Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
Author, Andrew Sheldon

Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Thursday, February 21, 2013

Market outlook - Dow not going to break

I've been doing some reflection over the last few days. I had previously thought the Dow Jones was tentatively going to break 14,000 points, and that it would be a precursor to a rally. This view was underpin by some positive fundamentals inherent in the market. The problem is the negatives, which I see as these:
1. Market support - The Fed Reserve has been pumping a lot of liquidity into the market in the last few years to sustain the market - the market is fully valued, and I expect the Fed to ease that support, in an attempt to draw the market into more sideways movement.
2. Emerging markets - The strength in Asian markets rests upon expatriated earnings, passive foreigner investment funds, stronger construction and rapidly growing emerging service economies in their own right, but they are still dominated by 'food'. The Asian economies have their Gucci stores, but most still cannot afford these items. When they go shopping, its mostly to look, and mostly to eat, because that is all they can afford at this time. It will be different in a few years.
3. Dow Jones trend - The Dow Jones has historically been a trending market - see the log-linear chart below. This chart offers 115 years of history. So what can we garner from the current trend. There appears to be further evidence for consolidation for a number of years in the Dow before it is able to grow again. The question is why? Property markets in the US are already starting to recover, but everyone is still highly indebted, they are focused on rebuilding savings, and without really a substantive basis for upside, and perhaps some apprehensions about higher taxes, we are not going to see a rapid return of 'big spend' USA. So what if the US government increases taxes and gave the poor tax relief. The problem with that is that it would result in the sucking in of imports. The moral of this story is that this would be great 'stimulus' when the world is really to sustain it, because they are growing as well. Japan is talking stimulus, but perhaps they might wait before they do so. Perhaps its not going to be a sudden injection, but spread over a number of years. I don't expect Japanese stimulus however to result in a substantive rise in imports, and anyway, it would be offset by a competitive yen, so the net effect would be positive. Japan does not have a high reliance on imports because Japanese people consume products 'particularised' for Japan, i.e. Cute TVs and refrigerators.

4. Techically, the market action is telling me the Dow Jones is going to fall. See how the Dow has encountered strong resistance at 14,050 points. That was to be expected; its a major psychological hurdle to break 14,050 and previous 2007 high of 14,140 points as well. The issue for me was the break of the low of 15th Feb, followed by its failure last night to recover sufficiently to break above that low. It remains on a downtrend, and I am expecting a very convincing break of the 13,850 point level will occur tonight. In fact, I'm expecting a fall back to 13,650 points, with a nominal recovery. That will be a 230 point correction; before stabilisation. 

Source: Google Finance.

Lastly, I am not going to be a hero, so I was inclined to take golden profits - sold Gippsland for 1.4-1.5c, having bought for $0.08c. I believe this company is positioning for a capital raising around 1-1.2c. Its not the best climate to do this. The rest of my stocks are longer term - UCL and GBE. I also have a number of other stocks, and the rest is cash to buy on weakness. GBE has a buy-back provision in place, and has a lot of cash. UCL is just great exposure to great (2) projects.

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Investment Strategy

If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.

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