Canada's next Gold Rush

Vancouver is home to many of North America's newest and brightest mining companies, and at last  weekend's Stocks 2011 Conference, mining companies were well represented.

Talk to anyone about mining in Canada, and inevitably the conversation will turn toward the excitement about Canada's Yukon territory, which some say will spark the next great gold rush.

The Yukon Territory is, many believe, the location of a massive Carlin-type gold discovery.  Traditionally, hard-rock miners looked for veins of quartz or minerals that can indicate the presence of gold.  In contrast, a carlin-type deposit is composed of extremely fine-grained particles of gold, stuck to other minerals (such as pyrite) and spread deeply throughout a large area.  Carlin-type gold can be mined cheaply by large open-pit mines.

Kaminak Gold (TSX: KAM), for example, has hit upon a large area of mineralization (trendily dubbed the "coffee project") with mind-blowing numbers, ranging from 1.08 to 17.1 grammes per tonne over an area 14 kilometres long.

Companies like Kaminak Gold, Northern Tiger, Golden Predator, ATAC, and Ryan Gold are all generating excitement, sitting within the Carlin-zone.  This December to January, soil sample results from last summer's prospecting will start rolling in.  If results are as good as expected, the whole area (and all the junior miners in it) could be caught in a speculative frenzy.

Make no mistake - junior gold investments are really educated gambles.  But, when the risk-reward ratio is in your favor, gambling is sensible.  As always with speculative investing, risk not a penny more than you can comfortably afford to lose.

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"It is in men, as in soils, where sometimes there is a vein of gold which the owner knows not of, and in your nature, there lies hidden rich mines of thought and purpose awaiting your development."

Jonathan Swift

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See also:
http://www.kaminak.com/

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Disclosure

Do not buy stocks, or take this or any other financial advice without doing your own analysis; including, but not limited to: reviewing business models, financial statements, management style and philosophy, recent developments, market macroeconomic analysis, and chart analysis. If you do not know how to do these things, you shouldn't be buying stocks in the first place. Seek the advice of professionals, as appropriate.

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Occupy Vancouver – No Party

While attending the Stocks 2011 Conference in Vancouver, Canada (more on that later), I decided to stop by “Occupy Vancouver,” an offshoot of the Occupy Wall Street protests occurring in NY and elsewhere.  I expected to see a party.

From what I can tell, “Occupy Vancouver” is basically a large collection of dirty tents and cardboard huts resembling a refugee camp.

When I first showed up at 10:30 am, no one was awake yet.  When I came back several hours later, I didn’t see unemployed accountants or disenfranchised schoolteachers; instead, I saw a small group of professional protestors – the same raggedy-looking, unshaven youth who show up at G7 meetings and WTO summits.  I also didn’t see any protests.  The few people who ventured outside their tents were clasping cups of soup with both hands, attempting to keep warm in Vancouver's cold and wet winter weather.

A security guard on site told me that he believes “Occupy Vancouver” will soon fade because the protestors are not having fun anymore - many look tired, and more still are developing colds and coughs from walking around barefoot on muddy ground.

When I told the security guard that the protest site looks like a garbage dump, he replied, “When rats come, of course that’s what it looks like.”

No agenda, no demands, no conclusion…how long can this last?

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“Welfare's purpose should be to eliminate, as far as possible, the need for its own existence.”

Ronald Reagan

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How to Invest if you are Worried about Losing Money

These days, many are tired of the crazy gyrations of the stock market, and worried about losing their savings.  How do you invest your money and still sleep at night?

This article gives the most common options for investing hard earned but frightened dollars, ranked from worst to best.

5.  High-Interest Savings Accounts

Worried investors love the idea of savings accounts because they are guaranteed by the government (up to limits), because the money can be taken out anytime, and because you don’t have to make any future decisions – just leave the money there.  However, savings accounts always pay far less than the rate of inflation – usually 3% less.  For example, if the rate of your high-interest savings account is 1.5%, the inflation rate for the same period is probably 4.5%.  So, you are actually losing 3% of your purchasing power for every year you keep your money in the account.

If you invest $50,000 in a savings account and keep it there for 2 years, you appear to have $51,511.  But in fact, the purchasing power of your money is now worth only $47,045.

No one should leave money in a savings account unless it is for a few weeks or less.

4.  Guaranteed Mutual Funds

Guaranteed mutual funds are a relatively new concept.  You buy a mutual fund today that has a “maturity date” of, say, 10 years later.  As long as you hold the mutual fund until the maturity date, your principle is guaranteed!  Even if the market crashes you can’t lose your principle.  Sounds great, except that the issuer (typically a bank) can change the nature of the fund at any time.

Say, for example, you buy a guaranteed fund full of stocks and then the market drops.  The bank can remove all risk for itself by changing the holdings of the fund from stocks to safe but low-paying government bonds.  After the change, there is no hope for you to make any substantial amount of money.  You can hold this now ultra-safe fund for 10 years and get your principle back, or sell it and lose money.

In short, guaranteed funds tend to charge higher fees for their “protection, ” then screw their investors anyway.

3.  GICs

Guaranteed Investment Certificates are extremely popular because they pay more than savings accounts and feature two beautiful words – “guaranteed” and “investment.”  Some people love rate shopping for GICs, and pride themselves on getting the best rate.  Professionals consider people who buy GICs as long-term investments foolish.  That’s because GICs are designed to give rates close to the rate of inflation but not exceeding it (see option 1, Savings accounts).  So, the only thing that is guaranteed is that you will slowly lose money.

GICs are excellent for elderly clients who are unable or unwilling to understand any other type of investment.

2.  Index-Linked GICs

The best way to explain an index-linked GIC is to give an example.  Say you buy a 5-year S&P 500 index-linked GIC.  Over 5 years, the return of your GIC will be half that of the stock market, as measured by the S&P 500 (500 large US companies).   So, if the stock market goes up 25% in five years, you will get 12.5%.  If the stock market goes up 80%, you will get 40% and so on.  If the market drops, you will get your principle back.

Index-linked GICs are a great way to play the stock market for those who are too skittish to invest directly.

1.  Short-Term Bond Funds

When you buy a short-term bond fund, you are lending your money to large and reliable companies and the government, who in turn pay you interest.  Because the money is leant over a short period of time, there is little danger that a company’s fortunes will change, rendering them unable to pay you back.  And, because each bond fund holds so many companies, you don’t really need to worry even if a couple of companies do go bankrupt.  Since the bonds are short-term, you won’t lose money due to changes in interest rates (long-term bond prices go down when interest rates go up).   Finally (and importantly), short-term bond funds always beat the rate of inflation. 

For these reasons and more, short-term bond index funds are great investments.  Do not confuse short-term bond funds with more risky high-yield bond funds, long-term bond funds, or real estate bond funds.  Note that although short-term bond funds are very safe, they are not guaranteed by either the bank or the government – they are subject to the good credit of the companies in the fund.

Short-term bond funds include:

VCSH - Vanguard Short Corporate Bond Index ETF

SCPB - SPDR Barclays Capital Short Term Corporate Bond ETF

BSV – Vanguard Short-Term Bond ETF (mix of corporate and government)

So there you have it – five common ways to invest without losing your shirt, the final two of which I highly recommend.

Investing safely is a solid first step to investing, but far from the last.  To be a superior investor, you really shouldn’t be worried about money at all (something that is far easier said than done).  Ironically, the more worried you are about losing money, the more likely you are to do something silly and lose money.  For those who know they have not mastered their fear of loss, please note that I wrote a book specifically for the purpose: The Intelligent Investor’s Mind.  The link can be found at the top right of this page.

Good luck and happy investing!

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"The first rule of investing is don't lose money; the second rule is don't forget Rule #1."

Warren Buffett

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