We have a huge advantage right now. It won’t last.
I talked earlier this week about how most of the stocks I cover in my portfolio trade over the counter (OTC) as well as on Canadian exchanges.
I didn’t mention a few of the other advantages we have by focusing on this market.
OTC stocks are almost a four letter word in the world of investing. If you have a full service broker, I would not be surprised if they called you up asking about why you own them.
For many industry professionals, OTC is not a real exchange. It’s viewed as the wild west of stock ownership. In the early 1900s, if you wanted a quote on a stock, you would look up prices in big printed books, and the OTC quotes were in a separate section with pink-colored pages.
Some people still refer to OTC companies dismissively as “pink sheets.”
Over the years, the OTC market has actually become much better regulated than it once was, but anyone in the business of helping their clients stay away from danger has grown accustomed to just telling people to completely ignore the “pink sheets.”
That’s fine. It means that most industry professionals completely ignore this entire world of gold stocks. Anytime a wide swath of analysts and investors ignore a sector, it means if you are an actual pro who covers it, you have a massive edge. It means the only other people paying attention are amateurs.
It’s why my Golden Portfolio IV (my most basic service that only covers 4-5 stocks at a time) is up 155% this year and up over 500% since inception two years ago.
If I was only covering mid and large cap miners that trade on the NYSE, I’d be elbow to elbow with dozens or hundreds of other professional analysts, trying to find some scrap of value.
As it is, many of the companies I cover have either one, two or zero other professional analysts covering them. It’s like fishing in a barrel at this point in the bull market.
It also happens that the OTC market is where almost all of the pre-revenue small cap gold stocks start out. It’s expensive starting a mining company. The last thing a tiny mining startup needs is the expense of jumping through the NYSE’s hoops while they’re burning cash to find and define their gold resource.
Another similar advantage: many institutional investors also completely ignore the OTC market. That’s for a few reasons. In some cases, it might be that buying OTC companies goes against the charter rules of pensions, endowments and other conservative investment firms. Every investment firm has a list of rules they have to follow, what they’re allowed to buy, what they have to buy, what they can’t, etc.
It’s also the case that most OTC companies are so small they’re not worth the time or attention of large investment firms.
Consider an extreme example: Berkshire Hathaway is worth over $1 trillion. Even if they could buy an entire OTC company trading for less than $100 million and it ended up going 10X, it would move the needle less than 1/10th of 1%…
Big investment firms might want to buy small OTC gold stocks… but it makes no sense for their returns. There’s not enough juice to squeeze.
So, we have some big advantages. The OTC gold market is still largely ignored and out of reach for most investors.
But by the end of the bull market in these stocks, I believe the advantage will be gone. We’re already starting to see it erode.
That’s because there’s one contingent of the market that is clearly eyeing the OTC market aggressively. I’ve seen a handful of my absolute favorite gold stocks scooped up by gold majors in the past 6 months.
But it won’t end with gold majors. By the end of this gold market, we’ll see a lot more attention paid to gold stocks of every kind. We’ll see hedge funds elbow their way into the OTC market, looking for value. We’ll see larger firms buying the gold majors.
And we’ll see an influx of retail investors bidding up everything with gold in the name.
We’re not there yet!
In fact, we’re still at a point where some of my favorite gold royalty streamers are wildly undervalued. These are the best gold stocks to hold for the long term. In fact, the longer you hold them the better.
But again: even these royalty streamers are going to get bid up sooner or later. It’s time to get ahead of the crowds, and I know that feels strange with gold near all time highs… but it’s the truth.
Best,
Garrett Goggin, CFA, CMT
Chief Analyst & Founder, Golden Portfolio