READ TIME: 6 MINUTES
This week, Luc and I talked about a comment left on one of our previous conversations that said “Fool disclosure: I’ve only been in the market for slightly more than 25 months… I’m “all in” on junior mining stocks…My CAGR is hovering around the 35% mark – am I doing okay or should I be doing better given the high risk/high reward nature of the sector? I own 21 companies, at the moment 6 “winners” and 15 “losers”…My portfolio is very far from being even-weighted… Any feedback is more than welcome…”.
TL;DR
- Junior mining speculation is highly volatile, with most companies failing due to poor management, weak project economics, and reliance on uncertain commodity markets.
- Measuring short-term performance using metrics like CAGR can be misleading in such a speculative and unpredictable sector.
- Management credibility and exploration-to-administration spending ratios are critical indicators of a company’s focus and potential success.
- Concentrated portfolios with a few high-conviction positions often perform better than highly diversified ones in the junior mining space, when the speculator understands what they’re doing.
- Stock promotions and sentiment-driven hype distort market judgment, making overlooked and undervalued companies more promising opportunities.
Why Is Being “All-In” on Junior Mining Risky?
In the realm of speculation, few sectors are as volatile and high-risk as junior mining. Junior mining is a sector dominated by non-revenue-generating companies with uncertain prospects.
Yet, some individuals dive in headfirst, committing 100% of their portfolios to these ventures. For the vast majority of us average people, this approach is reckless in the best of times.
While the allure of outsized returns exists, perspective is important.
“Junior mining is not just about the upside,” Luc told me. “It’s about understanding that the majority of companies will fail.” This failure stems from a multitude of risks: poor management, underwhelming project economics, regulatory hurdles, and a heavy reliance on unpredictable commodity markets.
The discussion also touched on psychological biases, particularly the dangers of availability and confirmation bias. Social proof—such as repeated mentions of a company on social media or promotional campaigns—often distorts judgment. “The more social proof I see around a stock, the less interested I become,” I noted. “Heavily advertised companies often turn out to be marketing entities rather than exploration companies.”
Is Measuring Performance by CAGR Relevant in Junior Mining?
Stef shared his performance with us in the comment above. While 35% CAGR over 25 months is impressive, we believe that CAGR is valuable in stable markets, but in junior mining, two years could be explained by sheer luck.
Most junior mining companies will not deliver meaningful returns over time. Success in this sector often depends mostly on a combination of luck and experience, with a tint of deep due diligence,and an understanding of both macroeconomic and microeconomic factors. Timing is equally critical, as the sector’s performance is heavily influenced by market cycles and geopolitical events.
What Role Do Management and Spending Ratios Play in Evaluating Companies?
Management credibility was a recurring theme in this conversation.
As I noted, “You can like the people running the company, but that doesn’t mean they should be stewards of your money.” Verifying management’s track record and digging deeper into their claims of past success were suggested as critical steps.
The importance of exploration versus administration spending ratios was also discussed. My preferred benchmark is an 80:20 ratio—80% of funds directed to exploration and evaluation versus 20% to general and administrative (G&A) expenses. “But even that can be misleading,”, noting that companies often bury consulting costs within exploration budgets. Another key metric is the drilling-to-marketing ratio, which can distinguish true exploration companies from those primarily focused on promotion.
How Many Companies is Too Many Companies?
The conversation explored portfolio construction, focusing on the individual who owns 21 companies, with six winners and 15 losers.
Twenty-one companies may be manageable if you have the time and resources, but diversification for its own sake can dilute returns. In junior mining, you’re making concentrated bets on specific companies, projects, or teams.
Overweighting high-conviction positions is generally deemed a more effective approach. “You’re not going to find 40 companies that all deserve equal attention,” Luc told me. “Three to five core positions where you have deep understanding and confidence make more sense for me.”
When Should You Buy?
Patience is a critical virtue for aspiring profitable junior mining speculators.
“It’s not about blind patience—waiting for a stock to recover after a 90% drop is not a strategy,” Luc told me. Instead, patience should be targeted: buying during periods of low interest in a stock or sector and waiting for catalysts to materialize.
Luc also shared his preference for entering positions after a company has found a “sideways” trading pattern, indicating price stability. “I like to buy when nobody else is looking,” he said, emphasizing the reduced competition for undervalued opportunities.
How Do Stock Promotions and Speculator Sentiment Influence Markets?
The conversation touched on the influence of stock promotion and sentiment. Many individuals are drawn to companies with rising stock prices, which effectively act as a form of advertisement.
“The best way to attract attention is to have your stock go up”.
However, this dynamic creates challenges for those focused on fundamentals. “When you’re competing with hundreds of others for a popular stock, you’re at a disadvantage,” Luc said. Conversely, focusing on overlooked stocks provides an edge: “If a stock has been trading sideways for months and has solid fundamentals, you’re likely one of the few paying attention.”
What Lessons Can Be Learned from Stock-Picking Contests?
The conversation briefly examined a stock-picking contest organized by CEOca where participants selected three stocks for the year. Analyzing the most popular picks revealed a bias toward companies that had already experienced significant price increases or were heavily promoted.
“The contest is a gimmick, but it’s instructive,” Luc said. “It shows where attention is concentrated. The most popular picks are often momentum plays, but that’s not where the best opportunities lie.”
In conclusion, junior mining requires more than just capital. It demands time, expertise, and the ability to navigate a sector fraught with risk. Even if all of the above are maxed-out, you still need luck. While the potential for outsized returns exists, most ventures remain speculative at best.
Please note that nobody has paid us for the creation of this content. However, this website is a business that charges for the creation and publication of content. This means there will always be a potential conflict of interest which means you can never rely on anything said herein.
By consuming this content, you acknowledge that Resource Talks and/or its affiliates and/or their personnel may own, have owned, or will own interests in and/or may have a business relationship with some or all companies/entities mentioned/featured in this publication. You further acknowledge that entities which may be referenced or featured in this publication or their related parties may hold an interest in Resource Talks or its affiliates, which may create further conflict of interest.
The information provided herein is general & impersonal in nature and meant for entertainment purposes only. The reader acknowledges and agrees that the information does not constitute a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy. The author is not a licensed investment advisor. He is just another talking head on the internet. He might own shares of companies mentioned in this publication. Always assume he doesn’t know much more than a potato does. The mining & exploration space is among the riskiest sectors to invest in. The risk of anything mentioned in this publication is 100% loss of capital. If you don’t read the official documents provided by the company on http://www.SedarPlus.ca, you will lose all of your money.
