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Digging for Opportunities with a Mercenary Geologist – An Interview with Mickey Fulp

If there’s one truth about a mercenary – it’s that they mean business. In a resource conference filled with stories, opinions and “potential”, it’s a challenge for professionals and novices alike to identify real opportunities from the pipe dreams.  Enter a mercenary geologist. We had a chance to speak to Mickey Fulp, otherwise known as “The Mercenary Geologist” about his take on the companies attending the Vancouver Resource Investment Conference, what his outlook was for the overall junior mining and exploration space and how investors can capitalize on the current environment.

Looking first at the big picture, Fulp described the investing climate as being “risk off”.  What that means is that the venture capital is looking for less risky opportunities as the perceived rewards for investing in highly speculative stocks are low.   The junior mining and exploration sector is, according to Fulp, “the riskiest game on the planet” and as such investing in companies in this space is not something venture capital has an appetite for at this time.   He also pointed that lack of confidence may also be why the appetite for investment in this sector is waning.   At issue, said Fulp, was his opinion that many of the junior mining and exploration companies tend to over promise and under deliver.

So how does a mercenary geologist find opportunities amidst all of this pessimism?  Ironically, it is actually pessimism that Fulp keeps his eye out for as a cue to hunt for bargains.  His strategy involves buying companies “when nobody wants them” and wait for prices to significantly appreciate, which he believes, they often do.   With so many companies to choose from, not just any company makes the cut.  Fulp focuses on three key aspects of a company: a tightly held share structure, the experience and track record of the people in a company and the project itself and whether that project is likely to turn into a mine. By comparing companies against their peers in this way, opportunities can become easier to spot.

Ultimately, however, the decision to enter or exit a stock is based on a suggestion we’ve heard time and again from other savvy and experienced investors: have a plan for entry and exit.  From the perspective of a mercenary geologist, knowledge is important to have on a company and a stock, but if the reason(s) why you entered the stock ceases to be true, look for the exit and move on.

The Mercenary Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. To learn more about Mickey Fulp, you can visit his website at

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Tax Loss Selling – Bargain Hunting for Stocks

Tax Loss SellingFor bargain hunters, “Black Friday” has become synonymous with big crowds and massive deals.  Retailers, forever trying to get an edge on one another, have also bought into (and fed) the mania that has now come to be known as the biggest pre-Christmas shopping bonanza of the year.  Is there an equivalent “discount season” for bargain hunters in the stock market?  There is…almost.

Canadian stocks are sometimes subject to a seasonal occurrence called “tax loss” selling, which tends to put stocks, especially those who’ve had a rough go during the year, on sale.  Tax loss selling typically starts taking place in November and December and can be a chance to pick up some bargains if you’re willing to do a bit of homework and planning.

The reason behind tax loss selling season is fairly straightforward.  Individuals, especially savvy investors, want to minimize their tax exposure (i.e. pay as little tax as possible). Taxes are a part of investing.  If you make money on an investment outside of a registered account, a portion of that money gets taxed (either as a capital gain or business income).  Because gains are taxable, if you have no gains then you aren’t taxed. One strategy to minimize gains is to offset them with losses.  But why would anyone take a loss just to avoid taxes?

The crux of the strategy rests on the idea that if there are losers in your portfolio that aren’t really going to do anything for you or that might represent “dead money”, it may be better to realize the loss than to keep “hanging in there”.  It becomes even more compelling to do so if you’ve realized a gain during the year for which you’re going to have to pay taxes on.  So, either way you take a hit – sell an asset at a loss or keep a losing asset, but pay tax on a winning one (assuming you have winners). The bottom line is that if the losing asset is just going to be a loser, the smarter hit to take is to get out of the loser and use the loss against any actual or potential gains.

There are a couple of rules that investors have to keep in mind when employing this kind of strategy.  The first rule to know is called the “superficial loss” rule.  For most investors, if you sell a stock at a loss and buy the same stock back within 30 days (regardless of the account you do so in), the Canada Revenue Agency (CRA) considers this to be “superficial loss” (see this link for the CRA article “What is a superficial loss?”). A capital loss cannot be claimed if the loss is considered a “superficial loss”.  Instead, if a stock is sold at a loss and bought back within 30 days, the adjusted cost base will need to be calculated.  The second rule to keep in mind is the deadline date in the calendar year for a sale to be considered for that tax year.  It can take up to three business days from the date a stock is sold for the actual trade to settle.  Because of statutory holidays in December (Christmas and Boxing Day) and weekends, the last day to execute the sale and have it count for this year (2012) would be December 24th.

When individuals start to sell en masse, the overall effect is depressed prices.  Typically, the underperformers are the ones on the chopping block and sometimes the selling is more enthusiastic than justified taking prices down below what the “market value” would be under “regular” conditions, thereby setting up the potential for bargains to be found. For more experienced investors, they typically prune their portfolios ahead of the year end selling in preparation for any bargains that might present themselves.

Getting to know the effect that investors can have on the market can give you a bit of an edge when looking for opportunities to invest. A cautionary note to take heed of is that often stocks that are either “cheap” or underperforming are doing so for a reason.  If much of the market has given up on the stock then going against the crowd can be a dangerous strategy.  As such, savvy investors typically do their homework in advance on who they are watching and wait for a good opportunity to step in.  To learn more about tax loss selling, here are three extra resources to read.

Globe and Mail – Investor’s almanac: How to harvest tax losses – (2011) – John Heinzl

Financial Post – Time to take your losses – (2011) – David Pett

The Blunt Bean Counter – Tax Loss Selling The 2012 Version – (2012) – Mark Goodfield

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Is Buy and Hold Gold or Mold?

An ongoing debate for investors is whether or not the strategy of “buy and hold” is better or worse than trying to time the market.  The advocates for each side of this debate are fairly passionate about their positions which makes it difficult for retail investors to sift through the numbers that “support” each side.  Even so, there are some interesting points to reflect on in the following infographic (originally found here) that attempts to explain the decision making tendencies of retail investors.

The crux of the infographic is that most investors are far too emotional when it comes to making investment choices, falling victim to their own mental trappings.  Biases such as loss aversion, mental accounting, overconfidence, anchoring and sunk cost fallacies can all interfere with the ability to stick to a defined strategy.

Even though the ‘solution’ offered is to stick to a long-term investment plan, doing so is much easier said than done.  Plans are only as good as the discipline to implement them, which is something short-term traders, market timers and buy-and-hold investors could all agree on.


buy and hold

Source: via SFO on Pinterest

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Following the “invisible hand” of the market

As a follow up to the article on the “vanishing trader”, we decided to look at the “invisible hand” of the market.  We took a brief look at the recent trading volume data (you can access this data here) published by one of the largest discount brokerage firms in the US, Interactive Brokers (ticker symbol IBKR).  While the available data only goes back to 2008, it is interesting to see the trend in volume of shares traded from 2008 through March of 2011 follow the trajectory of the markets upward.  Somewhere in early 2011 however, the volume of shares flowing through  IBKR pulled back significantly and continued to decline overall to present levels (about 4.5 million shares/month as of August 2012).

Even though we cannot know for sure why this slow and steady drop off has occurred, the data shows the S&P 500 going in one direction while trading volumes go in another. One theory is that the doom and gloom in the headlines over Europe and the stability of the European Union, the Arab Spring movements in the Middle East and the lackluster economic news  coming out of the US have finally taken their toll on the retail trader (who happen to make up a large portion of IBKR’s customers).  Both TD Ameritrade (ticker symbol AMTD) and Schwab (ticker symbol SCHW) have also felt a similar absence in trading volumes, indicating that IBKR is not alone.

One burning question remains, if the retail investor isn’t behind the recent rally then who is?

Invisible Hand - Interactive Brokers Shares Traded 2012 YTD

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The case of the “vanishing trader”

As stock markets vanishing traderhave continued to flirt with highs not seen since before the great financial crisis of 2008 and the heights of the dot com bubble before that, there has been a recurring discussion of the “light volumes” that have taken markets to these highs.  A lot of airtime has been spent trying to figure out where the traders who are “supposed to be” there actually are. When people say things are “supposed to be” a certain way in the markets is usually when you need to raise some red flags.

It is a well-known belief amongst traders that volume is a sign of conviction – the more participants believe a certain condition to be true, the greater the reliability of the move.  Of course it is near impossible to know the absolute number of participants acting on a certain belief, and so proxies like price or volume serve as indirect measures of investor sentiment. Like any ‘rule of thumb’ in the markets, however, it is valuable to take a closer look at the charts to see whether or not this ‘rule’ holds water.

What do the numbers say?

We pulled data from the S&P 500 for the last 22 years and plotted the monthly closing price of the S&P 500 index against the volume of shares traded.  One of the most startling things that jumps out is the huge surge in trading volumes that took place from between 2006 and 2009 where monthly volumes shot up from between 1-2 billion shares/month   from 2000 to 2006 to a peak of between 6.5-7.5 billion shares per month between 2008 to 2009. Why were there so many more shares being traded? It could be any number of factors from increased frequency of trading (i.e. same number of participants but more frequent trading) or greater numbers of participants or both.  Examining why is a bit beyond the scope of this article, but some simple points to ponder can be gleaned by overlaying the volume of shares traded with the performance of the S&P 500.

First, with sharp moves down in price, volume moves sharply higher – this happened noticeably from mid-2000 to late 2002 (bursting of the dotcom bubble) as well as between early 2008 and early 2009 (financial crisis).  Second, in the large moves up in the markets between early 1995 and mid-2000, as well as from 2003 to 2008, a good portion of those initial upward moves happened on relatively stable or “boring” volume.   What is possibly perplexing about the move up from the early 2009 lows is that this rise in prices has been happening while trading volumes have been in relative decline.  Of course the large number of shares traded happened during times of heightened enthusiasm or extreme pessimism.

Keep calm and carry on

While difficult to draw any firm conclusions, greater “emotion” tends to bring with it parabolic shifts in market participation.  If more participants are ‘bullish’ about the market, we see surges in volume and price, and likewise if we see sharp drops in the price there is also a sharp spike in volume as traders duck for cover.  What is interesting in the most recent run up is the absence of emotion in volume, indicating that perhaps it is the more level headed participants that have been at work in the markets while the emotional buyers are either licking their wounds or too uninterested in participating or both.

As we near the previous highs in the S&P 500 index, on either light or abated trading volume, the market history might offer up the important lesson that it is possible to see sizable moves up in the market price even in times of “boring” volume (case in point AAPL as it crossed the $700 threshold).   It may be difficult, if not impossible, to determine what the “normal” level of volume in absolute terms is or should be, especially given the “new normal” of algorithmic and high frequency trading, as well as greater presence of discount brokerages, lower trade commission rates for trading and low interest rates.  Nonetheless, the “vanishing” trader(s) might very well be the emotional crowd – who for now, it seems, have all opted to line up for new iPhones instead of boring old stocks.

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Interactive Brokers Releases Trading Data for March 2012

interactive brokers trading data

One of the largest publicly traded discount brokers, Interactive Brokers Group Inc. (better known as Interactive Brokers or ‘IB’) published their monthly trading data for March 2012.  Many industry commentators and trader’s alike have observed a decrease in the trading volumes over the past several months.  An interesting data point that confirms that observation comes from the March 2012 report which shows a decrease of 7% in Daily Average Revenue Trades (DARTs) from the past month.  Options contracts also decreased about 19% relative to last year, however it actually increased 6% over the previous month.

Both volume and volatility are attractive to traders, and the recent decline of both trading volumes and share price volatility mean more than a few traders are growing impatient with the current market environment.  Odd as it may sound, markets have to make participants money in order for them to survive.  Active traders are key to efficiently functioning markets however low price volatility or fewer numbers of participants mean less than ideal trading conditions and therefore less profitability.

Eventually as people exit the trading game or stop trading stocks, there are fewer participants and prices are likely to get volatile. That volatility will signal profitability for traders and traders may want to step back in at that point.

The lesson – supply and demand also applies to volatility in stock prices and right now equity markets appear to be quietly frustrating volatility seekers. Using discount brokerage data is a great proxy on the retail investor’s trading behaviour in the marketplace and also a helpful way to figure out trends in the market.

To read more about their results you can find a great article here: or if you want to read the report directly you can find it on Interactive Brokers’ website here: