The Critical Eye protects your Money.

I've been involved in the markets for a long time now. Over 25 years. Over a period of so many years one can learn many lessons. In the beginning you talk to others and assume they know what they are doing, so you make the mistake of purchasing based on other people's understanding or the assumption that because you are not knowledgeable, you should take the advice of those who are. Once you find out however, that most are not very knowledgeable, you begin to learn some lessons. The information that you got came from someone who got it from someone, and so forth. Unfortunately you find out after a while that most information is either incorrect or forward looking and that people tend to actually do very little dd before purchasing stocks. This is the first lesson I learned. Once it was clear that there had to be a way to actually reduce the risk of learning this very expensive lesson, I realized that the only person that would truly look out for my money was me.

I adopted an attitude of "If there is only good said of the company, I am going to look for what bad I can find." I apply this now to the mining sector .

Think about it. Every company wants to promote itself as the next best thing to slice bread. there is not a company that will come out and say:

"We are mediocre and don't really care about the shareholder, and we want to get rich off your back. You'll finance our dreams, and if they don't work out, you'll be left holding the bag. If they do work out, you may get something out of it as well, but we think that it is more important that we make money first".

Of course not: They will always make sure that the initial write up is showing all the good that they seem to be offering. How their management team is superb, how their prospects are an unbelievable potential resource etc..etc.. The promote the stock, sometimes too much.

The idea of risk reduction is a strategy that pays dividends in the long term. It will allow an investor to greatly improve his odds, much like a poker player who understands the odds of a specific hand at the game. Sure, often luck will make for winning a pot on a chance that you the river card actually makes you that flush or that straight. Over time though......the odds will get you, and it is simple mathematical fact that you will lose out with time.

Let's look at that for a moment and apply it to the current hot sector of mining. There are around 1100 companies trying to get our money to explore or mine.

Let's compare this to any other sector of industry and set a base for understanding how important this strategy may seem if applied to other sectors. In 2000, when the bubble burst for techs, there had been a huge arrival of new companies, each touting their products and their ability to make shareholders money. Of those, very few remain today. How can anyone believe that this sector is any different? Indeed, maybe 1% of all companies exploring will actually make a great find. Some will make finds, sure, but are they going to be able to mine them? To sell the resource? Will the find be economically viable and will it be within the time period alloted for the current bull market for metals? Let's look at that percentage again........1%, at best.........that's 11 companies. Am I being too conservative? Let's find out.

Name 5 companies that in the last 10 years have become behemoths......starting from nothing but a premise that they will find the next great resource. When you have done that, come back and continue reading this. I bet your screen saver is working overtime by then.

So, having established how difficult it actually is to point which company will be able to let you sit back and watch them grow into the next Newmont, Rio Tinto or Barrick or at least get the interest from those big boys to purchase their resource or get a JV going with them, you'll appreciate that whenever you invest in a junior, there is a huge risk.

Now , how do you reduce that risk.......You can do a lot of dd and look for the good. I think that if you look for the bad, you'll get a whole lot further. Huh? Why loo for bad things? What benefit can that have? That's negative thinking and no one likes a negative thinker.

We are taught to turn negatives into positives our whole lives......In this particular case, I think that when seeing a negative, we should simply be taught to turn the other way instead of trying to turn it into a positive.

Having said that, 1100 companies to choose from. All touting the best management team. Okay, here's the clincher. Basics again. How difficult is it to find talent these days?

My point exactly........there is a huge lack of it......Guss what? This applies to the mining sector as well. We tend to forget that. No way that 1100 companies have the best of the best. It doesn't happen in any other industry sector, so why should it here? It's just simple mathematics. There is good management and there is mediocre management and there is plain simple bad management. Great Geos and bad Geos.......Great tech teams and so-so tech teams. You get the idea.............just like anywhere else.

A doctor isn't always a great doctor just because he has the certificate to show he got through the theoretical process. The practical is where he makes his true mark and where he gets his followers and his patients . Ah............those words....followers and patients.

Let's translate that into Followers and Shareholders for our sector.

Look for the bad....it's quite simple. If you do not do sufficient due diligence, you are doomed because the odds are against you. If you think that because what you read on their site looks good, sounds good or feels good, you are going to lose in the end, if you do not actually verify each and every item that you felt seemed so good.

The art of risk reduction in a speculative market like this is one that requires a lot of patience, a serious dose of coffee and a lot of late nights sifting through huge amounts of information. If you are not prepared to do this on a regular basis, you are cutting corners, and in the end, you will also go the way of the poker player who actually wants to pay to see the flop , even though he is holding a 2 and a 7. The odds will come and bite you there where the trousers go their separate ways, without a doubt. Simple mathematics again.

Management. A juniors greatest asset. Properties: A juniors greatest potential asset.

How do you actually find out which of the 1100 companies really have the greatest management and the best propspects? By the simple process of elimination.

Use a set of clearly identifiable parameters and variables that you apply to each and every company. None of them are TECHNICAL. None of them have to do with fib lines, or market sentiment or candles.

You have to ask many many questions. Not just 20, but hundreds. Those questions will allow you to knock off your list any company that doesn't meet with your set parameters of quality and reduce your risk of getting involved in a company that has the odds stacked against it to start with.

A handy spreadsheet or database can be your best friend in this process. They have all kinds of analysis software out for technicals. Stockcharts.com has a huge array of variables with regards to TA that can give you a bunch of results , but they mean nothing for an investor. A day-trader maybe, but not for an investor who doesn't want the stress of day-trading.

Technicals don't apply to juniors. They simply just don't work because of the size of the companies and the share structure. Small floats are easily manipulated, etc..etc... The results have to come from a group of questions that actually compare one company to another on a large array of fundamental issues, placing the emphasis on management , the Geologists and the prospects.

I hope that your curiosity has been sufficiently tickled to come back and read the second part when I post it next week. I'll get into the nitty-gritty.

Vwig.