Recent Weakness in Stock Prices
If you read the newspapers, or if you look monthly at your portfolio statements, you will be aware that there has been quite a softening in the stock market. In particular, the stock price of banks, financial institutions and energy companies have somewhat softened.
The price of juniors has also been affected, but not all of them.
Seasonality
We have previously pointed out that almost every year, stock prices soften this time of year, hence the saying “Sell in May and go away”.
Added to this seasonality are renewed fears of a global slowdown because of European financial woes, US debt ceiling discussions, real estate prices softening again in the US, and fears of inflation in China – some real concerns
Quite reasonably, investors are somewhat skittish. As another indication of this softening, we are aware of a number of recent offerings that have been cancelled, postponed, or had their amounts reduced. Offerings are the business of the Brokerages where they earn most of their revenue. This is way that companies needing capital raise that capital from investors.
Portfolios Comprised of Juniors
In reviewing our portfolio today, as an example, we found that our net value had actually risen, on a day where the TSX fell over 1%, and all markets were negative. It is true that some holdings fell a bit, but it is also true that some rose a bit.
That is one of the features of Juniors. They don’t always follow the general market.
Charting and Market Trends
Almost all observers of the market use charting and technicals as an essential part of their tracking of the markets, and as strong indicators of when to buy or sell a particular stock.
There are a large number of technical indicators that sophisticated investors use. Some of the more common are the use of MA (moving averages) and trend lines. These are just two of so many indicators and everyone has their own favorite indicators. Both of these indicators and most indicators are applied to individual stocks, to the market as a whole, and to specific sectors of the market.
One of the idiosyncrasies of juniors, is that often their stock price is not appropriate for examination by indicators and trends.
Our belief is that a junior either has an intrinsic value that will be recognized in due course, or it is a pure speculation. We look for those juniors with true underlying value, and the fact that this value is not yet recognized, makes trends and charting far less useful that with blue chip stocks. We are less interested in pure speculation, or in Junior stocks that follow a current trend or fashion – perhaps they are in favor today, and out of favor tomorrow.
A Rising Tide Carries All Ships; A Falling Tide Carries All Ships
A truism about the market is that when the market falls, in general most stocks fall. The opposite is true when the market rises. Except Juniors. In the fall today, the juniors were not a part of that fall.
The Crash of October 2008 & March 2009
All stocks took an enormous beating in those wipe-outs and juniors were no exception. They were terribly hit and many never recovered, or were forced by cash needs to sell or lose their assets, properties and rights.
In that environment, the Juniors were very badly hit.
In the current environment, we find that Juniors are holding up far better and are pleased with our portfolio’s performance.
The Risk Factor
In recent blogs, we have discussed risk and pointed out that risk exists to a greater extent in third world countries, in countries without a history of property rights and in countries without a long history of democracy.
We were recently at a conference where companies doing business in Columbia were pointing out how safe that country has become in the last five years. Five years ago, there was a long standing civil war with rebels controlling and terrorizing large sections of the country. Today, Columbia has become almost as safe as Canada, and this amazing transition has occurred in just five short years.
The following headline illustrates our comment that risk is not measured properly by investors. In Canada, there is a lessor amount of risk. In other countries, there is more risk.
Jun 8/11 Four Oil Workers For Emerald Energy Kidnapped In Colombia (djones)
BOGOTA -(Dow Jones)- Leftist guerrillas in southern Colombia have kidnapped four oil workers for Emerald Energy, which is a subsidiary of Chinese chemical company Sinochem (600500.SH), a military official said Wednesday.
