Expert: Steven Taylor - 5/29/2009

Question
QUESTION: You mentioned the Montreal Exchange and the Canadian Dealer Network which were a mixture of resource and non-resource companies.
What are resource and non-resource companies? To what resources do you refer exactly? And what does it have to do with the internet? Didn't get it... :-\

Another "hole" in my understanding is the different stages/types of companies.
Exploration is one stage and development is another stage in a specific company, right? Each company has to pass through these stages if I understand it correctly. What other stages are there? Which one is prior to the other and most important which of the stages is more/less risky in investments?

Well, the kind of investments I like is the kind which have a big chance (together with a risk of course) to produce a nice income (100%+).
I don't care for limitations of time and I have the patience to put my money and hold it for a year or two locked in.

So, from your description of the NEX, and if I understand correctly, this is the place for me to look for investment, right? Shells or reorganizing companies are mainly traded there. How do I recognize such companies? If I choose a specific company which is now being traded in the NEX, it could take a few decent months to get it off trade due to the exchange reviews of the merger. If I seek for such companies, it will be best to put my money in a company which is going off trade in a short time from the moment I made the investment, right? Otherwise, I'm just loosing time which in this time period the stock price is not to be raised...
Thanks,
Yaacov.


ANSWER: Yaacov, in the industry, any company involved with natural resources is referred to as a resource company. Usually it refers to minerals or oil and gas, but it could also include timber and other resources. Back in the 1990's, when any stock involved with the Internet seemed to quadruple overnight, many Canadian resource companies abandoned the resource sector and reinvented themselves as Internet companies. Pretty much all of them either went out of business or eventually switched back to resources, but if you take a look at the charts during that period, many of them had a heck of a run (and an even greater fall).

For resource companies, there are generally 3 stages - exploration, then development, and finally production. There is money to be made in all 3, but only a handful of exploration companies discover a viable mineral deposit they can begin to develop, and then finance into production (although many resource companies don't want to go to production - they would rather sell out to a more experienced and deep pocketed production company). All are risky, but for different reasons.

I can't really steer you in one direction or another regarding what type of investing you should do. I don't really know your risk tolerance, or even what type of research you want to perform. There are lots of angles - buying shells is just one of many. In regards to the NEX, many of the companies traded there are going to go out of business - many have failed business plans and are on the NEX because they dropped under the minimum listing standards. You are more likely to find reverse-takeover candidates through the CPC program on the TSX Venture. CPC's are Capital Pool Companies and are created as shells - that is their only purpose. Not all of them are successful - some never do complete their qualifying transaction, and they go out of business, so the program is not without substantial risk.

I reiterate my suggestion that you should watch the market for awhile and get comfortable with how it works and how the stocks trade. You need to perform that research to determine if the market is right for you and, if so, how best to invest.

---------- FOLLOW-UP ----------

QUESTION: In the CPC list I found almost 200 companies. Most of are being traded now and some are halted.
Can you explain why is it so hard to trace historical information on a company?
In Google or Yahoo finance I can't find any data on most of the companies.
For example, I took from the CPC list a company named: Accelerator Capital Corporation with its symbol: AZR.P
This company is written as listed from the 5/26/08 and should be traded today. Not only that I can't find it in Yahoo/Google, I also can't find its quotes on the tsx site itself.
And it was only an example. I've encountered this problem not only in CPC's companies but in others as well.

If you say that most of the NEX traded companies are about to go off business, why is there still people who trade them?

It really seems as if there is a lot to know and explore before I get into real investing, but let me ask you something as an expert. With your knowledge level and involve in this market, do you have the tools to forecast and predict which company has a bigger chance to get a decent run and which don't? Does it really pays-off to learn the field before investing or maybe it is better to make a scattered investment in 8-12 random exploration companies and just wait patiently until one of them will make its run.

Thanks Again,
Yaacov.

Answer
Yaacov, Google/Yahoo Finance do a very poor job with information about Canadian companies unless they are registered with the SEC to trade in the US. The sites are based in the US, and are geared to US investors. The vast majority of US investors are not interested in a stock unless it trades in the US and they can receive up-to-date information on them from other US sites, such as Yahoo or the SEC's own EDGAR site, which most of the US sites link from.

For information about Canadian companies, the TSX has a lot of useful info, but for regular news try subscribing to stockwatch (www.stockwatch.com#. For regulatory filings, use SEDAR #www.sedar.com#. As someone who prepares and files the regulatory paperwork for a living, I might be biased, but reading and understanding those documents are vitally important for making investment decisions.

Your example of Accelerator makes sense because they changed their name 2 weeks ago. They are now Oceanside Capital #OCC-P). However, it is a great example for demonstrating what I was talking about in regards to spread and trading. It is currently Bid .05, offered at .20. If you bought at market, the bid would have to quadruple to even break even. You probably couldn't even pick up any on the bid, either, as the stock has not even traded in 3 months.

In regards to the knowledge level and the market, getting lucky with scattered investments is highly unlikely. Having the information and the knowledge to understand it makes all the difference. It won't guarantee you a profit, but it makes it much more likely. Just buying and hoping is not a valid investment strategy - pull up 5-year graphs from companies and take a look.