Investing in Mining

No Substitute for Common Sense
The common-sense rules of investing are as certain in mining speculation as they are for investment in any other industry. If a magic formula existed to identify the mining ventures that would prove to be spectacular successes, every speculator would have retired on his riches long ago. An earlier author closed a discussion of investing with the words, "above all else, investigate before you invest." It was true then and it is true even today.

Investing in large mining companies that have an amount of mines and produce a number of commodities is much the same as investing in other corporations like manufacturing, utility, or banking firms. Securities law in the countries where their stocks trade compels the companies to make their financial records public; analysts, investment dealers and the financial press study the quarterly and annual results and offer their opinions. The investor can use these professional opinions to form his own picture of a company's prospects.

Anyone considering investing in the mining companies which are established, or in large established firms in any industry, should also consider whether the stock market as a whole is a good investment at the time. Many individual investors buy into the stock market when it is doing well, during a period of economic growth. It is during those times, however, that the market places a high value on shares. Buy then and you will pay a high price for stock. This creates the risk of being stuck with it or selling at a loss when the stock prices fall and the economy recedes.

Investors think it is very funny when they are told the old rule, "buy low and sell high", as though the advice is so obvious itdoesn’t have to be said. Then they pick up the phone and buy a stock that has just traded at its all-time high. An investor will get better results by buying shares when the market has been declining and prices are low. It is also wise to search out stocks that are not expandedly recommended — after all, if everyone is being told to buy Acme Widgets, demand will force its price higher. Forget Acme, and look for a better buy somewhere else.