In 2015, commodities weren’t a hot ticket item…to say the least.
Negative sentiment surrounded mining and resource stocks. Most miners struggled at the time. Some were overburdened with debt. Others had production issues. But the problem all Aussie resource stocks had in common was falling commodity prices.
It caused many resource stocks to rocket down. And a lot of the negative sentiment carried over to 2016. South32 Ltd [ASX:S32] and Sundance Energy Australia [SEA:ASX] made new 52 week lows early in the year.
And it wasn’t just smaller resource stocks falling over. Remember when BHP Billiton Ltd [ASX:BHP] was trading for around $15 per share?
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It was a massive drop from their high in 2014 of $39.17. Smart investors saw it as a perfect time to buy BHP at a dirt cheap price.
In 2016, BHP dipped to a low of $14.20 on 21 January. But the stock ended up climbing to $25.06 as of 30 December, 2016.
That means a $10,000 investment into BHP during this time would have returned a $7,647.89 profit. You’d be hard pressed to find any blue chip that will climb more than 70% in 12 months.
But I’m curious to know, if you didn’t buy BHP at the start of 2016, why didn’t you?
You might have your own reasons. You didn’t have spare capital. Maybe you had no idea how far BHP had fallen. But a lot of investors were just plain scared to buy BHP.
They thought of the stock dropping further, rather than the opportunity of it going higher. Fuelling their fears were mainstream analysts and media, who constantly attacked commodities.
Sadly, this is what a lot of investors do.
Instead of being objective, they have a herd-like mentality. It’s not bad to listen to other opinions. But doubting yourself because of what others write or say is when you miss out on opportunities and potentially lose money.
The one thing that will make you rich
What if I told you your mindset is key to become a hugely successful investor? It’s the major difference between average investors and great investors.
With an opportunistic mindset, you may have bought BHP when it was trading at $14.20. Or you might have jumped into South32, which traded up more than 158% in 2016.
A great example of an opportunistic investment was when Carl Icahn bought US$1 billion of US equities.
As Donald Trump claimed victory over Hillary Clinton, analysts thought markets were going to spiral down. And they did — for about five seconds.
But billionaire investor, Carl Icahn, thought otherwise. He left Trump’s victory party to buy close to $1 billion in US equities.
‘I would have tried to put a lot more to work, but I couldn’t put more than about $1 billion to work, and then the market got away. But I’m still happy about it,’ Icahn said.
Since 9 November, 2016, the S&P 500 is up 8.69% to 2,351.16 points. Now making 8.96% on a billion dollars is not a bad day at the office. Assuming Icahn bought the S&P 500 index, he has now made $86.9 million on his four month investment.
Instead of listening to market noise, Icahn asked himself what President Trump meant for US businesses. It was an investment only opportunistic investors could have made.
Another investor above the rest is Warren Buffett. And I’d argue that it’s his mindset, like Icahn, which put him above the rest.
Paraphrasing Buffett, the market is irrational. Every day it gives you prices. These prices could present opportunities, or they could be overvalued. It’s your job, as an investor, to take advantage of the market and not let it take advantage of you.
Now of course Icahn and Buffett aren’t ordinary shmos. They have decades of experience, and minds for business.
But I would argue their greatest asset is their mindset. They are greedy when others are fearful, and fearful when others are greedy. It’s allowed them to become the influential, rich investors they are today.
Be opportunistic in 2017
If I’m honest with you, I have no idea what markets will do in 2017. But you don’t necessarily need to know either. Unless you’re buying an index fund, who cares what the market does? All that matters is the performance of your investments.
That’s why, in 2017, the year is what you make of it. There will always be opportunities in the market. It’s your job to capitalise on them when they present themselves.
When it comes to the Aussie resource sector, there are plenty of opportunities. For example, you might want to put copper miners on your radar.
Copper prices have risen dramatically from October last year, shown by the three month copper chart below.
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Reported by The Australian earlier this month:
‘The industrial metal [copper] has surged more than 30 per cent in the past year, providing rocket fuel for companies that were staring into the abyss a year ago. Shares in Anglo and Glencore have more than tripled in the past 12 months. BHP, which has faced headwinds from a fatal tailings-dam disaster at one of its mining operations in Brazil, is up 62 per cent.
‘Overall, the miners’ results are expected to highlight a head-snapping turnaround in the past 12 months that has seen the industry pull back from the precipice of financial disaster.’
But like I mentioned above, it’s not just blue chips making gains in the resource sector. In fact, the stocks that you’ll most often scream up are the smaller, lesser known resource stocks.
Among the highest returning stocks this year are Summit Resources [ASX:SMM] and Beacon Minerals [ASX:BCN].
Summit explores and evaluates uranium projects in Queensland. Beacon on the other hand is focusing on developing their Barlee Gold Project in Western Australia.
These two small resource stocks are up 638% and 550% year-to-date, respectively.
But before you jump into small resource stocks, it’s not easy to pick out these diamonds in the rough. If you pile into the wrong stock, you could just as easily lose some — or all — of your investment.
Whether you’re new to investing, or an old hand, it pays to have the inside scoop. Something I can assure you Buffett and Icahn make the most of.
And when it comes to investing in small resource stocks, no one I know is better at sorting the winners from the losers than Jason Stevenson. Of course not every tip he makes is a winner. But over at his advisory service, Resource Speculator, he tipped stocks for gains of 142%, 145%, and a whopping 242% in 2016.
Contributing Editor, Money Morning
From the Port Phillip Publishing Library
Money Morning: The Aussie Economy — Debt and Dirt
Money Morning: Why BHP’s Result is Good for Australia