By
Matt Badiali, editor, S&A Resource Report
Thursday, February 4, 2010
I love getting paid in gold...
And I love knowing that when paper currencies around the world decline in value, my investment portfolio rises alongside the gold price. I love knowing that every time a world government announces another ridiculous spending plan, causing investors to lose faith in their currency, I'll make more money.
I'll show you how I "get paid in gold" in today's DailyWealth.
Chances are, you've never heard of this type of gold investing... It's completely the opposite of the typical risky gold investment.
You see, more than any other business, gold mining and exploration are marketed to the public with large helpings of HOPE.
These businesses often have wild "gold in the middle of the jungle" stories... they offer the chance of getting a 20-to-1 return on your money... and most gold-stock investors are infatuated with gold itself.
These factors – plus the fact that gold explorers are nearly impossible for a part-time investor to accurately value – make the mining business a black hole that swallows up investor cash.
Determining what an exploration outfit is worth is far different than determining what an operating company like Johnson & Johnson or Intel is worth. These sorts of companies have real, tangible assets, profits, and dividends. An investor can say, "I'll pay 12 times earnings for this company" or "I'll buy this when the dividend yield is over 4%."
You can't do any of that with an exploration outfit. Exploration outfits don't have earnings. They spend the money on salaries and drilling programs. They don't have conventional assets. Their value often sits inside the brains of their geologists and executives. And dividends? Forget it. See above on earnings.
Investing is hard enough even when you can accurately value something. So this "both arms and one leg tied behind your back" situation is why I encourage part-time investors who want exposure to gold stocks to focus on diversified vehicles like gold stock funds and royalty companies.
You've probably heard about the gold stock fund GDX. It's a basket of 32 different gold mining companies. But you might not have heard about "royalty companies"...
Royalty companies are essentially groups of bright mining insiders who pool money together in order to invest in early-stage projects. When one of their projects turns into a producing mine, the royalty company gets a slice of that mine's revenue or profits. In this sense, the royalty company is a "bank" for exploration companies. They return some of the cash to their shareholders and plow some of it back into more projects for future growth.
Mining financiers Pierre Lassonde and Seymour Schulich used this model to build incredible fortunes with a small royalty outfit called Franco Nevada. Since 1985, Franco has helped finance some of the biggest gold mines discovered in the past few decades. Many investors doubled their money in one year. Lassonde and Schulich made hundreds of millions of dollars.
Putting your money with smart royalty managers takes care of the problem of valuing mineral prospects and exploration teams. They do the work for you.
Royalty companies like Franco-Nevada are valued anywhere between 17 and 28 times sales... so if you can pick up one for, say, 10 times sales, it's a good deal. I have a special system I use to value one of my favorite royalty companies, Royal Gold, which ensures my readers get a good price when they buy.
Don't get me wrong... I'm able to get wind of several low-risk/high-reward individual mining stocks during the year. I recommend these stocks to my subscribers.
But for most people, owning bullion or royalty companies is the much better choice. It's the conservative, "sleep at night" way to own your slice of the gold bull market.
Good investing,
Matt Badiali
P.S. To learn more about my favorite region in the world to own mining royalties, click here. I think this little-known area of gold deposits is by far one of the safest, most profitable places to invest your money for the next few years.
Some interesting activity in the biotech sector...
Experienced traders know that when an asset holds steady – or even rises – when it should be falling, it's a bullish sign. They say the asset is "acting well." The same works in reverse. When an asset falls when it should be rising, it's "acting poorly."
Now here's what's interesting: In the past two weeks, folks have sold off all kinds of stocks... and riskier, more volatile assets like gold stocks andChinese stocks have taken the worst beatings. Biotech stocks are considered some of the market's riskiest, most volatile assets. Yet as our chart today shows, the S&P Biotech fund (XBI) has not only held steady... it has struck a new 52-week high. This is impressive strength from biotech, considering its risky cousins are down big.
Longtime readers know we consider biotech stocks one of the great "boom and bust" market sectors. When a bull market gets rocking here, the gains easily go into the hundreds of percent. If the broad market rallies to new highs after this correction, expect biotech to lead the charge.
When This Crisis Will End By Dr. Steve SjuggerudWednesday, February 3, 2010
The good news here is that we may already be out of the woods... Stock prices and home prices have been recovering for months. And unemployment has leveled off in the 10% range.
The Great American Liquidation Sale By Tom DysonTuesday, February 2, 2010
These companies based their business models on optimistic assumptions of the future. Conditions have changed, and now these businesses are basically giant portfolios of dud investments. They're going to have to liquidate these investments and slash the scale of their businesses.
How to "Bank" Dividends Whether or Not the Economy Recovers By Tom DysonMonday, February 1, 2010
One of the benefits of timberland is, if the price isn't right for timber, or if there isn't much demand, you don't have to cut your trees down. You just let them grow bigger and taller. As they say in the industry, you "bank it on the stump."
The Only Way to Buy Stocks for 500% Gains By Frank CurzioFriday, January 29, 2010
Throw the gambling mentality in the garbage. Throw the mainstream advice in there as well. You see, I know you can make a lot of money with under $10 "swing for the fences" stocks. In today's essay, I'll show you how.
