Two Useful Lessons
What a successful royalty company looks like, and ...
Real-world examples are the best teachers. And today we have a couple of good ones:
Why you should take profits when a lottery ticket stock spikes
Hercules Silver is not in our portfolio and this is not (yet) a recommendation. But it had a great run after Barrick Gold swooped in and bought 15% of it in November. From $0.16 per share it spiked above $1, becoming a 5-bagger in a single month.
Then it quickly retraced half its gain — which is the lesson. This pattern is extremely common in the explorer/junior miner space for a couple of reasons. First, these stocks are thinly traded and not well-known, so it only takes a bit of good news to attract enough cash to move the price dramatically.
After such a price spike, all the early investors have sudden, sometimes shockingly big paper gains. And no one wants to suffer the dreaded round-trip, where a stock surges and then plunges back to the original price. So those early investors take some money off the table, and — remember, thinly traded — this causes the price to fall hard. Which is what just happened with Hercules.
So make it a general rule to take profits in explorers and junior miners that spike on sudden good news. Consider cashing out your original investment so you’re playing with “house money” going forward.
Now for the next lesson: