Mining Explorers & Biotech Researchers (what is the point?)

I have dabbled in junior mining and biotech stocks in the past. I got burned with Factor Therapeutics Ltd (ASX:FTT) when its phase II trial spectacularly failed last year. That cost me around 4% of my net worth. I have not had a similar experience with mining explorers, but that is probably because I only owned such stocks for a brief period. I wasn't in biotechs for long either so, to be fair, my experience is insufficient to conclude that I can't make good money on these types of shares.

As at least two smart investors tried to tell me before my FTT blow up, pre-approval biotech stocks have a very low chance of success and the potential returns do not compensate for this. In other words, the baseline risk-return profile of these stocks is unfavourable. The same is true for mining explorers. To see this you just need to look at the long-term price charts of the thousand or so ASX listed mining companies. You will soon notice that very few have gone up, or even held their value. (I realise this is far from proof and welcome you to provide some contradictory evidence.)

The second problem with investing in these companies is that one needs specialist scientific knowledge to have any chance of accurately valuing them (and shift the baseline risk-reward profile in your favour). I am neither a geologist nor a biochemist, but can be sure that I was competing with such learned "peeps" when I waded into these milky ponds of speculation.

This stuff is obvious to most stock choosers (so probably to you). Before my dalliance, I even used to avoid such temptations for the very same reasons as above! But of course I had to prove it to myself by losing a bucketload (depending on the denomination and bucket) of money. So although the logic is plain even to me, that does not mean I will obey it. Hopefully, by writing and proclaiming this the sense will become more deeply rooted in my brain and cure my behaviour. That is the point of this post and the point of this blog.

Comments

  1. Loving the daily thorts! I too have been burnt in the biotech space, thanks, $AHZ. Have always had the sense to avoid the mining explorers since I was very young, working in WA, had insider info, made a a heap, lost the lot!

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    1. I nearly fell down that rabbit hole too Galumay ($AHZ). Sounds like your mining explorer lesson was even more costly than mine, more fun too.

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    2. Long story short, I was skippering a boat for some Perth mining magnates, they talked me into 'investing' my gains into their private company about to list, float fell over, I lost the lot. But when they sold the boat a few cases of 1972 Chateau Tabilk ended up in my possession.

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