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Finding the Sweet Spot-10 tips to Rational and Not-So-Rational Speculative Investing
By A. Paul Gill

I have been seriously investing since 1997 and I’ve had some good wins in Aber, Winspear, IMA Exploration and Wheaton River (now GoldCorp). Participating in the challenges of building three companies has also given me a lot of experience in evaluating companies. I have spoken and made presentations to many executives, investor relations specialists, analysts and investment advisors. Most importantly though, I listened to what they had to say.

When I'm investing there is a certain feeling I get when I hear about a company that is akin to hitting a golf ball.

I often find myself reading articles or listening to presentations by newsletter writer such as Jim Dines, Lawrence Roulston, John Kaiser, Brien Lundin, Paul Van Eden and Doug Kasey looking for that feeling – a good swing, a solid connection and an excellent flight path – looking for that sweet spot. Combining that “feel” with proven assessment tools helps me recognize a new group with the vision and passion to protect and grow my investment as time marches on.

I didn’t make enough from my early investments in 1997-2002 to stop working, but all the wins allowed me to invest in some smaller start-up companies. In 2002 I started accumulating International Norsemont Ventures which would eventually become Norsemont Mining (TSX:NOM). I became so involved I was asked to step up as CEO (2003 and early 2004) and then CFO and Corporate Secretary and VP Business Development before joining Lomiko Resources as a Director and eventually leaving to join Grenville Gold Corp as CEO. As you may have gathered, I refuse to be a deadwood investor.

So, what are the factors I consider for speculative investments. As I said before, as in golf, you have to develop a feel for investing in management and have a hunger for knowledge when assessing risk. I have listed my top ten tips below. Of course, these are just a starting point. In investing, make sure you pack your own parachute, as the saying goes, because you have no one to blame but yourself if things go wrong.

Oh, and before we dive in to my approach, I find that protecting at least 50% of my “wins” in safe havens is imperative to getting sleep at night. I may have kept my first company alive through loans on my credit cards but you don’t want to live with that level of risk day-to-day. Keep at least 50% super-safe. Governments aren’t going to fall in Canada, and therefore neither are banks. GIC accounts with big banks in increments of up to $ 60,000 are insured by the government. With the other 50%, take some calculated risks where the Return on Investment can be mind-boggling.

1) Management experience and tenacity – It’s not good enough to be good at their job. I want a management team that is tenacious in the pursuit of success. Is the group committed to the plan? Are they putting their own money where their mouth is? Are they buying when exciting news hits the market?

2) Structure – There is a sweet spot between 25 and 40 million shares that provides liquidity. The ability to sell and buy a decent amount of shares is important. Also, ability to gain momentum is vital too. Find out the number warrants & options. What is the exercise price of the warrants and options? When do they expire? Does the company track them? What price are they financed at? This will determine if you are buying at the right time.

3) Commodity - What commodity is the company after? Is this a good time to be in that commodity? Right now, gold and silver are on everyone’s list but commodities like titanium, molybdenum, uranium, platinum, nickel and even copper and lead are still in short supply and will continue to be in short supply.

4) Technical research – Don’t dismiss the charts – even if you’re all about the fundamentals. It’s well worth it to pay attention to the technical signs of a bottom or a top in the stock price. The chart may tell you what is going on so learn how to read them.

5) Market sensitivity - What is the market looking for and is management in tune with the market? No sense in selling snow cones in Winter! For example, there has been a frenzy of mergers in large mining companies. Fairly soon, investment dollars will begin to trickle down to other companies that make good buyout targets. Right now, Yamana looks like another Wheaton River (GoldCorp) in the making. Is there another company ready to make the mergers and buyouts happen? Look for the signs. Be listening for the investors, brokers and companies that are ‘in the know’. Find out who made the money after a merger and call them – it is that simple but no one does it.

6) Security - What about the country the company is investing in? Is it safe? Is there any economic advantage to investing there? Conversion of the Canadian dollar to pesos is 10 to one right now so making investment in South America or even the United States (1 to 1) a better prospect than 2 years ago.

7) Deals and holdings - Getting to the most important item, what about the property or deal they have? Is it proven? Have they filed a report? Are there resources? Are they close to other major projects? Are they preparing for drilling and/or production? Do they have a large-cap partner? Does the project have blue-sky potential? A profitable project with blue sky potential is likely to be bought out over the 1-4 year horizon.

8) Speed - How quickly will the plan be accomplished and how much has the management team delivered on already? Always grade your management and let them know what you think. Active shareholders make more money!

9) Buying time - So when do you buy these stocks? What is the low? Right now most stocks are at their low and February is RRSP season. Money will likely be flowing into the stock market, especially the commodity market as investors invest in RRSPs and try for a little gas by buying a stock or two.

10) Other investors (hedge fund risk) - Investing in the junior stock market, especially in companies near-to or experiencing positive cash-flow with under $100 million market capitalization is a big element of the sweet spot. The biggest danger I see out there are those nasty hedge fund managers. If it’s under a $100 market capitalization, few hedge funds can touch them. Everybody I know is pumping money into hedge funds because they are offering big bucks to salespeople and investment advisors who are aiding in the deception that there is little risk. Every hedge fund manager will tell you that they are there to mitigate risk. That’s what mutual funds were designed for but I think they perpetuate exposure to risk. The mortgage and asset-backed crisis is in full swing so our attention is distracted from an even bigger problem. Trillions of dollars sitting in hedge funds. Hedge funds can be a recipe for mutually-assured destruction of company economics. What they actually do is steal return on investment from large and mid cap stocks by trading in and out of these stocks. Don’t get on the wrong side of trades with these behemoths.

I have tried as much as possible look at the rational and risk management side of investing; however I am also influenced by the intangible sweet spot “feel good” reasons to invest. . I like investing in people who are entrepreneurial and take pleasure from making their supporters money. I like to invest in companies with a chance to make a difference to our community or the world at large. It works for me to consider companies that provide jobs by developing their projects and associated infra-structure like roads, schools and hospitals. I want my investment dollars and active approach to investing to target true wealth creation – which should mean the most cost-effective, environmentally safe and efficient way to produce an affluent lifestyle for me, my family and my community. Let’s buy low and build high.

Enjoy the search.

A. Paul Gill is the CEO of Grenville Gold Corp., a Director of Lomiko Resources, the CEO of Epic Mining and President and Director of AJS Management Corp. A. Paul Gill, CEO of Grenville Gold (TSX:V- GVG)