Play the Market, Don't Get Played--by GREG McCOACH

source-- www.goldworld.com

Play the Market, Don't Get Played By Greg McCoach | Wednesday, May 21st, 2008

If you found yourself having to sell your junior mining shares the past month in order to pay for capital gains taxes, then you need to pay attention to what I'm about to say...

There are two types of investors, those who play the market and those that get played by the market. If you were selling junior mining shares this past month (probably the majority of investors), then you were being played by the market having to sell at such low prices. You were selling at a time when plenty of others were forced to do the same thing for many of the same reasons.

Conversely, those who were doing the buying in April (the minority) are setting themselves up for significant profits when the market rebounds at some point. They are playing the market wisely and represent those investors who are most successful at profiting from junior mining stocks.

Ultimately, the choice is yours as to whether you play the market or are played by the market. But if you are tired of finding yourself on the wrong end of this equation, then learn your lesson and vow that you will never let this happen again.

One experienced junior mining stock investor recently told me it took him 14 years before he finally figured this out. So don't beat yourself up, and just realize that playing the market is not easy and begin to make changes on how you can be on the winning side of more of your trades.

Here is some gold investment advice to consider in this regard...

Gold Investment Advice: A Lesson in Building Wealth

The reason most investors found themselves in such a bad position is that they don't keep cash on hand or properly prepare for paying their upcoming tax bill. In most cases they are too fully invested in the market. This is a huge mistake.

Another reason for this failure is investors get too greedy when our market is running hot and the paper profits are piling up. You must discipline yourself at these times to take money off the table and cash up for the next cycle. I always recommend taking 25 to 35% off the table when our market is running to new highs as we last witnessed in October / November of 2007. Personally I wished I had taken more profits at the time but such is life. I had to learn myself by sad experience as most of us do, but I have been through these cycles enough times in the last ten years to know that you must cash up when things are good. Otherwise you may find yourself in a very uncomfortable position as the market corrects and the tax bill comes due. Advertisement

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What has been surprising to me as I have interacted with subscribers lately is that so few cashed up at all when I was telling you to take money off the table last fall. Several subscribers told me recently that they just couldn't bring themselves to sell any of their profitable positions as the market was running higher. This is called the greed factor and a major deterrent to your success! Check yourself in this regard and make sure you are adequately cashing up for your future tax needs and special buy opportunities.

All of us hope for the parabolic moves that could be a part of our future, but to not cash up when things are good is a critical mistake. How much you cash up is always a personal choice, but as for me I will always take at least 25% off the table when everything looks rosy. This next round higher I may take even more.

The junior mining share market is volatile and that volatility is only going to get worse. Yes, there could be rip-roaring parabolic up-moves at some point in our future, but what we may have to pass through in terms of downside volatility while we wait for that to happen could be very costly and painful.

I believe our junior mining share market will be in a bull market for many years to come and that we can make significant profits with quality long-term holdings. That doesn't mean we shouldn't sell some at times to make sure we always have enough cash on hand to take advantage of unforeseen opportunities that arise.

Your junior mining stock cash account is sacred and only to be used for the purpose of paying taxes or extreme buying opportunities. Hold onto cash and learn to be more judicious as to what you allow in your portfolio and at what price. Learn to say "no" more often and for the right reasons. This will take more time and dedication on your part in doing your due diligence but the rewards will be greater.

Keep track of your selling for each calendar year on an excel spreadsheet and always know what your capital gains tax liability is at all times. In this manner you are constantly aware of how much you're going to owe and are more prone to prepare and sell when the time presents itself. People who don't know how much they owe at all times tend to overbuy.

When September / October comes around make sure you sell any tax losses for the year before the crowd does in late November and December. Again, you don't want to be doing things when the crowd is doing things. You must train yourself to avoid the crowd.

Manage Your Cash Carefully

The most important part of your junior mining stock portfolio is your cash account within that portfolio!

How well you manage that cash will largely determine how successful or unsuccessful you will be at investing in junior mining shares. When you learn how to effectively do this you will be buying when most others are selling and selling when most others are buying. You are then playing the market at that point for bigger profits. An investor like this understands that volatility is their friend, not their enemy so they prepare for it and take advantage of it. You should do the same.

An investor that is fully invested most of the time with little cash on hand is going to find it difficult to buy low and sell high during the year. In order to buy low, that means that you need to have cash on hand from selling when prices were high and putting that money away until the market retreats. This downturn may take four, five, six months or more and you need to exercise patience and not get antsy. Let the market come to you.

As is often the case with these juniors you get multiple chances over time to buy low. The trick is to stay disciplined and not spend this money until you feel we are close to a bottom. If you can buy within 20% of the bottom you're doing great.

Most investors want to stay fully invested all the time so even when they sell something; they are usually buying something else right away. Again, this kind of thinking will more time than not put you in the victim stance, not the winner stance.

For now, I hope these words will be of some help to you in your quest for greater returns in the junior mining stocks. You just need to make the choice and begin implementing.

So choose to be a winner!

Until next time,

Greg McCoach