Geography has a lot to do with the success of a business (and therefore a stock). And when I decide to invest in a company, geography plays a big part because that's my background. While I'd love to start picking apart the globe in terms of business stability, I'm going to focus on Africa today.
Either for political and human rights reasons, the shaky economies, or because most Americans (including many money managers) know squat about Africa, it's barely on the radar of most investors. Just look at the map above that's being circulated around the Internet. I know it's a joke and everything, but there's some truth to it. I mean, otherwise it wouldn't be funny. And where's Africa on the map? Exactly!
The stock market relies on little investors that buy stocks at the wrong time and sell at the wrong time, so others (the 'smart' money) can reap the profits. And that's why you have the pumpers and dumpers. But the key here is that you need to invest where you know others will also be investing, especially the general public eventually, because they're the ones that will drive up the price of the stock to it's apex. And that's when you'll get your profit (and hopefully bail out in time).
So beyond the fact that the general public doesn't know a thing about Africa, what little Africa had going for it (such as South Africa's rich resources and long mining history), has lately become even more risky. In the past few years there has been labour unrest and strike calls, and now rolling blackouts are the norm in the country. It's just too risky to do mining deep underground if you don't know the next time the power's going to go off. Before you take that elevator down, you want to know you've got an air supply and that the little elevator's going to be able to get you back up and topside again.
You just need to read First Uranium's recent news release on its quarterly financials to see how volatile the situation is becoming. And with South Africa out of the picture for now, platinum, palladium and gold supplies have all tightened up. If your business relies on these metals (like car manufacturers), then life's a bitch right now. But if you are lucky and you're a producer of these metals, in a 'safe' country, then you are golden! No pun intended, I swear. So this is a good time to be looking at producers in more stable areas, to also pick up on a little of that action. In the next few days, I'll post about some possible investment opportunities I'm looking at in Palladium.
But wait, let's get back to Africa. So should you totally stay out of Africa? If you are a total investing newbie, that answer is 'hell, yes'. But let's say you think you're pretty savvy. Then if you do invest in Africa, you have to really trust your company and its relationship with the country it's mining. As an example, the only investment I have in Africa right now is Paladin Energy (TSX: PDN; ASX: PDN). They've spent a lot of time wooing the Namibian government, and I think the company's trying to do right by their employees. Paladin's gone so far as to list on the Namibia Stock Exchange to allow their employees to receive stock incentives and to allow any Namibian to invest in the company. So I do make exceptions, but only after a lot of due diligence about the country I'm looking at. And Paladin also has its fingers in lots of other pots in its native Australia to balance out the risk.
And I've pulled out of some investments too, just because I was too gun shy about Africa. Take Tanzanian Royalty Exploration (TSX: TNX; AMEX: TRE). And we're talking about a company that's run by Jim Sinclair, the guru of all things gold. But with Tanzania's royalty reviews over the past few years, I just don't have the intestinal fortitude to worry about my money in that country. And it may be my loss, because TRE may totally kick ass in the next decade. But you have to go with your gut, and in this case my gut said, "get out of it". So I sold (for a loss no less). Live and learn.
To sum up: be careful when contemplating investing in Africa, since she's a harsh mistress. Even Karen Blixen learned about business in Africa the hard way 75 years ago. And in many ways, Africa hasn't changed as much as everyone thinks.
Either for political and human rights reasons, the shaky economies, or because most Americans (including many money managers) know squat about Africa, it's barely on the radar of most investors. Just look at the map above that's being circulated around the Internet. I know it's a joke and everything, but there's some truth to it. I mean, otherwise it wouldn't be funny. And where's Africa on the map? Exactly!
The stock market relies on little investors that buy stocks at the wrong time and sell at the wrong time, so others (the 'smart' money) can reap the profits. And that's why you have the pumpers and dumpers. But the key here is that you need to invest where you know others will also be investing, especially the general public eventually, because they're the ones that will drive up the price of the stock to it's apex. And that's when you'll get your profit (and hopefully bail out in time).
So beyond the fact that the general public doesn't know a thing about Africa, what little Africa had going for it (such as South Africa's rich resources and long mining history), has lately become even more risky. In the past few years there has been labour unrest and strike calls, and now rolling blackouts are the norm in the country. It's just too risky to do mining deep underground if you don't know the next time the power's going to go off. Before you take that elevator down, you want to know you've got an air supply and that the little elevator's going to be able to get you back up and topside again.
You just need to read First Uranium's recent news release on its quarterly financials to see how volatile the situation is becoming. And with South Africa out of the picture for now, platinum, palladium and gold supplies have all tightened up. If your business relies on these metals (like car manufacturers), then life's a bitch right now. But if you are lucky and you're a producer of these metals, in a 'safe' country, then you are golden! No pun intended, I swear. So this is a good time to be looking at producers in more stable areas, to also pick up on a little of that action. In the next few days, I'll post about some possible investment opportunities I'm looking at in Palladium.
But wait, let's get back to Africa. So should you totally stay out of Africa? If you are a total investing newbie, that answer is 'hell, yes'. But let's say you think you're pretty savvy. Then if you do invest in Africa, you have to really trust your company and its relationship with the country it's mining. As an example, the only investment I have in Africa right now is Paladin Energy (TSX: PDN; ASX: PDN). They've spent a lot of time wooing the Namibian government, and I think the company's trying to do right by their employees. Paladin's gone so far as to list on the Namibia Stock Exchange to allow their employees to receive stock incentives and to allow any Namibian to invest in the company. So I do make exceptions, but only after a lot of due diligence about the country I'm looking at. And Paladin also has its fingers in lots of other pots in its native Australia to balance out the risk.
And I've pulled out of some investments too, just because I was too gun shy about Africa. Take Tanzanian Royalty Exploration (TSX: TNX; AMEX: TRE). And we're talking about a company that's run by Jim Sinclair, the guru of all things gold. But with Tanzania's royalty reviews over the past few years, I just don't have the intestinal fortitude to worry about my money in that country. And it may be my loss, because TRE may totally kick ass in the next decade. But you have to go with your gut, and in this case my gut said, "get out of it". So I sold (for a loss no less). Live and learn.
To sum up: be careful when contemplating investing in Africa, since she's a harsh mistress. Even Karen Blixen learned about business in Africa the hard way 75 years ago. And in many ways, Africa hasn't changed as much as everyone thinks.
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