GDXJ Gold Stocks ETF Investment Is a Snow Job
Commodities / Gold & Silver Stocks Dec 19, 2010 - 06:50 AM GMTBy: DailyWealth
Folks looking to make a fortune in small gold stocks need to be careful: There's a right way to do it... and there are a lot of wrong ways to do it.
One of the wrong ways to do it is by owning one of the world's most popular ETFs right now. The symbol is GDXJ. It goes by the name "Market Vectors Junior Mining Fund." And that name is a snow job.
"Junior" miners are the bloodhounds of the mining world. They are tiny companies that scour the world looking for the next big gold or silver discovery.
And when I say "tiny companies," I mean it. Junior miners are microscopic compared to the popular mining companies you might now. Many junior miners are around $30 million in market value. Compare this to mega-gold miner Barrick, with a market value of around $52 billion. That's more than 1,700 times the size of a $30 million company.
Junior mining stocks are popular with investors and traders because of this tiny size... and because they offer the chance for once-in-a-lifetime gains. When one of these tiny companies finds a big precious metals deposit, the returns are extraordinary. They can turn a modest $5,000 investment into hundreds of thousands of dollars.
That's why, from a marketing standpoint, calling a big investment fund a "junior mining fund" makes sense. But in reality, it's impossible to pull off.
You see, there's no way a big investment manager can place a large amount of money into a tiny gold stock without causing a huge jump in its share prices. Plus, regulators place restrictions on investment companies to prevent them from owning too much of one company. Big investors, like fund managers, can't operate in this sector.
So is GDXJ really trying to invest in junior miners? Let's take a look under the hood...
The average market value of the companies GDXJ owns is $1.6 billion. That's 500 to 800 times the size of most juniors.
GDXJ owns these multibillion-dollar miners because they have the size to handle big fund flows. Real juniors do not. The folks running GDXJ are calling it a "junior" fund because of the huge interest in tiny gold stocks right now.
Don't get me wrong. GDXJ owns a lot of great mining companies. And it's just the nature of selling to give something a name the public will be interested in. You'll probably make good money with this investment if gold and other metals keep rising in price... but it ain't a junior mining investment.
That's actually good news for us: Small investors willing to do their homework and know the best companies in the sector have a big edge. These companies are too small for Wall Street to play around in.
Good investing,
Matt Badiali
P.S. The only way to safely trade junior mining companies is through research, knowing the best companies, and knowing how to play the big booms. If you're interested in a revolutionary new way to do all this, click here.
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Daily Wealth Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
