A Unique Approach to Penny Mining Stocks
A Unique Approach to Penny Mining Stocks
We're
talking today with Dr. Ken Evoy (KE). Ken is a medical doctor who
lives in Montreal, Canada. He used to teach and practice emergency medicine
at McGill University.
However,
practicing medicine has been his part-time "hobby" for the past
10 years, because he has also made millions of dollars as a toy and game
designer! On top of that, Ken has been successful at another little pastime
... investing in penny mining stocks.
Ken
developed and used his own penny mining strategies during the 1990's. One
day, in November, 1996, he sat down again to look for a stock or two that
met his criteria. There were none. That's when he decided to combine all
his notes and his self-designed database into "the ultimate penny mining
stock software."
Originally
designed for his own personal use in conjunction with the Internet, he soon
realized that "the Web is the ultimate niche marketing vehicle."
And so PennyGold was born. Ken's Internet marketing efforts have been successful
-- he's already more than halfway to his goal of stopping sales at 1,000
units.
And
now to our interview...
B&B:
Of all the different kinds of investment
markets, Ken, why choose penny stocks?
KE:
I wanted to be able to "kill"
some area of the investing game on my own. But I knew that I could never
compete against the pros in highly studied areas like blue chips, options,
and futures. I realized that I would have to develop a specialized "niche"
skill.
Being
extremely time-squeezed, I needed a "low-maintenance" system ...
one that wouldn't require long hours of research ... one that would set
me apart from all those people who get ulcers trying to be smarter than
the next person.
And
then, one day, it hit me. What if I could find "inefficient stocks"?
Stocks that are too small for the "big boys" ... stocks played
almost strictly by amateurs ... penny stocks!
B&B:
So why MINING stocks?
KE: One day, several years ago, I was flipping through
the back of the Canadian Mining Handbook. I noticed an amazing pattern in
the 5-year trading results of mining stocks.
The
juniors fluctuated in price crazily from year to year, with the "high
for the year" often being 3-6 times the low, and sometimes as high
as 10-50 times the low! They did it almost every year. I can remember laughing
and said to myself, "Well, it seems to me the idea is to ignore the
psychological hysteria that causes these patterns and just BUY LOW AND SELL
HIGH."
You
see, Dave, these are stocks where psychology rules, where the typical investor
gets over-excited on the greed-driven upside, then over-depressed on the
grief-stricken downside... stocks where I only have to OUT-THINK others,
and not "out-know" them.
I
don't need to be a geological expert. Or learn all about some new "cutting-edge
biotechnology." Or worry about competitors. Or study P&L and balance
sheets. I just need to understand "the game."
And
there's a second big reason that I chose mining exploration companies...
B&B:
What's that?
KE: <laughs> NO ONE WILL LEND THEM ANY MONEY.
They never have earnings and their only "assets" (their properties)
are in fact liabilities that carry escalating claim fees and exploration
obligations.
Since
no one lends them money, they raise cash by selling more stock. Or they
get a cash-rich partner to joint-venture into a promising property. There
are so many ways to get THE STORY going. And when they get it going, that
proverbial "dead cat" in fact turns out to have nine lives, and
bounces up once again.
Of
course, they never, well maybe one time in a thousand, find anything. So
sooner or later, the stock comes crashing right back down again.
Now,
when other companies fall apart, the bank pulls the plug. As a secured creditor,
it gets most, if not all, of its loan back. But the company is dead as a
doornail.
But
no one pulls the plug on a mining exploration company! You see, they still
don't owe anyone anything. Except maybe a supplier who was dumb enough to
sell on credit. Since they still have a clean balance sheet, they're all
set to start a BRAND NEW STORY, all over again.
B&B:
<laughs> When you put it
that way, mining makes a lot of sense.
KE: Yes, combine the greed-then-grief psychology of
the amateur investors, and the recurring cycles, and that's why I chose
them as the perfect vehicle.
B&B:
<laughs> But it can't be
so simple as to just "buy low and sell high," Ken?
KE: No -- I realized that, too. Over time, I developed
my own little system that basically...
B&B:
Your ideas are a little radical.
You must have been nervous. How did you start?
KE: I put aside $5,000 to test the strategy. To be
honest, I thought I'd lose it, but I had to see. As a matter of fact, the
only thing that gave me the courage to do this was to consider that $5,000
as money that had already been lost!
On
average, I spent maybe an hour or two per week searching for and checking
out penny mining stocks. Sometimes months would go by that I'd be occupied
with other affairs and would barely think about them at all.
So
what happened to that original $5,000 that I thought I was going to lose?
Well, it didn't lose. In six years, that original $5,000 grew by over $150,000!
B&B:
Phew! Not bad at all. But Ken,
penny stocks are risky business. How have you accomplished your success?
KE:
I focus strictly on companies that
explore for gold, diamonds, platinum, oil, silver and other "sizzle"
or "treasure-hunting" commodities." Every penny mining investor
dreams of turning $1,000 into $500,000, with just one big treasure-finding
discovery. This excitement causes the greatest "greed-then-grief"
over-reactions on both the upside and downside.
The
same psychological overdrive that causes those gigantic fluctuations year
after year guarantees that the amateurs will lose money. They buy at the
"greed" end of the "greed-then-grief" cycle. They hear
about how a stock has gone from a dime to a dollar, and "you better
get in now, because this one is going to $10." It never does, of course.
B&B:
Why not, Ken?
KE:
Because these companies never find
anything (or almost never)! <laughing> If you want to invest on the
basis that a company may hit a vein, buy a lottery ticket -- your odds are
much, much better.
B&B:
<laughs> And the odds with
lotteries are pretty bad! But if you don't invest on the basis of "striking
it rich," what does jangle your juices?
KE:
I just want to find a company that
will have A GOOD STORY to tell, then wait for it to come out. But I don't
wait for the THE STORY to say THE END.
Dave,
the first big price surge occurs when THE STORY comes out. It may be an
honest effort by a good, solid team. Or sometimes, even maybe usually, it's
all just a big stock promotion or scam generated by the promoter. But to
put it bluntly ... I simply DON'T CARE why the stock moves. Whether
it's an honest effort or a carefully planned manipulation, the bottom line
is that THE STOCK GOES UP WHEN THE STORY COMES OUT.
B&B:
And then?
KE:
It all falls apart when they find
"uneconomic grades." That's when all the amateurs panic out of
the stock, driving it right back down to a dime. I call this the "grief"
end of the cycle. Now I'm oversimplifying of course, but that's the basic
idea.
B&B:
So basically, rather than being
victimized by the hype that plagues penny mining stock investors, your PennyGold
strategy actually counts upon that happening and takes advantage of it?
That makes a lot of sense. Can you share with us in a bit more detail what
is it that you do?
KE:
Sure...
FIRST
STEP: Using the Internet, I generate lists of hundreds of potential penny
mining stocks in a few minutes. PennyGold sifts through these to find the
ones that have been killed by investor over-reaction on the downside.
SECOND
STEP: I sort out which stocks will live to rise again, AND which ones to
eliminate ... the truly dead companies. This reduces the high risks normally
associated with penny stocks. If I do a good job here, I can't help but
make money with these stocks.
THIRD
STEP: I gather specific information on the best of the "STEP 2 survivors."
This includes a call to the President of the company, again with very specific
questions.
FOURTH
STEP: I buy. And then, I simply hold. Once I buy a company, I will hold
it for as long as it takes to move. I simply don't think about them again,
not until the big move happens.
For
example, I once owned 160,000 shares of a company called Golden Briar, bought
at an average price 5.5 cents. Held it for months and months. Forgot it
totally when my family took a one month vacation. Well, on the flight home,
we had a layover in Toronto. So I checked my stocks in the Globe &
Mail -- Briar had closed the previous day at $0.41!
Bottom
line? Identify those stocks with the most explosive upside potential. "Get
in" before THE STORY, sometimes even before the insiders know that
they want to "move a stock." "Get out" when the amateurs
are in a buying frenzy.
B&B:
Ken, how does the current disastrous
situation of the junior mining market fit in with your PennyGold approach?
KE:
Dave, there's an old saying among
penny mining stock investors: "In a strong wind, even turkeys can fly."
And believe me, the turkeys were flying in 1996.
So
much so that not a single stock fit my criteria by November, 1996! For the
rest of 1997, my strategy simply kept me out of the market because nothing
fit my criteria. I wish I could say that I was a genius for staying out
of 1997's market. But there just were no good stocks (by PennyGold standards)
available.
So
basically, although no one knew it or said it at the time, that market was
way OVERBOUGHT. The amateurs were buying with all their might. It was the
ultimate "greed" part of the "greed-then-grief" cycle
and Bre-X was the ultimate of the ultimate!
B&B:
Notice any difference in the market
NOW, compared to 1996? <grins>
KE:
It's unbelievable! The Bre-X fiasco
and the ever-tumbling price of gold have hammered these junior stocks to
all-time lows. The amazing part is that truly solid little companies have
been devastated.
And
I've been slowly accumulating again since November, 1997. You know what
my biggest problem is? Whereas I couldn't find a half-decent "oversold"
stock in late 1996, now I have almost too many to choose from!
B&B:
So has PennyGold turned up any
fantastic bargains lately?
KE:
Yes, summer has hammered the juniors
viciously. I'm buying stocks that I never believed would fall into my buying
range. I find rock-bottom bargains every time I use PennyGold.
B&B:
Ken, gold has sunk back down to
the US$280 level recently. The smell from Bre-X and other scandals will
stay around for a while. What do you foresee for the junior mining markets?
KE:
Continued pessimism for at least
six more months, Dave.
But
only partly because of the price of gold. After all, those cagey old mining
promoters always figure some new angle ... if gold is no longer a hot subject
for THE STORY, they'll look for (and promote) diamonds in Zaire ... or platinum
in British Columbia ... or silver in Utah. It's THE STORY that's important,
not the metal.
And
personally, I don't care what gold does. As a penny mining stock investor,
I am not married to gold. But I AM married to "greed then grief"
stocks. So yes, oil and gas ... platinum ... silver ... diamonds ... in
short, TREASURE.
But
overall, since 1991, when I started my penny mining stock strategy, I have
never seen such a severely overkilled market. Even the old-timers who have
been in this more than 30 years tell me that they have NEVER seen this kind
of market before.
The
pessimism is so intense that six months is the minimum. And to me, that
means better and better bargains. And the best is yet to come. This coming
November and December will feature "K-mart" clearance sales"
on just about all penny mining stocks! <grins>
B&B: <laughing> I've got a feeling I know where
you're going with this....
KE: Yes, I think we're going to see the last of the
amateurs give up -- they'll sell to generate tax losses this year-end. There
are already so many incredible bargains out there, but we're going to see
a whole bunch more over the next several months.
The
smart people, and I know two serious pros who manage junior funds, are giggling.
Right now, they're buying and holding for their own personal accounts. When
the next big bull comes for the junior mining markets, there's a few people
who are going to be making a lot of money.
B&B: That's when you sell your cheaply acquired stock
back to the amateurs who are panicking out right now?
KE: Yes, exactly!...
It's
amazing, you know. When a bull is going full blast, everyone seems to think
it will go up forever. Same in reverse for a bear.
But
markets always turn around. If a market is at an all-time high, sooner or
later it drops. And vice-versa. It usually happens for some unforeseeable
reason ... some bolt out of the blue.
I
mean, name me one person who foresaw the disintegration of Asia! It seems
like just yesterday that Time magazine was whining about the Japanese
buying Pebble Beach and everything else in California! And wasn't everyone
talking about a 10,000 Dow just a few months ago?
B&B:
Can you foresee the junior mining
markets turning around?
KE: Dave, I can't foresee them NOT turning around.
Here's the likely scenario...
Eventually,
the securities commissions will announce regulatory changes that protect
investors. Then a couple of major discoveries make headlines in the press
(whetting the appetite of the amateurs). Followed by another Warren Buffet
story or two. And then that "unforeseeable bolt" and BINGO!
The
juniors WILL rebound ... big-time. Maybe in 2 months, maybe in 6. It may
even take a year and a half, although I doubt it takes that long. And when
they do, my carefully chosen basket of stocks will increase by at least
five to ten fold ... again. <grins> Even now, certain stocks still
have the ability to give that sudden big punch.
B&B:
Any recent examples?
KE:
Sure. In April, a PennyGold owner
e-mailed me about Tellis Gold Mining (TLL). Lots of cash, trading at $0.14,
less than its cash-per-share value! Many other positive factors that met
all the PennyGold criteria. He sent me his research, wanting to be sure
he was using PennyGold properly. He was right on track.
In
May, it jumped to $0.45, where it's halted pending completion of a reverse
takeover with a private high-tech company. Yes, TLL is getting out of the
mining business! What an extreme, but perfect, example of the PennyGold
strategy of buying before THE STORY. As recently as February, the company
had announced dismal drilling results.
B&B:
Ken, what's your strategy for the
next 12 months?
KE:
It boils down to ultra-careful
stock selection and "open-to-buy" money management.
Before
buying a stock, I must be sure that it can ride out two years of bad news,
negative psychology among amateur investors, etc. I'm extra-careful to avoid
stock rollback candidates. I look for indicators like working cap and burn
rates. I review the Prez's history.
Since
NO ONE knows when this market will turn, my top priority is to make sure
that the stock will survive for as long as it takes. Then look for the "likely
to thrive" factors. In other words, SURVIVE-THEN-THRIVE. PennyGold
takes me through all these factors, first to keep me out of trouble, and
then to find the best of the survivors.
B&B:
What does "open-to-buy"
money management mean?
KE:
When I find a company I like, I
use only a small part of my "open to buy" funds when I first purchase
that stock, for two reasons:
B&B:
Diversify within such a narrow
niche as junior mining companies?
KE:
Absolutely! Diversification is
a powerful way to maximize returns and minimize risks.
For
example, you could divide your funds among...
B&B:
Bottom line, Ken?
KE:
Pick companies that survive-then-thrive
... and diversify. To succeed in penny mining stocks, you have to...
Those
who do that over the next 12 months will see some amazing returns when the
markets turn.
B&B:
Ken, do you have any other "pearls
of wisdom" for our readers?
KE:
Two things, Dave.
First,
if you do what everyone else does in penny mining stocks, you're doomed
to be part of the 97% who lose money in this fascinating investment arena.
Second,
two of my favorite quotes. They come from Bernard Baruch (1870-1965), Wall
Street financier and adviser to U.S. presidents...
That's
about all I do, and it's why I believe that others can do it, too.
B&B:
Ken, if our readers want to receive
more information on your software and book, where can they get it?
KE:
The PennyGold Web site is at http://www.goodbytes.com/pennygold/
B&B:
Thank you for taking the time for
this interview, Ken.
KE:
I've enjoyed it immensely, Dave.
Thank you.
Editor's
Note: Ken Evoy, M.D. kevoy@goodbytes.com
or visit the Web site at http://www.goodbytes.com/pennygold/
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