Gabriel Resources UpdateMay 4th, 2012 | Posted by in Gold | Portfolio History | Precious Metals | Stocks
I will keep this article short as I’m too busy with my work on valuing some gold miners. Today, I added to my Gabriel Resources position at 1.9 CAD/share. I bought the same amount of shares to the one I got with my initial purchase and now my average stock price is 3.9 CAD/share. I bought more shares to average down, as from now on, I believe that even with higher royalties and lower cyanide levels, this stock is cheap. Of course, it could become even cheaper and even a zero in case the government goes nuclear and dissolve the mining license or refuse to give the environment permits. Today for example, the Romanian new left-leaning government has pledged a moratorium on shale gas exploitation and said that it will review a controversial Canadian plan to build Europe’s largest open-cast gold mine.
That is why, please keep in mind that my purchase is not a recommendation. You could lose everything by investing in junior miners. That is why it is best to spread the risk by investing in several miners or to put a small percentage of your shares in each.
There is one very important lesson that all investors should remember. To recover a loss of 10%, the asset must rise 11.11%. To recover a loss of 50%, the asset must rise 100%. To recover a loss of 80%, the asset must rise 400%, and to recover a loss of 100%, the asset must rise “it is never gonna happen”.
The only way to recover a loss of such magnitude is if you can average down. Still, that is one of the most dangerous idea or principle that investor might have and even because it is I don’t recommend it to investors with poor risk management and portfolio weightings . The reason is that, if the stock is really going to zero, you increase your holding and continue to lose until you lose everything. By averaging down you guarantee yourself a big trouble and a huge loss. That is why every investor, as I said many times, should start positions no matter how good they look with a small percentage of its portfolio. Especially in risky junior miners with a potential for triple returns. That is a must because if the holding is a small percentage, you can average down and even with the additional purchases, you can still afford and be fine if the junior fail and go under. If you start with a bigger holding relative to your portfolio size, you can’t average down without later ruin yourself and your portfolio.
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