The BarkerLetter

Many investors wish they’d heeded the words of Bob Bishop and Brien Lundin and Lawrence Roulston and Jim Dines a couple of years ago. Everything they wrote about has turned golden.

Newsletters are great sources of independent third party analysis of mineral trends and individual stocks. But the subscriber needs an extra measure of caution as the bull market gets longer in the tooth.

Keep in mind that the big names have even bigger followings when the markets are high, which means thousands of people are reading and presumably heeding them at the same time as you. That fuels buying, and a rise in the stock price.

So much for getting in cheap!

However, big lists are useful to the wise investor because they give you a point of reference. I usually try to find a deal that’s not on them, in the hopes of finding a good stock that hasn’t been discovered yet and is priced accordingly.

Also, many of the stocks in the portfolio are likely trading substantially higher than they were, and I think it’s a bit late in the game for buying +$1.00 per share gold explorers. I’ve stated before in this letter that one should probably buy any good gold company that still trades under a dollar, as it has a very good chance of rising with the tide in the coming months.

However, the reverse scenario occurs in a diminishing market, in which case any stock over a buck is quite capable of falling to half that or even less!

The experts say you should buy stocks when you have the money, regardless of the price. I beg to differ. Pricing becomes very important during periods of high volatility. Whether we get a gold base of over $700 per ounce or under $300, the price you pay now will be vital in maximizing or reducing your later gains and losses.

In the former case, one should understand that investors can’t – or won’t – do math in a rising market. Hence, a $0.50 cent stock may rise faster than its higher-priced peer, even with a smaller market cap.

The big picture

Even if you don’t heed their picks, stock gurus are usually pretty good at presenting the big picture. For example, I was rewarded four years ago with a very clear buy signal from one such on gold. Moreover, I was directed to buy unhedged gold producers that trade on the Amex, which turned out to be a very astute move. Companies who sold their production forward during the lean years missed the big earnings when gold made its dramatic rise above $300 per ounce.

When sell means buy

One should always understand the source of the advice. J.P. Morgan is often quoted as saying he got rich by selling too soon. That doesn’t mean you should do the same. You’re not J.P. Morgan. Anyway he might as well have said, ‘I got rich leaving a lot of money on the table,’ which is thought provoking on its own.

Investors who bought Venezuelan mining concern Crystallex (KRY.TSX) after Jim Cramer told them to flee some months back did very well, as did those who picked up Argentine banks and oil companies long after the more cautious pundits told us to bail.

Responsible newsletter writers would rather get their readers out at a profit than risk hanging in there for the gravy. The point is, a sell signal by one of them can really mean buy to a more risk tolerant investor.

Look for anomalies, or one-offs…

I’m not a contrarian, strictly speaking. I look for anomalies. So do police detectives, lawyers, doctors, scientists, and most intelligent people. You should too when it comes to newsletters. I’ll tell you why.

Most newsletter writers are well connected. They go to conferences, they network, they get lots of information you and I are not privy to. Over time they build up relationships with people whose companies they’ve followed for years, and occasionally one might tip them off about a stock which is destined to rise, and soon. This is the legendary slam dunk! A winner that gets passed onto the readership and makes the writer a hero.

You are most likely to encounter this as an aside, a footnote, or through a veiled reference. You might also find it where you wouldn’t expect; buried in the middle of paragraph six or seven. These buys always appear like beacons by virtue of their anomalous nature. It’s a chance to make fast money.

Bottom line: Read as many newsletters as you can but make investment decisions based on your own thoughtful research.