Adrian Day of Adrian Day Asset Management shares his thoughts on what investors need to consider once they’ve done their due diligence and are ready to pull the trigger on a stock.
When assessing mining stocks to purchase most experts will say to look at management, look at the project, and look at the company’s cash position (among other things) to see whether the company is worth investment.
But when it comes time to buy, there’s much more to consider. Investors would be wise to pay attention to spikes and dips when looking at volatile share prices and thinly traded stocks.
Adrian Day of Adrian Day Asset Management took some time to share a few of his thoughts on the mechanics of investing, and on what investors should consider when getting into smaller companies.
Listen to the full interview below, or read the transcript, to hear what he had to say:
INN: Hi, I’m Teresa Matich with the Investing News Network, and here with me today is Adrian Day, founder and CEO of Adrian Day Asset Management. Adrian, thank you for joining me.
AD: Well, thank you for having me.
INN: So, I watched your talk here at the Sprott conference here earlier and one of the things that stood out to me was—you’re recommending stocks, but it’s not as simple as just buying a stock. There are other things that investors need to look out for in terms of mechanics. So can you tell us about some of those things?
AD: Well sure. And you know, one of the things that I find very, very sad is when people are right on the market, so they buy a gold stock when gold is going up, and let’s say they even buy a stock that goes up, and yet somehow they manage to lose money or not do as well as they should. So there are various things people need to do.
One thing I believe very much, particularly with thinly traded stocks, is people should always use limit orders. Now if you’re aggressive and actually really want to buy a stock, you can always put the limit a penny or two above the market, but always use a limit. Because with these thinly traded stocks, when people use market orders, they can shoot up 10 or 15 percent just because you’re buying, and then they fall back right after you finish buying. When you look at some of the stocks, let’s say some of the stocks here at this conference, good quality companies, companies that I like and I’m buying. But if they only trade 30,000 shares a day, and a stock is 10 cents, it doesn’t take a genius to figure out that if you’re buying $10,000 worth, you’re going to have an effect on the stock price. So that’s one thing.
The other thing I think particularly for US people is to avoid using the OTC market. The OTC market has extremely wide bid-ask spreads and is notorious for moving those bids and asks as soon as someone comes in to buy or sell. So I always look for buying on the most liquid market. If it’s Toronto, I use Toronto. If it’s New York, I use New York.
INN: That’s for companies that are listed on multiple exchanges?
AD: Sure. But I would avoid buying on the OTC market, which is a very illiquid market.
INN: Right. And one of the other things you mentioned, of course if you buy $10,000 worth of stock, you could move the stock by yourself, but other people are also doing that, and you mentioned that as kind of an opportunity to get in potentially?
AD: No, absolutely. It could be because a fund changes manager and the new manager doesn’t like some of the stocks that the old manager had. Believe me, he wants to get rid of those stocks as soon as he can, and he doesn’t really care what price he gets because they weren’t his stocks. And so you can see someone just sell a stock over a day or two, or the course of a week, and take a stock a down—a good quality stock—take it down by 10 percent or 15 percent. If you have a watchlist of stocks you’re looking for, and you see opportunities like that, you can jump in.
I mean, we saw a stock that I recommended but was trading in the 16, 17, 18-cent range. It went to 25 cents on Monday of this week, and it went to a low of 13 cents yesterday. That’s a huge spread, for no reason. We don’t really know who was involved, but there was no fundamental news. Someone just put a market order in, or somebody bought twice as much as they should’ve bought, and then had to sell the next day. Who knows what? But opportunities like that do come along.
And then of course you get opportunities on news. The Turkey coup was a great opportunity where any company involved in Turkey—so the stock price [of companies like] Eldorado (TSX:ELD), Eurasian (TSXV:EMX)— the stock price collapsed, but then bounced back very quickly. So if you’ve got those stocks on your watch list, and you see something like the Turkey coup happen, you want to go in and buy.
INN: Right. That’s interesting because when I ask people what to look for when buying a stock, I hear a lot more of the macro stuff, i.e., look at the management, look at the project. But it sounds like from what you’re saying, what people should do is do that research and create a watch list, but be very, very careful about when they’re going to jump in.
AD: Oh absolutely, because let’s face it, if you buy a stock at 13 cents, and it goes to 50, it’s a lot different from buying it at 25 cents and it goes to 50. You might be happy with the 25 to 50, but you could do a lot more.
I like to say that success—I was going to say my success but maybe that sounds arrogant—success in investing, a third of it is just being in the right sector or right market at the right time. If you’re in gold from 2011 down to 2015, I don’t care how much work you did, you probably lost money. So being in the right sector at the right time is critical.
Number two, having the right companies is about a third of your success. But I think some of this what we might call technical or tactical stuff, using limits, paying 13 cents instead of 25 cents, all of these things are critical to success.
INN: And you like gold, of course.
AD: I love gold. I think this is a great time for gold.
INN: Yes, a lot of people would agree with you. Well thank you for joining me, Adrian.
AD: Well thank you very much for having me.
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Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.