An Oldie but a Goodie: Canadian Mining Speculation

Canadian Mining Speculation

By T.H. Mitchell

Have you ever thought that the junior resource market might be manipulated? T.H. Mitchell says it is, and that you need to speculate in the market like the professionals if you want to be successful. Originally written in 1957, Canadian Mining Speculation is a book about the factors at play in the marketing of junior mining sector companies. While the book is old and some concepts are no longer relevant, Mitchell has some great words of wisdom for the reader. If you can find a copy, I recommend this one.

Mitchell argues that the junior market is dominated by professionals, and when ignorant of this fact, the average investor is destined to lose money. He defines professionals as those who consistently make profits within the sector (professionals, he claims, comprise 10% of the total buying/selling market), not necessarily those whose actual profession is somehow related to the stock market.

Professional Methods

Mitchell outlines 4 methods that professionals use to make profits, which I’ve outlined below. The fifth, propaganda, is used in conjunction with each of the first three methods as a way to sell the shares that the group has used to raise the price:

• Mark-Up Method – The professional group controls all of the floating share supply. Members within the group trade with each other, raising the price incrementally over a period of time. Once there is a significant enough margin for the group, promotion can be used to bring the general public into the stock.

• Fast-Rise Method – With this method, a rise in price is guaranteed, as the group buys up all of the available stock at market prices. The professionals will typically use this method if the stock is near a bottom and they have a significant enough cash position to buy all of the market orders. Once they have established a major position in the stock, they can begin promoting to the average investor, who will come in near the end to buy at the highest price!

• Slow-Rise Method – Much like the ‘Mark-Up Method,’ the group buys the stock – but only at reasonable prices. The result is a steady rise in price that’s then used to slowly bring in the public.

• Special Recommendation Method – This method can show up in a variety of ways, but is best characterized by the group paying for promotion from influential people, publications or websites. The marketing typically deals with ‘special situations’ and evokes an emotional response in the average investor, where they can’t help but buy into the hype.

“The speculator must take the attitude that all price movements are manipulations by the professional operators. This is not true, but to be on the safe side the speculator must operate as if it were…All news releases are promotion, all price changes are manipulations and all important discoveries are basically unimportant…pessimistic thinking…opposite of the optimistic public – can they expect to be a successful speculator over the long pull”
(Mitchell, Canadian Mining Speculation, 87).

“Sentiment makes prices, and professionals make sentiment; thus, professional operators make the prices” (Mitchell, Canadian Mining Speculation, 90).

“Anyone who intends on engaging in a speculative investment in the junior mining sector had better resign themselves to playing the game as the professionals do, for to run counter is to invite disaster” (Mitchell, Canadian Mining Speculation, 104).

Market Manipulation..?

The prospect of market manipulation is scary; it really makes you question whether you can make money if it’s rigged. Whether or not you agree with Mitchell about the manipulation, however, I tend to agree that if you take a somewhat defensive (pessimistic) posture, you’re less susceptible to the sector’s inherent pitfalls.

I’m not sure about the first 3 methods that Mitchell outlines, but I know the fourth is definitely used. Promotion is great when you’re on the right side of it, but it can evoke frustration or even jealousy when you’ve missed out on an opportunity. I think that chasing the promotional stories instead of searching for the quality companies is a dangerous road to travel. Stick to the basics of junior resource stock investing and ignore the hype – until it works in your favour and then you can enjoy it!

Worthy of a Place on Your Bookshelf

Canadian Mining Speculation may change the way you look at the junior market, or if nothing else, it will make you question your current beliefs in the system. Regardless of what side of the manipulation argument you stand on, I think Mitchell gives the reader a lot of sensible advice for successful speculation, which is ultimately what everyone wants. This is one to add to your list of must-reads.

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Until next time,

Brian