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-- Posted Wednesday, 10 December 2003 | Digg This Article
One of the greatest challenges facing an investor is determining where a sector, or a stock within that sector, is within its life cycle of establishment, growth, maturity, and decline. This is of crucial importance – get this right and you’re already half way there, because it means that you will always be swimming with the tide. In this article I will endeavour to make clear to readers where I believe gold stocks are right now in relation to their overall life cycle. Note that the cycles of the larger cap. stocks, which tend to lead, are considerably ahead of the smaller cap. and exploration stocks, which tend to lag. First of all, to better appreciate, understand and benefit from what follows, I refer readers to an article entitled “The Stock Price Lifecycle” elsewhere on the site describing the four distinct phases in the lifecycle of a stock. That article is a primer for this one.
 To summarize briefly: there are four distinct stages in the lifecycle of a stock (or sector). The establishment or basing stage, Stage 1, is where a company establishes itself in a market prior to growing, this also includes companies that have been around a long time and have survived a period of adversity and decline that frequently ends in a crisis, which leads to a radical restructuring and reorientation. Stage 2 is the growth phase, where the company expands and sales and revenues increase, this may or may not be part of a sector-wide period of growth. Stage 3 is where the company matures and sales and revenues peak, and the stock price, which moves to discount future developments, usually tops out somewhat ahead of this. Stage 4 is the declining phase, where sales and revenues decline, for whatever reason. At the end of this phase the company either ceases to exist or it survives, usually after restructuring to go through the entire four-stage lifecycle again. It is very important to understand that there is a proportionality about all this, in other words, you are not going to have a company that has been in the establishment Stage 1 for 5 years, break into a Stage 2 growth phase that only lasts 6 weeks, once the growth phase starts after such a long period of establishment one would typically expect it to last for at least 2 years – this has very important implications for successfully trading the stocks. An understanding of where your stocks are in their overall life cycles affords tremendous peace of mind, especially to long-term investors, who aren’t troubled by minor fluctuations as long as they know the larger trend is on their side. This is of inestimable value and this knowledge will go a long way towards curbing the tendency to sell too early in a bull market and to be whipsawed out of sound stocks. Let’s move on now to look at some practical, real world examples that demonstrate clearly where our gold stocks are right now in their growth cycles, and therefore what we can expect from them as we go forward. There are many more examples amongst the stocks recommended on this site, which are not included for reasons of page download time, but there are a sufficient number here to make the point. Note that in the bottom left corner of each chart is a tiny version of the idealized lifecycle chart shown above, with a magenta dot positioned to show where in its lifecycle each individual stock is.        I am now of the view that the people who will make the serious money in this bull market will not be those who sit on the edge of their chairs chewing their nails and worrying about whether there will be a correction to the 200-day moving average, or whether gold stocks will go down if the general market tanks. Ironically, the big money will probably be made by those who already have a lot, and who, having seen the writing on the wall, back up the truck and load up with a range of these stocks and then simply sit on them, perhaps for several years. I believe that what we are looking at here is the opportunity of a lifetime, I have never seen so many strongly bullish charts on the point of lift-off, and yet, I know that if I were to print out this article with its charts many times over and go around Wall St. distributing it, it would have little more effect than if I walked up the lane here to the field and showed it to the donkey. But I’m not complaining, I think it’s great that we can discuss this fantastic opportunity openly without the mob taking an interest. We don’t need them now in any case, their function in the scheme of things is to get left holding the bag in a few years time when we sell to them at far higher prices – someone has to buy at the Stage 3 top and someone can always be relied upon to do so, which is a comforting thought going forward.
-- Posted Wednesday, 10 December 2003 | Digg This Article
Web-Site: CliveMaund.com
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