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« Lunch with the Minister of Finance | Main | Bernanke Is Making the Crisis Worse »
Wednesday
Nov242010

Doug Casey’s Secret to Finding Winning Stocks



I’ve been asked “What’s the secret of finding winning gold, silver, and other natural resource stocks?” more times than I can even begin to count. And for over 20 years, my answer has remained pretty much the same: the Eight Ps.

The Eight Ps is a relatively simple question-and-answer process we use as part of our due diligence on the stocks we consider for recommendation in our monthly newsletters. Only a small fraction of companies successfully make it through the Eight Ps screening and into the pages of our publications.

As you’ll read, the Eight Ps process is relatively simple and, with a little practice, you, too, can use them to screen any and all resource stocks you are considering for your portfolio. At the very least, answering the questions will give you a much better understanding of the true potential of a company.

PEOPLE

The first question you want answered is “Who are the key players involved with the company?”  As is the case with all human beings, some are more skilled, more honest and harder working than others. To state the obvious, Boy Scout virtues like honesty, thrift, courage, and diligence are always good traits for your management teams, as are competence, knowledge, experience and, perhaps most importantly, a track record of success.

You can find this information from a variety of sources, starting with management biographies (increasingly available on company web sites), then doing your research by talking with the managers themselves or their investor relations staff. Use a service like Stockwatch.com to research the track record of the companies that the management has been involved with previously (during their tenure, of course)... and don’t hesitate to ask your broker or even competitors what they think about the people in the deal.

Despite being a multi-billion-dollar, global business, the mining and resource industry is actually a pretty small village. If someone is a known snake oil salesman or poseur, chances are good you’ll be able to ferret out that fact with just a couple of phone calls.

In addition to trying to sort out the black hats, a key goal of this exercise is to find out if investors have made money in their past deals. Or, if things didn’t work out too well — mining is a high-risk business, after all — did the company at least make an honest attempt to “do the right thing” for their shareholders? Remember, nothing succeeds like success.

While we are on the topic of People, it is worth noting that there has been a noticeable gentrification of the mining business during the 20-year-long bear market that ended in 2001. Everyone in the business is complaining about the fact that they can’t find qualified mining engineers and exploration geologists because so many have retired or are getting ready to. It is
understandable: it would take a fairly odd engineering school graduate to opt in for what is perceived as a politically incorrect and faltering “Choo-Choo Train” industry, rather than taking their degree down the street to a more lucrative or modern line of business.

As someone who habitually looks for the opportunity embedded in just about any crisis, we use the labor shortage as a useful leading indicator by watching the career moves of the superstar mining pros. The good ones are in such demand that they can work for pretty much any company they want to… and so, as is human nature, gravitate to those projects which they
believe will provide them with the best personal upside.

Conversely, if the good people start to jump ship from a company, it may be a negative indicator. In the final analysis — bet on the winners.
----
[Though hugely important, “People” is only the first of the 8 Ps the Casey team uses to gauge winning resource stocks. To learn how to put the other seven Ps to good use for your own portfolio, click here to read our FREE Special Report.]




During our knockabout sessions we have toyed with the idea of running an Accumulator whereby we make a trade and then use the total proceeds for the next trade and so on. So the stake and any profits are rolled into the next move, if you would like to comment on this idea, then please click here.


Over in the options trading pit the team have are updating the progress chart to include closed trades, now 52 winners and out of 54 trades, having been stopped out of a trade with a profit of 41.84% made in just 9 days.

sk chart 19 Nov 2010.JPG



The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today?


Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.



To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

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Reader Comments (2)

Because there are so many changes taking place, politically, and geographically, as well as technology advances, the markets have been changing, likewise. One change which strands out is that of 'following the money flow'. Many are influenced by the proliferation of technical analysis dictates, either that gleaned by themselves, or by the equal proliferation of market analysts that the internet throws up.

What this does, since it gained in popularity, is to provide those in a position to 'manipulate', or just traders
who like to be contrarian, to watch what the technical analysis is directing strongly, then bet against it. It is an activity based on the theory, no, fact, that in the markets, the mass are always, eventually, proved wrong.

There is a considerable amount of both literal, and metaphorical, 'day trading', or we could describe very short term holding.

There will still be the 'Warren Buffet' investors controlling volumes of cash, and a network of researches, andalso with 'contacts' with 'inside to a point' knowledge.

Such as he does not seek or need short term gains. They can ride the wild gyrations of the present day markets. And the amounts of cash they play with does not permit them to jump in an out without influencing the market against them.

For the rest of us, we have, today, the wonderful ETF's. Chosen with reasonable care they are an 'insight' into a more 'user friendly' collective consensus of where money is flowing. Then, it's just a question of following the old well tested adage - the trend is your friend, so go with the flow.

A movement, fashion, market, or otherwise, cannot be a trend unless it has some 'length' and following behind it.

It can be observed, and has to be in order for it to be detected as justifying its tag. Never try to preempt one, that is gambling on guesswork. When one shows signs of weakening, or you feel you have drained its blood sufficiently, get out. There is bound to be another trend developing sooner or later.

Nothing is guaranteed to make you a millionaire, but it could help you to make less costly mistakes.

November 27, 2010 | Unregistered CommenterRay Newton

Good article Ray, well thought out and thanks for posting it out to us,Best regards
ies

November 29, 2010 | Unregistered Commenteries

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