In the past few years, investors have seen the highest highs and the lowest lows in various parts of the resource sector. It seems like bulls have never been more bullish and bears have never been more bearish.
Caught in the middle are the average investors who are trying to piece together where the investing opportunities are and how to make money in the unpredictable resource market – rare earths have spiked and fallen, tax loss selling pushed stocks down, gold is high and (according to some experts) going higher. But all of this seems like it could change at the drop of a hat.
Reginald W. Ogden, an investment advisor who specializes in resource investing, has some insight to share. We met up with Mr. Ogden at the recent Cambridge House Vancouver Resource Investment Conference.
Mr. Ogden, formerly of England, studied Public Administration before moving to Canada to become a stockbroker. As a stockbroker, his focus was obvious. He said: "In Canada, the only game in town is resources."
He became an expert in resources and wrote The Ultimate Gold Stock Trader. "There were 26,000 books on mining history. I wrote the first one ever on trading gold stocks and precious metals," said Mr. Ogden. He's currently working on a second book with an emphasis on creating retirement income. His expertise is also in the area of Initial Public Offerings, Private Placements and Venture Funding.
Mr. Ogden is licensed through Canaccord Wealth Management, an investment firm owned by the publicly traded company Canaccord Financial (TSX: CF), which also owns an investment bank division Canaccord Genuity. "[Canaccord Wealth Management] is the largest independent [brokerage] company in Canada. We have offices in Boston, London, and New York. We are expanding into Asia and Australia. Wherever there are resources, you'll find Canaccord moving in," said Mr. Ogden.
Our conversation turned to the resource market and the price swings that investors will have seen in the past several years. Mr. Ogden described them briefly: "There are various phases in the market. In 2000, the gold stocks moved well ahead of the gold price. Sometimes the gold stocks trade as barometers reflecting the price of gold and sometimes they trade as barometers predicting the price of gold." And later he added: "We're going through a stage right now where the first phase of a secular market is coming to an end. We're in a midst of rallies right now."
We asked if rallies could be a serious opportunity for investors who take advantage of it. The answer surprised us: "Rallies can be very spectacular in the resource sector," said Mr. Ogden, "But according to Barclays, only one in ten large corporations joined in the resource rally in 2008 and it was the biggest rally we'd had in 30 years, lasting over 5 months."
So, where are the opportunities for investors who are willing to get into the market? Mr. Ogden gave a few options to investors: "In the last ten years, we've suddenly had new interest in the juniors – in iron ore, coal, uranium, rare earths, and aluminum. Normally you have to be in tune with the sector to benefit from those commodities. But with gold and oil, there's always interest in those sectors and there are always winners. You don't have to have a sector market running to have people interested in those."
Investors might find opportunities in junior resource companies but they should be cautious, too. Mr. Ogden drew a parallel between battle where the low-level infantry go in first, then commanding officers, and finally the generals after the battle is over. Similar in the resource market, Mr. Ogden said: "The juniors go in first when it's risky. Then when it's fairly safe, the midcaps move in. Then when it's completely safe, the larger stocks move in." The opposite is true during a bear market: "The juniors decline first in a bear market," said Mr. Ogden.
Mr. Ogden continued with his assessment of the market: "Right now, we're in the throes of rallies among the leading stocks. About 30% of stocks will come back [from their previous decline] and the other 70% usually don't."
Lastly, we asked him about the price of gold and whether he thought it would get to $2000. He said: "It could easily go to $2,000 but it doesn't mean much. When I started writing my book, gold was $250 and by the time I was finished two years later, gold was $350, and the big percentage gains were made from there. Markets do their best when they go from bad to no-so-bad. You do much better than if you go from not-so-bad to good. We've had a good market. The PE ratio of senior stocks has come down for the first time in history to about 11 or 12 times earnings. For the first time, gold stocks are real values on their own merits – that has never happened before."
According to Mr. Ogden, investors who are "in tune" with the sector might find more opportunities but even those who are not as familiar with the markets can still find some winners, especially in oil and gold. The biggest warning Mr. Ogden gave is that not all stocks will come back in the current rally – a strong warning to investors to make sure they do their due diligence and seek out a qualified professional to help them navigate the complicated opportunities in the resource sector.
REFERENCES
Canaccord Wealth Management
2200- 609 Granville Street, Vancouver, B.C., Canada
Phone: 1-604-643-7300
Canaccord Wealth Management: http://www.canaccord.com/en
Canaccord Financial: http://www.canaccordfinancial.com/
Canaccord Genuity: http://www.canaccordgenuity.com/