WE SUGGEST THAT YOU READ THIS ARTICLE THOROUGHLY AS WE WILL SOON COMMENCE A STRONG BULL MARKET IN MANY GOLD STOCKS AND EXPLORATION STOCKS……

 

Profits are vital to any business. With that in mind, we want to point out that there has been a dramatic change in the profitability of the brokerage industry.

True “market makers” (or specialists) are a thing of the past and this has a tremendous impact on the juniors’ (small cap mining stocks) price movements and overall direction. Today individual stocks’ previous support levels which were usually price bottoms are no longer support levels, therefore stocks often decline more than what we saw in the past during corrections. The previous “ bottom “ area for most stocks can no longer be counted on for buying support by market makers so the stocks often drop more than expected. Often that is a great opportunity to accumulate stocks when they are literally “on sale.”

 

                                                             Two reasons for this “lack of support”.

1-Profitabilty is limited… Most importantly, in the past, the “spreads” between bids and offers for stocks provided the brokerages profits-often enormous profits. Those profits did finance research coverage for stocks. The spreads that were then often .05 cents to .37cents or more rarely occur now and have been replaced by today’s spreads of .01 cent or less. Those spreads now are insufficient and due to that loss of profitability, comprehensive research coverage on many stocks has declined considerably. Why? Because in the past, the “spreads” between the bids and offers were a major source of brokerage profits. And those profits provided the funding for analyst coverage for many stocks; now those profits for the most part are gone.

 

Over the last twenty years we have seen an enormous decline in the number of active market makers in the smaller cap stocks and Junior mining stocks.

Market makers in the past would attempt to maintain markets by trying to help balance the bids and offers. In past years, the market makers truly assisted buyers and sellers by buying or selling or selling short in their own accounts to aid in filling orders. Their market making enhanced the liquidity of the market and diminished volatility. In general, they would win more than lose by taking advantage of their experience and the fact that they “saw the inside of the market” as who is buying and who is selling among other things. Again and most importantly, in the past, the “spreads” between the bids and offers were a source of funds which financed comprehensive research coverage for stocks.

 

 

How to Address it Today?
Investors must recognize that since there are no longer active market makers to the same degree as in the past, they must expect more volatility and price plunges to levels often far below where most stocks have bottomed previously. So stocks often sit and languish at prices that often turn out to be true “bargains” for buyers later. My view is that Investors can moan, cry and complain or they can take advantage by investing in juniors and mid-cap stocks that their analysis finds represent good value. The sad history of human nature: “When prices are, they run to buy…When prices are low, they let them go.”

 

 

2-Little to no research for the majority of companies! Couple the lack of supportive market makers with the fact that comprehensive research coverage is usually non-existent for Juniors and most non-large cap companies. Since there is very limited research coverage for most companies, the investing public remains totally unaware of most undervalued stocks. The public usually only sees the narrow universe of stocks that the brokerage houses are recommending. Very few are undervalued…very few! And that is never going to change.

 

 

Look at other sources for investment information, such as on the internet, investment newsletters, insider ownership trends, and make sure it makes sense to you. And insist on value…insist on value. We will write more on this regularly as we are convinced that we have seen for three years the beginning of positive period for Junior mining companies. Now our analysis suggests that major moves up are coming in many mining and exploration stocks.