Curried Wealth Building
Finding an Edge

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September 4, 2010
Issue 112  -  Show Me the Dividends
 
 
The world is increasingly becoming more fraudulent.  It's almost become a sport for corporations.  The government is now in permanent "spin" mode.  The reports and numbers of these entities is almost comical in the extent of hiding and renaming of things to make them appear better.  But, when it comes to corporations, there is one area that is almost impossible to fake:  dividends. 
 
A dividend is simply a return of profits to the shareholders.  It is the MAIN reason that people bought stocks for decades.  Price appreciation was always a secondary concern.  Think about it, if you're investing in a friend's business, wouldn't you want some of the profits?  Or would it be ok for them to tell you that in twenty years they'll sell the company and then you can get some profit?   It just makes sense that a company should pay it's owners a portion of the pot.  
 
This is one of the main reasons I have invested in GORO.  They promised to pay a dividend and now they have paid one and announced a second.  It looks to me like they will have a dividend a month.  This is a VERY rare thing for stocks.  It is unheard of in the gold mining stocks.  They ARE different and I believe that the price of the stock has appreciated because of it.  They  also moved from the over-the-counter bulletin board to the American Stock Exchange last Monday.  This is a huge development.  There are many mutual funds that are prohibited from buying over-the-counter stocks.  This is due to their minimum reporting requirements.  Now that GORO is on the AMEX, they are having to do more financial reporting and this makes them a "safer" investment.  This will lead to further price increases.
 
Dividends are now becoming more and more important to investors.  The banks interest rates are so low, that people are putting their money in stocks that pay them.  As the dividend for GORO continues over the next few months (and I think this will happen, but there is no guarantee) it will start to attract more and more attention.  Money has that effect.  Right now they have a dividend of 6 cents over the past 2 months.  If you multiplied that by 6, it comes out to a dividend of 2.4% of the current price.  The average gold stock has a dividend of about 1%.  As the dividend is seen as constant, and more probably rising, the stock price will adjust to a higher level so that the dividend yield is closer to the 1% level.  If GORO can execute their business plan, they will be producing a dividend well over a dollar.  Even if the yield is 3%, that is a stock price over $30.  If the yield is 1%, the price would be over $100.  It's still safe to buy GORO at these levels.
 
In fact, with the AMEX listing, GORO has been mentioned on the Forbes business news dividend report and there is a story on www.seekingalpha.com wholly about the company.  I expect this to continue as GORO management doesn't want to be bought out by Hochshild Mining.  The best way to do that is to keep the stock price high.  As if all that isn't enough, there is a growing undercurrent, that some of the forms of gold aren't what they say they are:
 

GLD Managing Director Jason Toussaint Does Not Own ANY GLD Shares...

BUT he owns physical gold and mining stocks. Greg in Chicago alerted me to a blog post by Jeff Nielson on seekingalpha.com. It regards an interview of Toussaint on Canada's Business News Network (BNN). As Nielson points out, Touissant admits at the end of the interview that he owns physical gold but does not mention that he owns any GLD. Here is the link to interview - I've linked part 2: Toussaint = The Big Whiff The relevant comment starts at the 5:44 mark. The 10-K I've linked below confirms that Toussaint indeed does not own ANY GLD shares.
Now in case you don't know, GLD is a mutual fund type investment that supposedly has gold backing each share.  There is growing evidence that this isn't true.  I believe that it was created to suck demand out of the physical market and divert it to GLD.  This does a great job of suppressing the price of gold because GLD is not buying as much gold as they say they are.  This means less demand and thus a lower price.  How else to explain the manager of GLD not owning any shares of GLD but physical gold?  If GLD owns physical gold to back each share of it's stock, why go through all the trouble of buying and storing actual gold?  What could be easier than owning GLD?  Unless, this manager knows that it's a fraud, a ruse.  THAT fits the facts of the story.  If he believes gold is the place to be and owns it, but doesn't own GLD which is supposedly the same thing, that's all you need to know.  The same goes for the silver fund SLV.
 
 This makes owning physical gold and silver, or a producing mining company, all the more important.  When the average checking and savings account is paying far below 1%,  gold and silver paying 0% is no big deal.  With GORO, it even gets better as they are producing the gold and silver and paying a dividend larger than a savings account.  The best of both worlds.  If GORO increases their dividend, as I expect, the price has no where to go but up.  Now of course there are risks, and nothing is a sure thing, but I like my chances here as much as I've ever liked an investment.  These guys are literally going to be printing money.  Couple that with the takeout intentions of Hochschild Mining, and it's almost too good to be true. 
 
The Art of the Deal
 
 
 
I went on vacation with two families and one of the guys was Andre.  He is a master at negotiations and haggling and I thought I'd share a few of his techniques and perhaps you can save a few shekels.  Watching him work the locals was a thing of beauty.  Here are some of his key points:
 
1.  Keep smiling.  No matter what happened during any haggle, Andre would continue to smile and emote a positive vibe.  This kept the other party "on his side" and kept things pleasant.  People are more likely to come to your offer, if they are happy.
 
2.  Let them go first.  Andre always let the other party set the baseline.  This allowed the most flexibility and sometimes a lower starting point than what you would think.
 
3.  Cut the offer in half.  Take whatever they offer and cut it in half.  I know this seems like a lot, but in most cases the seller will still make a decent profit.  This is especially true in a foreign country.
 
4.  Treat it like a game.  Don't go into to it like a confrontation, which is usually unpleasant, instead make it a game you are trying to win.  The more money you knock off, the more you "win".  Don't let it be upsetting, have fun.
 
5.  Be prepared to walk.  If you don't go into a haggle with the idea that walking away is an option, you've already lost.  You can't be emotionally attached to getting what they are selling.  If they won't deal, you must walk away.
 
6.  Don't take it personal.  No matter what happens, don't get mad.  This only clouds your judgment.  If the other person gets upset, remember #1.
 
7.  Read your opponent.  Watching their reactions can give you great insight.  Are they getting excited?  You're too high, lower your offer.  Are they getting mad?  Keep pushing, unless they have valid reason that the offer is too high, it's probably not.  They could be mad because you have found a fair price and they thought they were going to get much more from you.  "I can't go that low," isn't a good enough reason.  Making them explain why.  Ask how much they get paid and make and negotiate from that.  Make them work to justify their price. 
 
8. Express faith in them.  This was the biggest thing I saw in Andre.  He was constantly telling the other person, "I know you can do it."  Another one of his favorites is, "I believe in you."  For some reason people respond very well to this.  Perhaps they don't want to let you down after you say something like this.  It's almost like you are their parent and they don't want to disappoint you.  Really amazing how effective this is.
 
 
 
I'll finish this week with a video of sport in England.  Not for mere mortals.  Have a great week!