Lessons from the Recent SilverCorp Allegations

Silver CorpIntroduction to Allegations

Yowza, if you pay attention to mining stocks Silver Corp has probably come up sometime in the past 3 months.  3 months ago their stock was worth ~$11, and a few anonymous accusations came out stating that they have been  fudging the numbers and committing other fraudulent activities.   On the news  their stock plummeted to 6.50 (just under 6 intraday).  Silver Corp had been working on getting the accusations rebuffed ever since the accusations were released and finally 3 days ago on the 24th they released a report titled “SILVERCORP RECEIVES CLEAR FORENSIC ACCOUNTANTS REPORT”.  Their stock immediately went up $1 or about 12%.  This morning their price is 9.71.  That’s a drop of 40%, then a rise of 50% in three months.  Slow enough that you don’t have to be a trader to actually trade in that market.

My actions

I personally acquired some of their stock when it was ~$12, ~$10 and ~$9.  Buying on the way down.  Always a hard, thing to do.  I believed in the company then and I believe in it now.  As Rick Rule has stated, if something you like gets cheaper and nothing has changed, be happy, buy more.  So I did.  Now luckily I also took advice to keep “powder dry” so when Silver Corp dropped down I was able to purchase at $6.35 which increased my holdings by about 40% share-wise.  I wish I had heeded the “powder dry” advice more so I could have purchased more, but alas; I have to work on my patience.   Sure I am still in the red on my first two share purchases, but overall because of my dollar cost averaging I am in the black on this stock by ~14% this morning.

Lessons

Why am I talking about this?  Why did I buy a company that had a significant drop in stock price due to allegations that could have been true?  I would have lost a lot more money had they been true, so why take the risk?

It’s all about your research.

Who do you read?
What advice do you take?
Do you have a foundation for your investing to stem from?

Who do you read?
I’ve mentioned Casey Research before and I get a lot of investment advice from them.  In fact, they were the guys who originally steered me towards Silver Corp, they visited Silver Corp in the few months where the allegations were being investigated, they found nothing wrong and many things very right.  It gave me a sense that the allegations were false, and thus a serious buying opportunity.  One with little downside and much upside.  Low risk, high short term gain.  The best kind!  Now Casey, like most other newsletters and investment research organizations are paid subscriptions.  Casey’s basic entry level Big Gold newsletter is amazingly cheap annual subscription of ~$79.  Great value for the cost.  Their Big Gold was the newsletter that discussed Silver Corp and had recommended buy points; which worked out well for the patient.

What Advice do you Take?
This can be tough.  Advice is often hard to give and hard to receive.  But lets face it, no one knows everything; and to think you know enough to handle the market is, what Friedrich Hayek called the Fatal Conceit.  So advice must be sought out.  Don’t let it come to you; find good advisers with a superb track record.  However, they need to also share your world view; if they don’t then you won’t take or analyze their advice when things are such that you really need to look at their advice.  Which brings us to our next point:

Do you have a foundation for your investing to stem from? 
What is your world view?  I am of the view that markets work; they are not perfect but they are best method of equitably distributing the scare resources given to us; as well as the best mechanism for creating more wealth.  Someone like myself should not take investment advice from someone who doesn’t believe that.  Why?  Because as stated above, if their view of the world differs I will not understand their advice nor follow it when it might really need to be followed because I think their worldview is foolish or wrong.  If your worldview strongly includes that the Government has a positive impact on the marketplace, something like Casey Research is not the investment newsletter for you.  Unless you don’t feel strongly and are willing to hear alternate viewpoints.

A foundational world view is key to all actions we humans take.  What is your baseline?  What is your foundation?  Where are your roots?  The actions you take will always reflect your foundation.

So the main lesson I’d like to stress here is to seek out the advice of those who know more than you.  No one knows everything, so seek out multiple advisers.  They abound on the internet and it can be hard to know what’s good or not.  So trust the opinion of those whom you already trust.  Read about them, listen to their interviews, see their track record.  If you can’t find anyone who gives excellent, actionable advice that fits your current investment worldview, it may be time to re-check your worldview or to create your own investment advice center for others who think like you.  If I personally hadn’t found Casey Research through a long string of people who’s opinion I trust; I would have never seen through pictures and text that the allegations against Silver Corp were false and was an amazing opportunity; one of which I really wish I had more money to put into it; of which I could have had I heeded other advice given by people I trust.

Who do you seek for advice and what are some points of your investment world view?

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