5 Rules To Successful Small-Cap Investing


I’ve been researching and recommending small-cap stocks and junior miners for over 20 years …

And over that time I’ve become friends with and interviewed some of the world’s greatest resource investors.

I’m talking about guys like Rick Rule, who runs one of the most successful resource-based funds in the world. Guys like Jim Rogers, who made billions riding the commodity boom back in the 1970’s. And guys like Jeff Phillips, who has more 1,000% winners in the junior miner space than anyone else I know.

After all these years I realized they all have one thing in common that I believe is the key to their success …

They all follow the same system when it comes to investing in resource stocks.

What is this system?

Well, it really comes down to 5 simple rules for analyzing any small-cap resource investment. If you follow all these rules … you’ll not only reduce your risk in this very volatile sector …

But you’ll find the types of companies that could hand you 100% … 500% … even 1,000% or more in gains … no matter what happens to the price of gold!

So what are those 5 rules?

Let’s start with,

Rule #1: Make sure the company has an experienced management team.

Of all the factors that help determine the success of a small mining company … management may be the most important.

But keep in mind, you have to look for a certain type of experience.

You want to find a management team that has proven it can take a project from discovery to actual production.

The fact is … only one out of every 3,000 mines ever makes it from early stage to actual production.

Those are very bad odds …

But when you look deeper there are certain teams that have long histories of bucking this trend … and consistently creating profitable mines.

That’s why finding an experienced management team is one of the first things I look for when analyzing junior miners.

Rule #2: Show me the Money.

On the flipside, the mining industry is one of the most capital intensive businesses in the world.

Taking a small junior resource company from discovery to production requires millions of dollars in upfront investment before investors ever see a dime of revenue in return.

If a company doesn’t have the capital to hold it over for at least 18 to 24 months … they are dead in the water.

Which means they might resort to tactics like issuing more shares or warrants which probably will result in falling share prices.

That’s why you want to make sure you invest in companies that are always well-funded.

Rule #3: Make sure you can get the resources out of the ground.

It doesn’t matter how many potential ounces of gold your company controls if you can’t get it out of the ground cost effectively …

And two of the most important aspects to control these costs are geography and infrastructure.

It goes without saying that many potential profitable mines are located in countries that could be considered unstable.

I remember a company a few years back called Crystallex that was sitting on over 16 million ounces of gold in Venezuela … to put that into perspective, a 2-million ounce deposit is considered a major find.

The stock price soared up to $6 a share … that is until Venezuelan president Hugo Chavez nationalized the mining industry. Crystallex lost all its assets and shareholders lost all their money.

So you always want to make sure that a company’s assets are located in a stable political region.

Rule #4: Really, make sure you can get the resources out of the ground.

On the flipside, even if the resources are located in a politically stable country … that doesn’t mean the infrastructure will be in place to extract the resources.

You need roads to deliver equipment … you need electricity to run the equipment …

If you have a mine in the middle of nowhere … it could costs millions to build this infrastructure.

That’s millions of dollars that could be spent acquiring more assets.

You want to make sure the company has enough money to cover these costs and still profitably extract the resources.

Rule #5: Put your money where your mouth is.

Here’s the thing.

There’s a lot of big promoters in this industry that will tell you how sweet their deal is … only to go bankrupt in a few months.

But I’ve found the easiest way to distinguish the truly promising companies from the fly-by-night operators is to look at insider ownership.

If management and other insiders own shares of the company … they will be motivated to make it succeed.

And when you put these 5 rules together … you have a good shot at making money in the junior resource market no matter where the price of gold is headed.

Good investing,

Frank Curzio

Question: What rules do you follow when investing in small-caps? Let me know in the comments below!


Chart of the week: Book profits on the five major homebuilders

In July 2005, I predicted the coming demise of the housing market. Since then, I’ve been covering homebuilder stocks on a monthly basis. Today, homebuilders face challenges that hurt home affordability. Four of the five major homebuilders are no longer cheap… and risky levels are being tested. Here’s where to book profits…
Listen Now
global trade

My favorite way to play rising oil prices

New guest commentator Steve Koomar explains the effects of the Saudi oilfield attack… and how to play higher oil prices.
Listen Now