The Morgan Report
Precious Metals Warrants
Interview with Dudley Baker
David Morgan
Editor: The
Silver Investor
Nov 30, 2006
In this month's issue of The
Morgan Report, we have asked Dudley Baker, owner/editor of Precious Metals
Warrants, to share some information about his service for
our readers.
David: Dudley, could you provide my readers with
some basic information on your service?
Dudley: Thanks for allowing me to share with
your readers some information about Precious Metals Warrants.
To your credit, you are one of the few analysts/newsletter writers
familiar with warrants, so my big challenge is educating the
investment community as to what warrants are, and why investors
should consider including them in their portfolios. My service
is an online market data service in which we provide the complete
details on all warrants trading on the U.S. & Canadian exchanges
for the mining and energy companies.
To begin with some great credible
news on warrants, I suggest reader's review the recent article
by U.S. Global Investors, titled, Anticipate
Before You Participate: Part 2. This article explains how
U.S. Global uses long-term warrants in their investments.
Currently in my service, I
do not make any recommendations of warrants to purchase and thus
I do not compete with any of the other investment services, but
rather I consider my service a must-have complimentary/companion
service. Meaning, if you subscribe to a newsletter, i.e., Silver-Investor.com
then perhaps, before you purchase any of the recommended stocks,
you first ask the question, "do any of the recommendations
have warrants trading?" Is so, then how long is the life
of the warrant before expiration and what does the current leverage
look like? This is where investors need my service, as I provide
all of this information, and update the leverage calculations
each week.
Take myself as an example as
a typical investor. I subscribe to many of the well known investment
services, such as yours, all of which make recommendations. With
our assistance, you will have at your finger tips all of the
companies which have warrants trading, all of the details, the
current leverage calculations, links for quotes, charts, and
much more.
David: Dudley, exactly what is a warrant and are
they something new?
Dudley: Very simply, a warrant is a security
issued by a company giving an investor the right, but not the
obligation, to purchase the underlying common stock at a specific
price and expiring on a specified date in the future. Sounds
a lot like an option or leap doesn't it? Well, yes and no.
Most options have a life of
90 days to a year and LEAPS may have a life of 1 or 2 years and
they both are traded on the CBOE. The statistics that I hear
are that 80%-90% of these investors lose their investment. Why?
TIME. The clock (time) is ticking on your investment dollars
and working against you.
Warrants on the other hand
will trade very similar to the common stock and some of the most
recent warrants issued have a life of 5 years. These long-term
warrants allow you to invest vs. speculate as those warrants
with a long life of 2 years or more with give you much more TIME
for this bull market to mature. With long-term warrants time
is now on your side. By purchasing warrants an investor can increase
leverage and actually decrease the risk over purchasing the common
stock.
Warrants are definitely not
new as they have actually been around for decades. Back in the
1960's & 1970's, there was a service, The RHM Warrant Survey.
It seems they went out of business in the late 70's or early
80's, and few of us remember them except for me, Martin Weiss
and others around 60 years old.
David: Why do you think
the investment community is in the dark on warrants?
Dudley: For some reason, warrants have just
not received the attention they deserve as an investment vehicle,
in my opinion, due to the lack of knowledge and information,
and for no other reason. It seems options, leaps and futures
have captured the attention of investors, but warrants were left
out. So, when I started my market data service in March of 2005,
I was shocked to realize that most investors and analysts didn't
even know what I was talking about. Now I have incorporated much
information on warrants, how to trade, etc on the web site to
assist with this education for investors.
David: You said that you
do not make recommendations on which warrants to purchase?
Dudley: Correct, I have considered a 'premium
service' giving specific recommendations but not yet and maybe
never. What I provide to subscribers is our 'Top Ten Highest
Leverage Warrants' updated each Friday. While these are not recommendations,
they provide a great starting point for investors interested
in warrants.
David: Where is the market
for the warrants? In other words, where do they trade?
Dudley: Let me first say there is a great misconception
that Canadian mining shares and warrants cannot be purchased
by U.S. investors. I have no idea how other analysts have arrived
at this conclusion, but I can say that this is definitely false.
I personally own approximately 100 different mining companies
and many warrants, most of which are Canadian companies and I
have no problem buying them through my U.S. discount broker.
Virtually all securities in
the world are assigned what is known as a CUSIP number.
Any broker given this CUSIP number for any warrant can
get the correct symbol to input the order. We furnish the CUSIP
number for each warrant in our warrant database. Remember that
nearly all of the warrants are on Canadian companies but this
is not a problem for U.S. investors, as the orders are executed
in the OTC market.
David: Dudley, from your
experience is there a liquid market for the warrants?
Dudley: I'll have to admit that this can be
an issue and some warrants are much more liquid than others.
In our warrant database we provide a link to the TSX for the
current bid-ask prices and also on this TSX page there is a link
to the Price History which will show investors the last
30 days of trading activity. For all orders for warrants,
as well as orders to buy or sell the small Canadian mining companies,
I always recommend the use of LIMIT ORDERS.
David: Say a reader is interested
in buying some warrants, will all of the brokerage firms buy
them?
Dudley: I believe that ALL of the brokerage
firms will accept the orders for warrants, but some times investors
may have to educate their brokers. Just as many analysts do not
understand warrants, this is also true of many brokers. By first
giving your broker the CUSIP number for the warrant, any broker
can get a symbol to input the order. It will be necessary for
you to call your broker to place the orders for the warrants
and it therefore may cost you a few dollars more in commissions
but it should not make a significant difference.
David: Do you have any guidelines
as to how much an investor should allocate to warrants?
Dudley: Personally, I range from 10% - 20%
of my portfolio allocated to warrants. So, I would say a maximum
of 20% in long-term warrants. Dave, let me stress here that for
those warrants having a short life of less than a year, investors
need to be careful so as not to let them 'expire' worthless.
I actually prefer those warrants with a life in excess of two
years and now many are issued with almost five years. Therefore,
I consider these long-term warrants to be investments as opposed
to speculation, i.e., options.
David: Could you share with
us your background?
Dudley: Are you sitting down? I bring a different
background to the investment community. I graduated in 1967 with
a degree in Accounting and went directly to work for the Internal
Revenue Service. I was an IRS Agent-Team Coordinator (lead agent)
heading up the audits on some of the major corporations in the
United States. After 29 years and at age 50, I took an early
retirement over 10 years ago and any memories (good or bad) have
faded with the years. I know that many individuals may not be
excited about my background but what should be important now
is that I come from a 'numbers' background, giving me the skills
to put together this service. I also maintained a real estate
broker's license in the State of Texas for 18 years until relocating
to Ajijic, Mexico in 1999 and I have many years of experience
trading options, leaps, futures, options on futures, stocks and,
of course, warrants.
David: Could you provide
a few guidelines that you use.
Dudley: I suggest investors keep it simple.
If they like the common stock of a company, and if the company
has warrants trading, then ask themselves two questions:
- What is the remaining life
of the warrant?
The remaining life should meet the investment horizon and expectation
of the investor; long-term or short-term.
a
- What is the current leverage
calculation of the warrant?
I normally look for a leverage of 2:1 or better, but remember
our calculations are very conservative and do not reflect
any premium being paid for warrants once they are 'in the money',
i.e., trading over the exercise price. We update the leverage
calculations weekly.
If the investor is content
with the answer to the two questions above, then by all means
they should purchase the warrants in lieu of the common shares
in order to capture the additional leverage.
David: Dudley, how would
you recap this discuss for our readers?
Dudley: Let me answer that with a question.
Should investors be interested in an investment vehicle that
offers
- Increased Leverage
- A decrease in your investment
dollars at risk (yes, that's correct)
- Time (much more time than
options or leaps up to 5 years)
- No margin requirements
- Ability to buy and sell like
a stock, thru your brokerage account
- Incredible opportunities and
choices
- A strategy often overlooked
by 90% of investors and analysts
Of course you would be interested,
who wouldn't!
Thanks for the opportunity
to share with your readers what we offer at Precious
Metals Warrants.
David: Dudley, thanks for the great explanation
of warrants and your service.
Taken From the November
2006 Issue of The Morgan Report.
-David Morgan
email: silverguru22@hotmail.com
For more
information on The Morgan Report - www.silver-investor.com
For more information on Precious Metals Warrants www.preciousmetalswarrants.com
Disclaimer/Disclosure
Statement:
PreciousMetalsWarrants.com
is not an investment advisor and any reference to specific securities
does not constitute a recommendation thereof. The opinions expressed
herein are the express personal opinions of Dudley Baker. Neither
the information, nor the opinions expressed should be construed
as a solicitation to buy any securities mentioned in this Service.
Examples given are only intended to make investors aware of the
potential rewards of investing in Warrants. Investors are recommended
to obtain the advice of a qualified investment advisor before
entering into any transactions involving stocks or Warrants.
321gold Inc
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