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** Trading Update: For two months, we have tracked the volume patterns for Wealth Minerals LTD (TSX-V: WML & US: WMLLF), as well as looked at the fundamental value ascribed to the agreement Henk Van Alphen, the founder and CEO of the company, inked with ENAMI, the Chilean mining entity, sponsored by the government. We looked into how other operators in Chile have set their businesses as well. All the way to the top ones, the billion-dollar companies included, no one has been able to get THIS deal in place. On Friday, shares bottomed at CAD$1.08. Since then, we’ve seen Monday’s session take out the CAD$1.25 level, with shares closing at CAD$1.14. With drilling at Trinity in motion, the potential catalysts for value creation are rock-solid. **
BEAR MARKET PREPARATION: DEFENSIVE INVESTING
In 1942, it was unclear if the U.S. would survive World War 2. The outlook for the nation hasn’t been that dark since the Great Depression or the days of the civil war.
Yet, as I’ve stressed many times, except for 2008, this was one of the best times to put new money to work in the stock market.
$10,000 invested in the equivalent to today’s S&P 500 would be worth over $51M today.
Companies, in the past 30 years, have unlocked what could only be described as financial magic, and the more you’ll be able to position your long-term wealth with them, the more prosperous you’ll be.
What the birth of the Internet has brought about is the construct of tangible asset-lite companies.
These are financial magicians, who can deliver outstanding value to the marketplace and grow without committing much capital into this process.
While 99% of companies need to borrow capital, issue new shares or use the bulk of their earnings to grow, some have a unique ability to grow with much of these value-destructive financial constraints.
Think of how intensive it is for a construction company to build malls. The sheer amount of funds needed for the raw materials, equipment, and replacement parts is overwhelming. Any mistake in calculations and years of hard work go down the toilet by the cutting of their profit margins, due to mistakes.
Not all businesses are designed alike. There are superior models out there, and that has brought about unbelievable gains for companies that have capital efficiency.
These businesses will be able to grow in recessions, while others will not be able to raise money. Wealth Research Group is building the world’s most extensive database that includes these types of companies.
Our highest priority in the coming bear market will be to buy these companies on the cheap.
But, defensive investing is more than just this. For ten years, we have seen incredible returns with large-cap companies, but as this bull market comes to its final stretch, price appreciation will become less relevant compared with the ability to pay a rising dividend and continue to buy back shares, without the need to borrow money, since debt will become expensive.
In other words, during recessions, cash-rich, profitable, well-managed businesses have the upper hand. Investors stop focusing on growth and search for the companies, which have been prudent and haven’t leveraged-up like a Goldman Sachs rookie trader on his 1st day on the street.
Third, we tighten our stop losses. In recessions, one of the best ways to outperform is to lose less. To do this, discipline is required.
Diversifying is an essential element, rather than concentration.
In other words, in bear markets or sideways markets, you want to own a myriad of stocks, from many industries, so to allow less correlation between holdings.
One of the best ideas is to invest in real estate, which is why I’m headed to TX, OK, and FL in the coming months to do my homework ahead of time, have my zip codes list ready, and a team in place to bid on distressed assets.
Money put into cash-flowing properties, which have nothing to do with Wall Street is more valuable in bad times.
But, undoubtedly, where I’ve always been able to squeeze extra percentage points from the markets, is in the fact that while large pension funds, hedge funds, and institutional investors have more manpower and computers to run algorithms on, they are barred from entering the cannabis, cryptocurrency, and resource sectors because most stocks are too illiquid and small for their needs, keeping them cheap.
Both cryptocurrencies and cannabis are also clouded by the regulatory issues they face, which keep away even more buyers, so placing bets this early on virtually ensures better opportunities than down the road.
Commodities have unquestionably been the worst-performers for seven years now, so the expectations are so low that the market has priced most of them at below liquidation (bankruptcy) valuations.
Remember, in bear markets, panicky rookies allow logic-driven professionals to make a fortune. Get your head straight, and let’s make a killing.