I bought Mirasol Resouces in Febuary. This is a very new mining company and joins my other junior mining companies, Exmin, Cornerstone, Canplatts, and Paragon, the later I got as a spinoff from Rubicon. They all ave a similir business model that sets them apart from many other mining companies. Now junior mining companies are not for the faint of heart. Most go through tons of money and never develop a producing mine, and evenually go bankrupt. However those that do succeed richly reward their stockholders. It's sort of like buying a lottery ticket, but in the stock market. Lots of loosers but a few big winners. The difference with the companies that I have invested in can be compared to the lotteries. Which deal would you prefer: buying one ticket for $2 or ten tickets for $2.
Obviously you would want the ten ticket deal. These companies go out and stake claims to a lot of land that they think has the potential to contain possible new mines. They then get other mining companies to do the much more expensive drilling of the property to see if there is actually enough minerals in the ground to warrant the major drilling progrm that needs to be done before mine construction can begin. As a bonus they usually get the other company to pay for the privilage of spending the money. Of course the other company gets something in return, an interest in the property. However this is worthless unless a mine is actually developed.
With these stocks, you buy them and keep them, sometimes you may wait for years returning nothing, and thenthey are suddenly worth many times what you paid for them. These types of stocks make up a very small proportion of my portfolio, so I will not lose much if they never develope a mine, but I will have a nicegain, if even just one is successful.
Wednesday, May 23, 2007
Gardeners Lament
I was outside today enjoying the global warming that finally decided to visit us and doing some yard work. I was digging up the garden when I thought of a story that I must have heard years before about a gardener who had a garden full of grass and a lawn full of weeds. His solution to the problem was brilliant. He started mowing the garden and dug up the lawn to plant a garden. Unfortunately a year later not much had changed because the new garden was full of grass and the new lawn was full of weeds.
Friday, May 18, 2007
Moose Crossing
For those of you planning to sample the wilder portions of this land during the coming holiday season, here is a little cautionary note. Ontario has put up signs in many places that have a picture of a moose at the top. These signs say night danger for so many kilometers. Don't believe them. Oh you can believe the moose part, and the danger part, but don't believe the only at night part.
The power was shut off yesterday to change a transformer, so I decided to take a drive. At about 12:20 in the afternoon I came over the crest of a hill and saw a moose standing in the center of the road. Not being a complete fool I quickly put on my brakes and came to a complete stop well short of the moose. A SUV was coming the other way and also came to a stop, but much closer to the moose. The moose just stood there and looked from one of us to the other, wondering if either of us was going to challenge his right to cross the highway wherever he wanted and when he wanted. Satisfied at last that we were paying him the deference that was his due, he finally ambled of to the side of the road down to the ditch and eventually disappeared into the bush.
Both of us started up, accelerating not particularly fast. I hadn't gone more than ten meters before I saw another moose come out of the bush at the same place as the first. I quickly put on my brakes and came to a stop. The SUV, however kept on going at a few kph. The moose quickly plunged down into the ditch and up onto the shoulder of the road. After a quick look in my direction he fastened his gaze on the SUV. The lack of respect by the SUV was intolerable. Blithely continuing its progress and cutting across in front of him was not to be tolerated. Immediately deciding to punish this transgression by the puny little SUV towing the small trailer, the moose charged straight at its side. Turning sideways the moose rammed its shoulder into he SUV.
Unfortunately for the moose the SUV was better balanced on its stubby little legs than it appeared. Instead of knocking the impudent little thing off its feet, it was the moose that went down, bouncing off in a flurry of legs and hooves. The moose scrambled to its feet, backed off a couple of steps, and paused to consider the results. Showing the SUV that it shouldn't knock a moose down was tempting, but there was that lunch date with his friend that he was late for. And the SUV did seem to have learned the rules for a moose crossing as it was now respectfully waiting for him to cross the road. Finally lunch won out and the moose trotted around the front of the SUV into the woods on the other side.
So be sure to obey the moose rules for moose crossings; the moose always has the right of way. Otherwise you too may be having a very interesting conversation with your insurance company trying to explain why the side of your car was smashed in when the moose hit you.
The power was shut off yesterday to change a transformer, so I decided to take a drive. At about 12:20 in the afternoon I came over the crest of a hill and saw a moose standing in the center of the road. Not being a complete fool I quickly put on my brakes and came to a complete stop well short of the moose. A SUV was coming the other way and also came to a stop, but much closer to the moose. The moose just stood there and looked from one of us to the other, wondering if either of us was going to challenge his right to cross the highway wherever he wanted and when he wanted. Satisfied at last that we were paying him the deference that was his due, he finally ambled of to the side of the road down to the ditch and eventually disappeared into the bush.
Both of us started up, accelerating not particularly fast. I hadn't gone more than ten meters before I saw another moose come out of the bush at the same place as the first. I quickly put on my brakes and came to a stop. The SUV, however kept on going at a few kph. The moose quickly plunged down into the ditch and up onto the shoulder of the road. After a quick look in my direction he fastened his gaze on the SUV. The lack of respect by the SUV was intolerable. Blithely continuing its progress and cutting across in front of him was not to be tolerated. Immediately deciding to punish this transgression by the puny little SUV towing the small trailer, the moose charged straight at its side. Turning sideways the moose rammed its shoulder into he SUV.
Unfortunately for the moose the SUV was better balanced on its stubby little legs than it appeared. Instead of knocking the impudent little thing off its feet, it was the moose that went down, bouncing off in a flurry of legs and hooves. The moose scrambled to its feet, backed off a couple of steps, and paused to consider the results. Showing the SUV that it shouldn't knock a moose down was tempting, but there was that lunch date with his friend that he was late for. And the SUV did seem to have learned the rules for a moose crossing as it was now respectfully waiting for him to cross the road. Finally lunch won out and the moose trotted around the front of the SUV into the woods on the other side.
So be sure to obey the moose rules for moose crossings; the moose always has the right of way. Otherwise you too may be having a very interesting conversation with your insurance company trying to explain why the side of your car was smashed in when the moose hit you.
Tuesday, May 8, 2007
How to be Rich
The title is a bit premature as I am not rich, YET. If the returns from my investments continue in their historical range I will be in the future. While there are many ways to get rich such as becoming an entertainment star or a star athlete or winning the lottery or having a rich relative leave you a fortune, most of us are going to have to do it by saving and investing. Now the big question is "Is it possible for the average person to save enough money to become rich."
Lets take some twenty year old people who save twenty dollars a week. Now you may not be twenty, most of us just wish we were. At the end of a year they have each got one thousand dollars. What can that grow to by the time they are sixty-five. Some invest in GIC's, average return, four percent a year. This money will double about every eighteen years. In forty-five years, it will grow to less than $6,000. These twenty year old group will not be rich unless they save a lot more.
The second group invests in stocks. The return on stocks is about nine percent. This rate of return doubles money in eight years. In forty-five years this will grow to about $50,000. They are not going to be rich, but if if they continue to save one thousand dollars every year, They will end up with well over half a million for retirement. Unless here is higher inflation than currently is the case, they will at least have a nice boost to their retirement income.
The third group invests in stocks, but through good management of their investments, gets an average return of about twelve percent. This is about my estimate of what the average long term yield of trusts would have been. The first year's $1000 would grow to around $160,000. This would make them millionaires when they retire. Unfortunately inflation would mean that they would not be millionaires in terms of today's dollars. Thus, if you are twenty, you need to save twenty dollars a week and get about a 12% return plus inflation to retire as a millionaire in today's dollars.
Most of us are not twenty, we just wish we were. We will either have to save more or get a higher rate of return, or both, if we plan to be millionaires when we retire. You'll have to decide whether you can save more, however you can get a higher return.
Should you go out and put any money you have saved into the stock market? Now is probably not a good time to do that. Far too many people start to invest in the stock market at the wrong time. There were many who listened to the stories of huge returns through 98 and 99, then finally decide to take the plunge into tech stocks just before the bubble burst, and thus lost a lot of hard earned money. If you lose some of your profits in a market correction, it's one thing, but if your are just getting into the market when the market is going into a nosedive, it's another.
I think the likelihood of the stock market being considerably lower than the current levels in the future is quite high. Later on today I will be taking out some insurance against this possibility by using options. If you are not in the market, now might be a good time to set up a practice account, where you manage a pretend investment portfolio. If you are in the market you might consider doing some selling. If you want to use my strategy of options, you should get a copy of Options as a Strategic Investment, by Lawrence McMillan before you do anything with options. It is not a complete compendium of all option strategies, but it is invaluable as a basic resource. If you don't understand it you shouldn't be dabbling in options(yes you can skip the arbitrage chapters.)
Lets take some twenty year old people who save twenty dollars a week. Now you may not be twenty, most of us just wish we were. At the end of a year they have each got one thousand dollars. What can that grow to by the time they are sixty-five. Some invest in GIC's, average return, four percent a year. This money will double about every eighteen years. In forty-five years, it will grow to less than $6,000. These twenty year old group will not be rich unless they save a lot more.
The second group invests in stocks. The return on stocks is about nine percent. This rate of return doubles money in eight years. In forty-five years this will grow to about $50,000. They are not going to be rich, but if if they continue to save one thousand dollars every year, They will end up with well over half a million for retirement. Unless here is higher inflation than currently is the case, they will at least have a nice boost to their retirement income.
The third group invests in stocks, but through good management of their investments, gets an average return of about twelve percent. This is about my estimate of what the average long term yield of trusts would have been. The first year's $1000 would grow to around $160,000. This would make them millionaires when they retire. Unfortunately inflation would mean that they would not be millionaires in terms of today's dollars. Thus, if you are twenty, you need to save twenty dollars a week and get about a 12% return plus inflation to retire as a millionaire in today's dollars.
Most of us are not twenty, we just wish we were. We will either have to save more or get a higher rate of return, or both, if we plan to be millionaires when we retire. You'll have to decide whether you can save more, however you can get a higher return.
Should you go out and put any money you have saved into the stock market? Now is probably not a good time to do that. Far too many people start to invest in the stock market at the wrong time. There were many who listened to the stories of huge returns through 98 and 99, then finally decide to take the plunge into tech stocks just before the bubble burst, and thus lost a lot of hard earned money. If you lose some of your profits in a market correction, it's one thing, but if your are just getting into the market when the market is going into a nosedive, it's another.
I think the likelihood of the stock market being considerably lower than the current levels in the future is quite high. Later on today I will be taking out some insurance against this possibility by using options. If you are not in the market, now might be a good time to set up a practice account, where you manage a pretend investment portfolio. If you are in the market you might consider doing some selling. If you want to use my strategy of options, you should get a copy of Options as a Strategic Investment, by Lawrence McMillan before you do anything with options. It is not a complete compendium of all option strategies, but it is invaluable as a basic resource. If you don't understand it you shouldn't be dabbling in options(yes you can skip the arbitrage chapters.)
Saturday, May 5, 2007
Bought Falcon Oil and Gas
I had bought a half position in Falcon last year. When the Stock went down to just over $2.00, early in Febuary I bought more. This is something I have done a number of times. If a stock I like goes down considerably for a reason that does not change its long term outlook, I often buy more. The stock has risen from $2.17 to over three dollars. I am now showing a profit on my whole position, even though my original purchase was at an even higher price.
Falcon is developing a very large gas find in Hungary. It was first drilled in the seventies, but had to be abandoned because the technology available at that time could not handle the high pressure and depth of the wells. The improvement in technology over the last thirty years makes it now possible to develop this gas pool.However this is a high risk investment. The wells are among the deepest in the world and very expensive, thus each well has to be very productive to be profitable. the company also needs fairly high gas prices and has yet to get a production licence. On the other hand , if everything works out the rewards are huge, the reserves are estimated to be as much as all the proven reserves in western Canada combined.
Falcon is developing a very large gas find in Hungary. It was first drilled in the seventies, but had to be abandoned because the technology available at that time could not handle the high pressure and depth of the wells. The improvement in technology over the last thirty years makes it now possible to develop this gas pool.However this is a high risk investment. The wells are among the deepest in the world and very expensive, thus each well has to be very productive to be profitable. the company also needs fairly high gas prices and has yet to get a production licence. On the other hand , if everything works out the rewards are huge, the reserves are estimated to be as much as all the proven reserves in western Canada combined.
Friday, May 4, 2007
Bought Forsys Metals
Back in January I had an opportunity to participate in a secondary offering of Forsys Metals. A secondary offering occurs when a public company issues treasury shares to raise money for certain purposes by the issuance of treasury shares. In this case Forsys is a junior mining company that is developing some uranium properties in Namibia. I didn't own any pure uranium plays and the established mining companies are quite expensive. While there is some risk in buying uranium stocks with the price of uranium so high, this risk is offset in this case by the fact that there is a natural increase in value of a mining stock when a mine begins production. Forsys will probably be trading at a higher price than I paid for it even if the price of uranium falls.
Why does the stock go up when a mine begins production? Sometimes disaster happens. Caminco, the largest Canadian uranium miner was developing a mine at Cigar Lake last year. Before any uranium was mined the mine was flooded. Extra months of time and millions of dollars more will be needed to bring the mine into production. Cominco can afford this, but for a junior mining company like Forsys, something like this would be devastating. There is a very substantial risk in investing in Forsys, however the potential rewards are great. You have to make a rational examination of the risk versus the potential reward. In this case I thought the reward was worth the risk. So I bought a half position in Forsys at $4.75 a share. I won't be able to sell these shares until June. Right now it looks like a winning investment as the stock has traded at over $9.00 before falling back slightly just recently.
Why does the stock go up when a mine begins production? Sometimes disaster happens. Caminco, the largest Canadian uranium miner was developing a mine at Cigar Lake last year. Before any uranium was mined the mine was flooded. Extra months of time and millions of dollars more will be needed to bring the mine into production. Cominco can afford this, but for a junior mining company like Forsys, something like this would be devastating. There is a very substantial risk in investing in Forsys, however the potential rewards are great. You have to make a rational examination of the risk versus the potential reward. In this case I thought the reward was worth the risk. So I bought a half position in Forsys at $4.75 a share. I won't be able to sell these shares until June. Right now it looks like a winning investment as the stock has traded at over $9.00 before falling back slightly just recently.
Inroduction to my Investments
Although I never intended this blog to be one with daily posts ,I did not think it would be this long between posts. I will be starting one of the main themes today. That is a discussion of my investment decisions. But before I get to them, a few words of caution.
Not everybody should have the same investments. Every one has their own financial circumstances, their own goals, and their own risk tolerance. I don't know your financial situation or your investment goals, and trying to cover all possible combinations would take a book. However risk is much simpler. I have a very high risk tolerance and many of the investments I make have quite high risks. One of the reasons that I can sleep at night is that I have a history of being a successful investor. If I make a bad decision on a particular investment I know that I will make enough good decisions to more than make up for my losses. I will be posting a series on investment strategies where I will be going into more detail on my views of risk, but you should be aware that there is a high level of risk in many of the investments that I will be discussing.
Not everybody should have the same investments. Every one has their own financial circumstances, their own goals, and their own risk tolerance. I don't know your financial situation or your investment goals, and trying to cover all possible combinations would take a book. However risk is much simpler. I have a very high risk tolerance and many of the investments I make have quite high risks. One of the reasons that I can sleep at night is that I have a history of being a successful investor. If I make a bad decision on a particular investment I know that I will make enough good decisions to more than make up for my losses. I will be posting a series on investment strategies where I will be going into more detail on my views of risk, but you should be aware that there is a high level of risk in many of the investments that I will be discussing.
Tuesday, February 20, 2007
Cooking the Books
Did the finance Dept. cook the books to exaggerate the tax leakage caused by trusts. In at least one case the answer is yes. The department didn't include the US trusts. Since almost all taxes paid by the US trust unit holders are gains, the tax leakage is overstated.
The US trusts paid little or no Canadian taxes prior to conversion. Most of them were based solely in the US and paid no9 Canadian taxes. The conversion to a trust didn't result in any tax loss for the Canadian government.
These trusts had very few if any Canadian investors, and therefore generated little tax revenue for the Canadian government from individuals. This changed with the conversion to trusts. The number of Canadian investors increased dramatically, and so did the Canadian taxes paid.
I doubt very much that this extra revenue would reduce the $500 million that the government claims it is losing to zero. looking to the future this extra revenue could certainly reduce the tax loss, if any, to zero, in fact it could easily produce a tax gain. The high cost of Sorbanes-Oxley compliance in the US has made it very difficult for smaller US companies to go public. The TSX reporting rules are much less costly to implement . Add to that the trust premium on unit price, going public as a Canadian trust was a very attractive option for private US companies. The proposed conversion of Bell and Telus would have legitimized the trust sector in the eyes of many investors who were not already investing in trusts. It would also have encouraged the directors and executives f US firms, both public and private, to look into the possibility of becoming trusts. The increased demand for trusts that would have resulted from the Bell and Telus conversions would have been met in part by the conversion of many US companies to Canadian trusts. Since the US is so much bigger than Canada the supply of companies for potential conversion to trusts could offset the tax losses, if any, that resulted from Canadian conversions.
The US trusts paid little or no Canadian taxes prior to conversion. Most of them were based solely in the US and paid no9 Canadian taxes. The conversion to a trust didn't result in any tax loss for the Canadian government.
These trusts had very few if any Canadian investors, and therefore generated little tax revenue for the Canadian government from individuals. This changed with the conversion to trusts. The number of Canadian investors increased dramatically, and so did the Canadian taxes paid.
I doubt very much that this extra revenue would reduce the $500 million that the government claims it is losing to zero. looking to the future this extra revenue could certainly reduce the tax loss, if any, to zero, in fact it could easily produce a tax gain. The high cost of Sorbanes-Oxley compliance in the US has made it very difficult for smaller US companies to go public. The TSX reporting rules are much less costly to implement . Add to that the trust premium on unit price, going public as a Canadian trust was a very attractive option for private US companies. The proposed conversion of Bell and Telus would have legitimized the trust sector in the eyes of many investors who were not already investing in trusts. It would also have encouraged the directors and executives f US firms, both public and private, to look into the possibility of becoming trusts. The increased demand for trusts that would have resulted from the Bell and Telus conversions would have been met in part by the conversion of many US companies to Canadian trusts. Since the US is so much bigger than Canada the supply of companies for potential conversion to trusts could offset the tax losses, if any, that resulted from Canadian conversions.
The New Kid on the Block
A brand new blogger has entered an already crowded universe. What can you expect to see discussed in this blog? Eventually a wide range of topics, but, at least for now, primarily Canadian politics and investments. I had thought of starting two blogs, one for each major theme, but decided to combine them into one. While you may be primarily interested in one or the other main themes, I hope that you will at least read the posts on any other topics. Anybody who has had money invested in trust for the last two years knows that they are interconnected.
I will discuss my investment philosophy in general and give you specific examples of investment decisions I have made and the reasons for them have been very successful over the long term, considerably out performing the TSX index. Of course past performance does not always indicate future performance, so I may be setting myself up for a public record of how badly my portfolio will perform in the future.
On the political side I will be posting my thoughts on certain topics, sometimes in brief comments, sometimes looking at things that might not be obvious at first glance, hence the indepth part of my blog title.
Hopefully you will find my posts interesting and informative, sometimes amusing or infuriating but worth an occasional visit
I will discuss my investment philosophy in general and give you specific examples of investment decisions I have made and the reasons for them have been very successful over the long term, considerably out performing the TSX index. Of course past performance does not always indicate future performance, so I may be setting myself up for a public record of how badly my portfolio will perform in the future.
On the political side I will be posting my thoughts on certain topics, sometimes in brief comments, sometimes looking at things that might not be obvious at first glance, hence the indepth part of my blog title.
Hopefully you will find my posts interesting and informative, sometimes amusing or infuriating but worth an occasional visit
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