Best Time To Buy and Sell TSX Venture Stocks
Mon, Feb 18, 2013
Top Tsx Venture Stocks
It’s getting to that time of year again where fortunes will be made in junior mining stocks.
Investors who are looking to time their gold penny stock investments will be doing one thing right now – selling!
That’s right. This is the time to sell junior gold and natural resource stocks.
Technically, between now and the next six weeks is the window where the smart money on the TSX Venture Stocks should be selling. But now is still the time.
The simple answer is history.
The chart of the TSX Venture Exchange Index shows that throughout the last 10 years, the best time to sell has always come between February and April:
In fact, in only two of the last 10 years has the February-April window been a good time to buy.
Both of those when the TSX Venture bucked the trend were both times cam when the TSX Venture Index was lower than it is today.
The reason for this is really simple and unique to the TSX Venture Exchange.
You see, most companies listed on the TSX Venture Exchange are barely even companies. There are more than 2,400 companies list on the TSX Venture Exchange. And more than 90% don’t generate any revenue. They only stay in business because they sell more shares to the public and invest that money into their business and pay lawyers, consultants, salaries, rent, office expenses, promotion costs, travel, and more costs that go along with doing business.
By nature of the financial business which slows down over the summer, most of these small companies tend to raise money by selling shares at the same times each year. The heaviest season each year comes between September and December.
The chart below shows spikes in the September-December financing season in total volume of direct investments in TSX Venture companies:
As a standard part of these financing deals where shares are sold directly to investors and the capital is put into the company, the investors in the companies get a number of benefits not available to individual or institutional investors who buy shares on the market.
One of these advantages is often a discount to the market price for the shares. For example, a stock trading on the TSX Venture for 50 cents will allow investors buying shares directly from the company a discounted price of 40 cents per share.
These direct financing deals also usually carry warrants with them too. In most cases, each share bought through the financing will come with a whole warrant (the right to buy an additional share at predetermined price) or a half warrant (the right to buy one half share at the predetermined price).
For all of these advantages, the investor has to give up the right to sell the shares right away. As a result, the investor must normally hold the shares for a period of four months.
Now we have the combination of millions of shares issued at a discount and a stock that trades very light volume (sometimes as little as a few hundred thousand shares a day). This often leads to a steady selling pressure that pushes down the share price.
The private investors who bought the discounted shares are taking their quick profit. And since their shares were discounted, they can lock in a much better profit and sell a stock down below the price it was four months ago and still make money.
All of this is why the February to April timeframe has been consistently the best time to Sell TSX Venture Stocks.
A lot of investors will consider “selling in May” as the saying goes. But they’ll be too late if they’re looking at the small- and micro-cap companies which dominate the TSX Venture Exchange.
Get out now. History shows you won’t be disappointed.
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