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XMFSinchiruna (27.47)

Compelling PM MicroCaps Series, Volume 1: Prelude

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63

March 25, 2011 – Comments (13)

My regular readers are aware that I've been whispering about a few pm microcap stocks recently that I consider particularly compelling. Before diving in to the first of this series with a discussion of a specific company, I would like to take a moment to lay down something of a conceptual framework regarding this category of investment vehicle.

For starters, you will find that the language I employ in encouraging Fools to research these companies is distinct from the language I employed with respect to imminent breakout plays like Great Panther and Copper Fox. In those instances, I had pinpointed immensely powerful catalysts to drive those stocks dramatically higher, but which had not been properly taken into account by the market. In those instances, I just wanted Fools to get long, and quick. Many of you I'm sure are glad you did.

These are a bit different. I view the opportunities here as sufficiently compelling to warrant careful research and discussion, but a number of factors result in a suggested role in one's pm portfolio that's a little different. For starters, understanding the risks is paramount. These are small companies, generally lacking in any significant revenue streams, trading (for U.S. investors) as unsponsored pink sheet proxy shares, for which the indentity of the issuing authority is apparently unknown even to the relevant transfer agent. Liquidity is often very low, potentially causing confusion and frustration regarding entry points and selling results. Anyone purchasing these stocks must first conduct all necessary due diligence regarding the nature of the risks involved.

With that said, I feel that a smattering of well-selected microcap pm exposure can add an exciting element of high-octane upside potential even with relatively modest exposure. When I purchased Copper Fox at about $0.40 in 2006, and especially when I doubled and tripled down at about $0.11 during 2009, even a modest outlay of initial capital offered access to a meaningful stake in the sort of scenario that saw its stock explode as it has begun to do. What we're looking for essentially is the next Copper Fox type of experience. As with a higher-stakes gamble in Vegas, not all of our picks are bound to prove winners (a Copper Fox doesn't come along every day). The idea is that by carefully selecting a small set of these high-stakes plays, we increase our odds of having one or more Copper Foxes in the bunch. Take it from me, when properly played, it only takes one Copper Fox or Great Panther to yield a meaningful positive impact upon an investment portfolio. And again, as with any high-stakes gamgble, each Fool is reminded that allocation must be limited to that which is strategically earmarked for such speculative activity. I don't want to hear about how someone bet their retirement on a single microcap pm stock and lost most of it on a single strand of unfortunate news (Northern Abitibi comes to mind).

Before we delve into particular companies that I find compelling for this particular niche of a well formulated pm basket, do we all understand the groundrules I have suggested here. Do you have questions about this category of investment vehicle, the common risks involved, or what I mean by speculative capital or high-stakes gambling? Because I aim to dive into a set of non-producing pm microcap plays in considerable detail, I wish to keep future discussions focused intently upon the company in question, so I request that any and all discussion of a more general nature regarding the nature of the space, strategies, etc. be conducted here in our prelude to the series.

I look forward to embarking upon this journey with you, and to exploring the fruits of our collective research endeavours. I have my first four companies lined up for inclusion in the series, but if anyone would like to nominate their favorite pm microcap explorer, please feel free to send me an e-mail at sinchiruna@cox.net. Fool on!

13 Comments – Post Your Own

#1) On March 25, 2011 at 9:57 AM, 100ozRound (29.49) wrote:

Awesomeness - I'm in

I have a few of my own but I'm on my way to work. I hope to have some time to mention my favorites. If not today, maybe this weekend. (but it's my 5 year anniversary with my lady so it may be early next week ;- )

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#2) On March 25, 2011 at 9:59 AM, silverminer (31.25) wrote:

100ozRound

Happy Anniversary!

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#3) On March 25, 2011 at 10:42 AM, jacobske (< 20) wrote:

Sounds good.  I look forward to the discussions.

Kip

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#4) On March 25, 2011 at 12:44 PM, kdakota630 (29.58) wrote:

I can't wait.

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#5) On March 25, 2011 at 12:58 PM, traderbach (< 20) wrote:

Have been really looking at a few 'possibles' & interested to see whose research coincides w/ mine.  Also, by the way, interested to get opinion on Northern Abitibi going forward; have been keeping an eye open for news.  Didn't bet the farm but am holding.

Thanks a lot for opening this conversation!  I think many fools have been waiting for a series like this to get a community consensus on some good prospects for further research.

 

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#6) On March 25, 2011 at 1:15 PM, torpex77 (< 20) wrote:

I'm really looking forward to this.  I think I'll learn a lot.

 

Doug

 

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#7) On March 25, 2011 at 2:02 PM, catoismymotor (40.16) wrote:

I'm pretty much in a holding pattern as I develop a portfolio for the kids. That does not mean I am not eager to learn what others have to share. I look forward to it.

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#8) On March 25, 2011 at 3:08 PM, silverminer (31.25) wrote:

Thanks to many of you for your e-mails. We are generating plenty of compelling ideas to pursue in sequence after I present my initial set.

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#9) On March 25, 2011 at 5:04 PM, tdonb (28.06) wrote:

I am excited to hear what you have. I have one I am watching closely, but I imagine you will get emails on it already. If it does not appear by the end of the series, I will send a request.

I feel this may be one of the ways a small investor like me could potentially do real well.  

 Thanks

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#10) On March 25, 2011 at 5:04 PM, Speed03 (< 20) wrote:

I am with you Sinch.

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#11) On March 25, 2011 at 7:08 PM, golddlog (< 20) wrote:

Aye aye Captain, I await your order!  I understand the rules and like our chances for success.

Pat

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#12) On March 25, 2011 at 9:38 PM, 100ozRound (29.49) wrote:

Thanks Sinch!  I'm out the door for a loooong weekend :)

I hope this blog/series develops into a great discussion!

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#13) On March 26, 2011 at 11:14 AM, skypilot2005 (< 20) wrote:

Sinch,

audience participation + collective research = A great learning experience.

I just sent one over for your perusal and consideration.

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