Investing in Mining

The common-sense rules of investing are as true 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 of this book closed a discussion of investing with the words, above all else, investigate before you invest. It was true then and it is true today.

Investing in large mining companies that have a number 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 compel 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 established mining companies, 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 economy recedes and stock prices fall.

Investors laugh when they are told the old rule, “buy low and sell high”, as though the advice is so obvious it needn’t 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 seek out stocks that are not widely recommended — after all, if every one is being told to buy Acme Widgets, demand will force its price higher. Forget Acme, and look for a better buy elsewhere.