Mining Stocks – Swing and a Miss (It Happens… Accept It!)

baseball-1

In the great game of baseball, when you get to the big leagues, even the best players on the planet accept the fact that it is impossible for them to reach base every single at bat. No, instead, you just do the best you can to make solid contact and put the ball in play…

After that, you just let the chips fall wherever they may…

In a sport all about percentages and probability, the reality is this — If a batter can manage to successfully rack up a base hit even just 3 times out of 10, they are in the upper echelon of hitters in the league. In fact, a .300 batting average is so freekin’ good, any player who can consistently manage to pull off that feat over the course of a single season has extremely good odds of ending up in the All-Star game

Take that same type of performance and extend it out even further in time, and a career batting average of .300 over the course of a decade plus might even be solid enough to put a player in the Hall of Fame

Yes, it is that damn difficult to get a base hit!

How about 4 out of 10?

A .400 batting average throughout the course of an entire season is so rare (and incredible), that no player has managed to achieve such a feat since Ted Williams in 1941.

 

On this day in 1941, the Boston Red Sox’s Ted Williams plays a double-header against the Philadelphia Athletics on the last day of the regular season and gets six hits in eight trips to the plate, to boost his batting average to .406 and become the first player since Bill Terry in 1930 to hit .400.

 

When it comes to the game of baseball, you are considered mightily successful if you can record a base knock just once for every two times that you fail to reach base!

So, as you can see, when a player analyzes the percentages and accepts the facts for what they are, you’ll understand why almost no ballplayer freaks out and has a panic attack if they record an out during the course of a game…

 

It happens… You just gotta roll with it and try again next time.

 

When it comes to mining stocks, the Game of Rocks is really not all that much different than baseball… Particularly, if we are talking about speculating on early-stage exploration stocks, where we have high hopes that these individual companies that we are throwing money at will be able to hit the motherlode and find an immensely high quality and valuable orebody.

Just like with baseball, the odds of success are low… Excruciatingly low… If you thought that getting a base hit 3 times out of 10 was crummy, consider this — The odds of any grassroots project going from initial discovery to production is somewhere in the neighborhood of 1/5000 (or lower, depending on your source)…

.0002 batting average!

You might as well go buy lottery tickets, instead… Well, maybe the odds of finding a good mineral deposit aren’t quite that bad, but you get the picture…

With these mining stocks, no, there are no “hard and fast” rules that dictate that you have to hold these positions all the way through to production… You can sell them anytime and book profits along the way on any up days (e.g. positive news releases), or sell partial positions to reduce your cost basis and/or take “free rides”.

But nonetheless, any investor/speculator who is daring enough to play the Game of Rocks, really needs to accept upfront that they will NOT be successful in every endeavor that they partake in… That’s just the reality of the situation, and the sooner you come to grips with that fact, the better off that you will be.

As always, I like to use real-life examples to illustrate what I’m trying to say…

Earlier this morning, one of my favorite early-stage exploration stocks, Alicanto Minerals (AQI.AX) got whacked to the tune of -19.48% off the heels off some pretty piss-poor initial drill results at their Arakaka Gold Project in Guyana.

As of market closing, October 4, 2016.

screen-shot-2016-10-04-at-5-32-42-pm

Along with some other readers of this blog, we were all anxiously awaiting the drill results… Well, we got them, and once we finished reading and processing the news release, we knew that the market would most likely be merciless with its judgement.

Brace yourself, it won’t be pretty…

And it wasn’t… Today was a nasty day for shareholders of AQI.AX, but again, you win some and you lose some…

There’s absolutely no need to get emotional about the outcome… As I stated last month, AQI.AX was one of my best conviction ideas, and when I tried to look at things from a risk vs. reward perspective, just as I believed it was true then, I still believe it to be valid now — Alicanto Minerals presents a lot of upside potential for the risks involved.

With that said, we should also never forget that when it comes to investing/speculating, there’s no such thing as a sure thing

As a consequence of the smackdown, here’s how the overall performance of my ASX-listed shares are doing now.

As of market closing, October 4, 2016.

screen-shot-2016-10-04-at-5-33-14-pm

Ouch!

Talk about some pretty dismal performers, all across the board…

  • Altura Mining (AJM.AX)… Swing and a miss!
  • Pilbara Minerals (PLS.AX)… Swing and a miss!
  • Volt Resources (VRC.AX)… Swing and a miss!

I struck out three times!

The amusing thing (at least to me, anyway) is that those three punch outs are on more mature, development-stage lithium/graphite stocks… Not early-stage exploration!

You would think my odds of success would be enhanced going that route, but as usual there are no free lunches — The caveat with development-stage projects are that the market re-rating has already taken effect, so if you’re going to get in, you need to do so at opportune times (e.g. on sharp pullbacks, not when the sector is soaring)…

So, in a sense, yes, the same “hit or miss” psychology that is needed to play the early-stage exploration game can also be applied to development-stage projects as well…

With AQI.AX, luckily the damage done wasn’t too catastrophic (relative to my own cost basis), so as of now it feels more like a… sacrifice bunt to move a baserunner over to 2nd base…

Compared to my other more recent failures, AQI.AX (the dog of the hour) ain’t exactly doing too bad!

As for my sole success story so far with ASX stocks? Birimian Limited (BGS.AX) has been my only base hit, a line drive double!

1/5…

.200 batting average!

Not even good enough to earn a role on a team as a bench player…

Hey, I’ll gladly take it at this point in time!

But that’s how the story goes… Just like I tried to illustrate with the baseball analogy, more times than not, you are going to make mistakes and lose on your bets. Despite all that, the Game of Rocks can still be worth playing; there’s an interesting saying that is often cited to justify all the failures that we will incur along the way:

 

“Your winners amortize your losers… To such a degree, that the total return of the overall portfolio can still make the venture a successful one.”

 

In my own case, I’m up 20.53% on my ASX-listed stocks… No, I didn’t launch any moonshots out into the stands… But despite all my blunders at the plate, I’m still doing half-way decent…

 

Anyway, like always with this blog, I feel like my flops provide far more valuable lessons in investing/speculating for readers, and today’s debacle helped set up a perfect opportunity for me to address this most important topic.

 

For the record: I still have strong faith in all the stocks cited above… Although many of them have been beat up, the underlying fundamentals remain strong, so I am more than content to hold out for Better Days.

As it pertains to AQI.AX, I will admit that the first round of drilling was extremely disappointing, and I was expecting much better… Since I am very much close to break-even on this holding, I may close out the position and move the funds over into a less speculative gold/silver stock… I haven’t quite decided just yet…

No, this is not an emotional decision at all! With AQI.AX, I still really like the potential long-term (although I’m obviously NOT as enamored with the story after today’s drill results), but accept the fact that today’s news release may cause the stock to trade range-bound over the short/medium-term (trapped capital)…

Further, with the recent pullback across the entire gold/silver space, I’m seeing lots of good deals pop up in the mid-tier producers space (which I wasn’t locating last month)… For any new readers to this blog, mid-tier producers are the “bread and butter” foundation of my mining portfolio… Sure, I like to speculate on early-stage exploration companies here and there, but these positions don’t make up the crux of my holdings.

More details may follow… Just keeping it honest, guys…

 

And that’s how the Game of Rocks goes…

 

Fight On!

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No Nonsense LandlordKerryRudy SMT Recent comment authors
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Rudy SMT
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Here my story: Last week I put in an order for Volt, but I missed it. The next day it was down 10%. I was ready to buy Alicanto, and today, boom. I’m ready to buy UUUU, just waiting for some volume up movement to initiate a position (thanks, Jay to bring it to the attention). I’m not a contrarian investor as Jay, but a trend one. It’s all about personality, and both can do very well. I’m studying the coal market at the moment which in my opinion is very exciting. I believe it has reached a bottom and… Read more »

Kerry
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Kerry

What has happened to this website? It’s like a blog now for gamblers. If I see a post for ‘winning strategy at baccarat’ I’m done.

No Nonsense Landlord
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When you are dealing with penny stocks, there is a high risk. Not just in the performance of the company, but also some significant shareholder risk. The company could go broke, not have enough volume to trade, the CEO runs off, etc.

You definitely have more guts than me, and of course more time to recover.

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