Mike Swanson: Hang Your Hat on Small Cap Private Placements In Gold Stocks
It often takes one year of gains for the typical investor to get interested in something in the stock market, which is where we are approaching with gold right now. Investing in the first year of this bull market is a great strategy. The bull market for precious metals and mining stocks will likely last 3-5 years. Mike Swanson recommends people to put 20% of their money into gold stocks, and thinks this might be the biggest bull market we will see in our lifetime.
One strategy that Swanson believes in is to invest in small cap companies with private placements, which can return much greater gains. Instead of issuing bonds to raise capital they create new shares to pay for drilling campaigns, property acquisitions, or G&A. Sometimes the stock might be trading at a discount, and usually a warrant comes attached to these shares, which is a long term option to buy more shares later at a set price.
There are small cap stocks that got demolished in the bear market, and reached super low valuation points. Stocks trading now at under $5 million will typically get to market caps of $25-30 million in a bull market cycle, which is a 3-5 time gain from where they are now. Two examples of this which both Palisade and Mike Swanson are invested in are Carube Copper Corp, which is doing a 10 cent financing with a half warrant at 15 cents- and IDM Mining, which undertook a sizeable financing at 9 cents with a half warrant at 15 cents. In just a few months IDM has already gone up to 24 cents!
Many people are wondering when a pullback may happen in gold. Swanson thinks a reliable way to predict a pullback in a bull market is to look at the performance of the gold stocks compared with the metal. When you are in a bull market, the gold stocks tend to go up more than the metal does, and pull back less- so stocks act stronger than the metal. When you are in a bear market, the opposite happens. Unless gold keeps going up and the stocks are no longer going up, there will probably not be a sizeable pullback. Until then we will likely only see pauses, with little to no pullbacks.