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Dudley Baker

Dudley Baker

Dudley Pierce Baker is the founder and editor of Common Stock Warrants and its predecessor, Precious Metals Warrants and a 1967 graduate of St. Mary’s…

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Alternative Investment Strategies

A challenging investment climate, such as now, requires considering all of your investment options.

Whether you are investing in the resource sector or other sectors, i.e., bio-tech's, pharmaceuticals, financials, etc. investors should be aware of and consider their alternatives before plunging in and merely purchasing shares.

Timing your entry is always of most importance and while never a black and white situation, you must be reasonably certain that the markets are trending in the direction of your desired investment, whether up or down.

As we write it appears the resource sector may, just may, have put in a bottom. While there is never a guarantee savvy investors might want to start establishing positions in some of their favorite companies. We see signs from the two charts below that gold has been outperforming the USD and the S&P 500 since August and this is giving us some confidence that the bottom may be in place.

Gold:US Dollar Daily Chart
Gold:S&P500 Daily Chart

If you believe, as do we, that it is highly likely that a bottom is in place in the resource sector then your confidence should allow you to step up to the plate and start taking some positions.


Alternative Strategies

In lieu of making direct purchases of the common shares of your favorite companies we encourage you to consider other alternatives, i.e. options, LEAPS or stock warrants, if any, that may be available. All of these alternative investments have a defined life and thus can expire worthless but can provide you with more upside leverage as the markets takeoff.

The use of these alternatives can allow you to reduce your investment dollars and thus your risk while allowing you to get into the game and provide you will potentially more upside leverage.

Let's briefly consider your alternatives:

Stock options which are traded on the CBOE.com, Chicago Board Options Exchange, give the holder the right, but not the obligation, to purchase the underlying shares at a specific price and expiring on a specific date in the future. Stock options will have a maximum life of up to 12 months and investors/traders should determine whether this is a sufficient time horizon.

LEAPS, Long-Term Equity Anticipation Securities, also trade on the CBOE and have the same definition of options but have longer lives of up to two years.

Stock warrants are actually securities issued by a company giving the holder the right, but not the obligation, to buy the underlying securities at a specific price and expiring on a specific date in the future. Companies frequently attach stock warrants to their private placements as an additional incentive for investors to purchase the units.

If you have the ability to participate in a private placement of a company in which you are interested by all means you should do so as those stock warrants might give you a considerable return on your investment.

Most investors overlook the fact that some stock warrants actually trade, as do their common shares on the TSX, TSXV, NYSE, AMEX or NASDAQ. Many of the stock warrants issued by companies in the United States frequently have lives of 5 years and sometimes much more giving investors more time for the companies to execute on their business plans and the the markets to perform to your expectations. Currently there are about 200 stock warrants trading in the U.S. and Canada in all industries and sectors.

 


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