The S&P500 is Up Nearly 50% in the Last 24 Months. What Are You Doing to Insure Your Portfolio?

Protecting your holdings is crucial when you’re in the bear-end of a volatile market. Ultimately, the stocks you choose in post-bull market conditions like this can make or break your portfolio.

For some, the crazy bull market in the latter half of 2020 was a blessing; for others, it was a curse.  

But for a few unsuspecting investors and traders, it was a curse disguised as a blessing.

There’s a reason Schwab, a $6.9 trillion firm is calling 2020 “Generation Investor”

An estimated 15% of retail investors started in 2020.

According to JMP Securities, around 10 million new brokerage accounts were opened in 2020, 6 million of them being attributed to Robinhood.

It's no wonder the optimism for the “Generation Investor” was through the roof. Wouldn’t yours be too if every single stock pick or crypto tip you read on reddit actually yielded you a decent return?

72% of Generation Investor were optimistic about the U.S. stock market, versus 63% for pre-2020 investors.

57% of Generation Investor thought the stock market would continue to rise in 2021, versus 44% of pre-2020 investors.

43% of Generation Investor will invest more into the stock market, compared to only 20% of pre-2020 investors.

When your first exposure to the stock market is an easy and fruitful one, and you’ve never experienced a bear market, you may need to be prepared to trim down your expectations a bit.

Remember, the stock market makes roughly 8-10% per year on a passive level if you were to buy the S&P500. Earning 1000% in a year is a treat that few retail investors get to experience, occasionally if that.

While it looks like we are about to experience many traders get burned if they don’t adjust to reality, a good chunk of Generation Investor seems to be calming down their appetite for speculative gambling.

Only 28% of this new wave of retail investors are trading for the short-term in 2021, while 44% of the same group were hungry for short-term gains the previous year.

An experiment was once done with trees being planted and grown in a biodome. Once fully grown, the trees would end up collapsing under their own weight. Without having any natural wind to grow strong against, the trees quite literally didn’t have enough strength to hold themselves up.

With that being said, nothing builds character, strategy, and discipline like a bear market. In an environment where risk is imminent, speculation is dampened, and multi-baggers are scarce; the decisions one tends to make trading stocks and digital assets are far more calculated, logical, and often successful after years of practice.

Put any investor in a bull market like the one in 2020 and early 2021, and the need to build a thick skin of informed and careful trading decisions withers, amplifying the potentially devastating effects of a post-bull market to the over-speculative investor.

The stats are showing that investors and traders are starting to realize they might be sitting on the ugly side of a volatile market, and after a year of reaping the bright side, they may need to tweak their approach.

So after an event like the COVID-19 pandemic and the bull market that commenced shortly after, what investments are safe now that the party is coming to an end?

Few sectors are as hot as resources right now, and the writing is on the walls. With the proliferation of EV initiatives throughout America and the rest of the world, battery metals such as graphite and lithium have gone bonkers.

In the last 24 months,

American Lithium (TSX-V: LI) is up 3533%.

Millennial Lithium (TSX-V: ML) is up 334%.

Graphite One (TSX-V: GPH) is up 536%.

Gratomic (TSX-V: GRAT) is up 2084%.

We’re seeing junior explorers proving themselves to have serious assets that justify them becoming bigger players in the resource game; all while growing exponentially throughout a bear market and surviving through the tail-end of a bull market as we speak.

Although satisfying the world’s ever-growing appetite for EV batteries doesn’t seem to be ending soon, assets like tech stocks, speculative plays, and crypto have all been on a wild ride as well.

Infact when it comes to hedging inflation, assets like Bitcoin and Ethereum have been popular choices as well. Both of these assets are floating around all-time highs, as the integration of blockchain-related technologies into the world as we know it is rampant.  

However, the correlation to cryptocurrencies and inflation is still unclear, not to mention the inherent volatility in these digital assets leaves them more of a toy for the speculative investor, rather than a hedge. Although crypto assets are looking promising in the long-term, the fact that they can drop 30-50% at any given time before recovering tends to be a lot for most investors to handle.

After every bear market, typically lies a bull market. The COVID-19 bear market was so brief that many hardly consider it a true bear market. What happened afterwards was we saw mass stimulus enter the equities markets as indices like the S&P500 blew past all-time highs, and to this day is still sitting at a 40% gain from the peak of the index before the COVID-19 crash.

Crypto started to see gains like never before, as the leading crypto flew from US$11,000 at the top of 2021 to above US$50,000 in mere months. Anyone who placed a bet on a recommended cryptocurrency would more often watch their positions rise than not.

The question is, are the newer investors in stocks and Crypto prepared for a true bear market? Are they prepared for a market where inflation is rampant, interest rates are jacked up, IPOs are dropping below issue price and playing defense is the only way to stay afloat?

If they were, they may consider placing a diversified chunk of their portfolio into certain securities that tend to win when we see days like this.

We all know gold is one of the most commonly used stores of value globally. Silver, while being currently more affordable, has been receiving lots of attention lately. Not only is it an incredible store of value, but it is also used in plenty of EV applications such as Lithium-ion Batteries.

The value of commodities such as gold and silver typically rise during recessions and economic downturns. Although multi-baggers are extremely scarce when it comes to commodities like physical gold/silver, their stability during hard times is just as valuable as having high-growth asset during bull markets.

However, a substantial opportunity here is the mining stocks based on these commodities that tend to do a splendid job not only insuring your portfolio, but also providing solid growth along with it.

The kicker? You need to know how to pick them.

To properly protect your portfolio from post-bull market woes, it is best to diversify the “insurance” side of your holdings with a mix of junior and major mining issuers; because as much as we want to protect our assets from dropping in value during bearish times, wouldn’t it be nice to see some gains while we’re at it?

Whether you are choosing a major miner, or a junior miner, there are a few key things to look for to ensure your decision doesn’t lie on the wrong end of a volatile penny stock.

Management – The track record of the management and board of directors is uber important to note. Remember, these are the people who make the calls as how to run the business – this includes the operational side of the business as well as the market side of the business. A well-oiled machine of a company that has all the proper infrastructure, news flow and support it needs to perform well on the public exchanges is all the outcome of competent management.

Structure – When companies look to list their shares on an exchange, they file a prospectus, which is essentially a full breakdown of every possible aspect of the company that needs to be disclosed. Business model, risk factors, past transactions, history of the board of directors, among other things. Perhaps one of the most prominent pieces of info that gets disclosed is the share structure.

Now, while we’re not going to pretend to be experts in the field of securities law, there is a few key things to note when inspecting a company’s share structure.  

•          Shares outstanding (and fully diluted) - this represents the amount of shares the company has issued in total. Fully diluted includes the exercise of all warrants and stock options that are currently granted. Ideally, this number does not venture too close to the 100 million area. At 100 million shares outstanding, this means if the company raised money at $0.25, it would warrant a $25 million valuation, which may be hefty for some small cap issuers.

•          Capitalization Table – This highlights all past financing and share issuance events. How many previous financing rounds do you see prior to the price you are investing in? Is there lots of free trading shares at smaller valuations in the past? These factors are important in assessing the risk factors of a stock.

•          Management Investment – How invested in the management and board of directors? Do they have significant skin in the game or are they mostly on payroll? If the people calling the shots in the boardrooms are also invested heavily in the company, their interests are likely much more aligned with yours as an investor in the company.

Strength of Assets – Talk to the geologist. Or anyone who works with/for the geologist. Then find someone else, or another unbiased source of information to reference what you’ve learned from the company’s investor relations representative, (or if you’re lucky, their geologist). Dig as deep as you can (no pun intended) to immerse yourself in the assets the company owns and do your best to get a solid opinion on how significant they are.

While we as investors are not mining experts, companies are actively looking to communicate good news regarding their drillings and properties to shareholders and asking as many questions as possible can pay off in the end.

No matter how new you are to the world of resource investing, we promise that you will be a little more educated every week that goes by if you are subscribed to The Mining Report. Knowledge is power, and we’re known to drop a lot of it.

Institutional Support - While junior miners that tick off all the boxes mentioned above are already likely to be a sound investment, once in a while, sh*t starts getting serious.  

When a junior miner starts to show exceptional value in the resources they are staking, heads often turn. Which heads get turned, and how much capital they are deploying into the company is something you’ll want to pay attention to. When you see big names in the industry start to invest, as well as bought deals from large firms, you may be on to something a little bigger than you thought.

Just this year we witnessed a junior silver miner raise nearly $53 million dollars by issuing just over 70 million shares in a financing led by 3 prominent firms, with big resource market names such as Eric Sprott (go, google him.) The capital is being used to advance the purchasing and development of 3 different projects.

For a company that previously had a market cap under $100 million and a share price well under $1, this is without a doubt a considerable chunk of capital and institutional interest to deploy in a junior miner.

Stay tuned with us here at The Mining Report as we dissect the ins and outs of resource investing and how it plays within the stock market today. By the time we’re done with you,you might just be an expert.

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