Alpha Mining Stocks (What Goes Up…)

With mining stocks, many investors/speculators are fixated on alpha plays because they are so damn exciting… With these stocks, it’s normal to witness double digit (or more) fluctuations in share price in a single trading session due to a new press release…

Well, like most things, there’s a yin and a yang…

What goes up usually comes back down….

And oftentimes, on the way down, it can be even more dramatic (and sudden)… Going up feels like taking the stairs and going down feels like taking the elevator.

Today, one of my holdings Garibaldi Resources (GGI.V/GGIFF) got massacred, to say the least…

No, there was no new press release that came out today (here’s the latest from Monday)… In the case of Garibaldi, it just took the market a few days to process and digest the information before finally deciding what it really wanted to do…

As readers may recall, I’ve been trying to dollar-cost average (DCA) my way up and out of GGI.V over the last month or so… The last tranche I sold was on October 27.

Here’s what I wrote then:

And yeah, that’s the thing I ALWAYS fear most with high flying alpha stocks… The FADE!

What goes up can and typically does come crashing back down again!

I don’t mean to pick on Garibaldi Resources, and that’s not the purpose of this post… Straight up — It’s all about Risk/Reward and trying to protect capital.

Sentiment is a fickle thing…

With mining stocks, I’ve observed a similar pattern, time after time, again and again… Alpha stocks get bid up to the moon (for whatever the reason), and then all of a sudden, sentiment reverses course and the stock gets crushed all the way back down…

In some cases, giving up all gains, and falling even lower than when an initial “discovery hole” was first made…

See GT Gold (GTT.V/GTGDF) as a perfect example of such an insane rollercoaster ride…

At the top, you feel like a total STUD, and probably start getting a tad bit arrogant (this is when you really should give yourself a reality check and realize it’s a good sign to consider selling something/everything)…

You might be acting all SMUG AND MIGHTY, thinking, “What could possibly go wrong?”

That, or perhaps you might dismiss any (and all) warning signs (especially from peers who you now feel strongly that you are smarter than) by shouting back, “Man, stop tripping! I’m so far in the GREEN, ain’t nothing gonna stop me from making lots of $$$. Just relax!”

But reality can be cruel a lot of the times in the Game of Rocks…

Yup, GT Gold is now trading for less TODAY than it was when the initial discovery hole was made in July!?!

Let that soak in for a moment… then try and argue that the markets are “efficient”… Hah!

WTF is that!?!

From a high of C$2.76/share all the way back down to C$0.64/share…

“GOTCHA SUCKER!”

It’s a freekin tough game!

And again, this is a common occurrence for high flying alpha stocks…

So, you kind of ALWAYS have to watch your back… and remember to NEVER fall in love with a company/stock/story!

During these insane alpha runs, the share price/market cap will outpace proven fundamentals by leaps and bounds… It takes time for the two to align, so don’t lose sight of that!

In the case of Garibaldi Resources, I still own 5,000 shares, so yes, you could say that I got way too greedy holding out for even more gains! From peak to where we are now, I’ve probably given back $13,000 or so!

Yes, that fucking stings!!!

In this game, we do our best to de-risk and “free carry” a position, but in the end, no matter how awesome that feels psychologically to operate under the premise (guise) that we are playing with “the house’s money”, giving up all those unrealized gains still hurts like a mofo!

Money is money… Realized or not… A loss is a loss…

And in general, because alpha mining stocks are much more about strong momentum than they are about trying to score deep value discounts, by and large, my own preference is to stick primarily to boring ass beta stocks…

Now you kinda know why…

Yes, beta stocks are dull beyond belief… but keep in mind, many beta stocks became beta in the first place AFTER their alpha days ended (they’ve already been blown up) when the market decided it was time to move onto the next flavor of the week… In other words, betas are usually more “fairly priced”, offer more “proven fundamentals”, and even better, in an environment where sentiment towards the underlying commodity is absolute shit (i.e. gold and silver), it’s usually very possible (and kind of easy) to locate deep value beta plays.

From a Risk/Reward perspective, beta mining stocks are oftentimes the “safer” way to go about it… No, betas won’t give you the insane blue sky potential that alphas can generate, but your odds of stepping on a landmine and blowing yourself up are greatly minimized, relatively speaking…

Regardless, there are no guarantees with alphas or betas…

It’s a tough game, all around… No questions asked.

But I will confess, today’s ass whupping that I received courtesy of Garibaldi Resources does make me rethink things a bit… Yes, we all want to score the next ten bagger (and beyond), but sometimes it’s not about trying to be a hero, but staying solvent enough to fight another day.

Certainly, every now and then comes along a story that can be an “exception to the rule”… but those type of plays are a rarity in this industry and don’t come around too often…

So tread carefully! Blowing your portfolio up by taking too much unnecessary risks by chasing after high flying alphas that offer crappy Risk/Reward is an easy way to go bust… and quickly too.

Lots to learn from today…

For myself, yup, I was too greedy and I did end up paying the price.

It was quite painful!

“Buy low and sell high.”

“Watch out for that alpha FADE!”

Live and learn, as ALWAYS!

Fight On!