Forward-thinking companies that have completed their financing during the recent and strong rally are comfortable. They can weather the short-term storm and are well-oiled to move forward when this correction bottoms and reverses. These companies are the strongest companies to check when this correction looks bleakest.
B) Has management stayed the same? Unless senior finance and/or technical staff have been shown the door in recent weeks, the story probably hasn’t changed much. Companies that build a strong technical team are resilient and strong. They will continue to move forward.
C) Have the properties dried up? One of the reasons you invested in a uranium company was because it announced that it had “pounds in the ground”. Some companies have more than others. Some have gone to the expense and trouble to complete National Instrument 43-101, which independently verifies the quantity and quality of the uranium resource. If that changes – and the company announces “Sorry, there’s nothing there after all” or “Hey, we were kidding”, that’s one thing. If you haven’t heard about it or read a news release announcing it, then the uranium hasn’t gone away or moved to a competitor’s property. It is still there.
The next time the markets go up and you feel like you’ve won the lottery, heed this biblical admonition. An old joke goes like this: “When did Noah build his ark?” The answer, of course, is this: Before it started to rain.
