Hi OzP;
Your reasoning is excellent in my opinion.
In my opinion there is a difference between Research and Analysis:
Research looks at the Narrative, Management, Broad issues, Investment Theory, Thought Experiments, Deductions, Sentiment, Best Practices, Geology and Trends. Research is like a trawler scooping up as many fish as possible and looks at things from many different skeptical perspectives.
Analysis looks at the numbers from two different Methods: Technical and Fundamental. Analysis is essential for examining the Capital Structure, Valuation, Momentum and so on.
In my opinion people tend to only know their area of focus and only a little of any other strategy. For example; Capital Raising is essential for Small Caps to Explore and Mine! CR are natural and healthy and good. They are needed for Growth and the Cap itself is not a very good indicator as the Cap is often wrong.
The Capital Structure and Management tells the tale and is far more important at this stage then the Cap in my opinion.
The market is inefficient in the case of TON and that is a great place to Raise Capital. Its over-sold state is attractive and good risk reduction in the Peer Group.
At the end of the day the Basics are not as well known as we might expect from something that risks our money. The market is emotional and irrational. Take for instance TON in its oversold Peer Group Imbalance. It is a clear Anchor upon its other Peers and any CR is going to be soaked up by the market in my opinion.
TON is consolidating nicely in my opinion for many of the factors outlined by OzP:
1/ Equity and Debt Funding from SQZG.
2/ Value Investing Versus Growth Investing.
3/ Price Capping: Value Seeks Efficiency.
Here are some of my thoughts on this matter with a few examples:
This Article has many interesting things about Small Caps and MR Market...
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Valuing Small-Cap Stocks
http://www.investopedia.com/articles/stocks/11/value-small-cap-stocks.asp
Portfolio construction involves three main decisions. First, there is the composition percentage of U.S. and foreign stocks. Second, whether they follow a
growth or
value orientation and third, the
market cap of those stocks. Often overlooked by investors,
small-cap stocks are companies with market capitalizations between $300 million and $2 billion. Considered risky by some, they are the growth engine of the economy. Starting out as saplings, many become giant oak trees over time. Overwhelming evidence suggests a diversified stock portfolio should include a portion in small-cap companies. Read on and I'll explain why.
TUTORIAL: Stock Basics
Historical Performance
Dimensional Fund Advisors produces an annual matrix book that summarizes historical
risk and
returns of various indexes based on
market capitalization. Not surprisingly, the best performing index over an 80-year period (1931-2010) is the Small-Cap Value Index. It's also the hands down winner over 50, 10, 5 and one-year periods. Eugene F. Fama, Jr., who's father is the creator of the
efficient market hypothesis, suggests that the only way to increase expected returns, is by exposing your portfolio to greater
systematic risks.
However, what constitutes risk is somewhat variable. Morningstar studied four hypothetical portfolios in "The Perfect Mix of Large-, Mid-, and Small-Cap Stocks" over a 30-year period (1976-2005), and found that the portfolio comprised entirely of
large-cap stocks (which Morningstar defined as over $5 billion market caps) had exactly the same risk profile as the portfolio with 40% large-cap, 30% mid-cap and 30% small-cap.
The portfolio with a mix of stocks achieved an annual return 2.1% higher. A $10,000 investment in the large-cap portfolio would have been worth $327,000 after 30 years, compared to $573,000 for the mix of stocks.
Volatility, while real, is sometimes exaggerated. By taking no additional risk, an investor is able to improve his or her
annual return simply by diversifying into stocks of smaller companies.
Why You Should Include Small-Caps In Your Portfolio
Although historical returns are an excellent reason to own small-cap stocks, there are many others. Here are just a few:
- Small-cap stocks are often too small for institutional buyers to own, giving individual investors the opportunity to get in on the ground floor before the stocks become a household name. Then, as the stock grows in size, institutional investors take notice and start buying. When that happens, things really get interesting.
- By investing in smaller companies, you're helping some of America's most innovative businesses to grow. Many of today's best large-caps started out as small businesses. Without your investment, they might have stayed that way.
- Many Wall Street analysts don't cover small-cap stocks. With little institutional coverage, only those investors carrying out their own research will even know that some of these companies exist.
- Small companies have fewer employees and lower expenses. This enables them to take greater risks that larger companies just can't do. Furthermore, because they have the flexibility to chase growth trends, when and if they see fit, they can react far more quickly to potential opportunities. Often this first-mover advantage is critical to long-term success. Large-caps simply don't move this fast.
- Small-caps grow more quickly because of their size. A restaurant chain taking a city by storm that expands to other large cities, outside its initial market, is going to double its sales much faster than a large-cap with $20 billion in revenue. It's the nature of the beast. (Learn more on making investment decisions based on firm size, check out An Introduction To Small-Cap Stocks.)
Growth Vs. Value
Every experienced investor has his or her own definition of what makes a value and growth stock. The most common being that growth stocks are companies whose earnings are rising faster than the market; while value stocks are those businesses whose growth is slower than the market, and thus falling out of favor with investors. Growth investors tend to look for companies with price/earnings to growth (PEG) ratios lower than one, while value investors are more apt to choose those with low price-to-book (P/B) and price-to-earnings (P/E) ratios. An interesting way to determine investment style is to add together a stock's P/E and P/B ratios relative to the S&P 500.
For example, Company A has a P/E of 50.5 and a P/B of 6.3, for a total of 56.8. Now, let's assume that the S&P 500's P/E and P/B ratios added together totals 15.5. The sum of Company A's ratios is 3.7 times that of the index. Any stock with a sum of 2.25, or higher, relative to the index, is considered a
growth stock; less than 1.75 is a
value stock, and those in between are a blend of the two. Not only is it important to diversify by market cap, sector and industry, history tells us that it's also useful to achieve some sort of balance between growth and value because of the cyclical nature of both types of stock returns.
When value is outperforming the markets, growth stocks aren't and vice-versa. (Learn more in
Using The Price-To-Book Ratio To Evaluate Companies.)
Attributes of a Winning Small-Cap
The answer to this depends on whether you're looking for a growth or value stock. If you're interested in growth, the biggest attribute revolves around a company's income statement. Ideally, you want a company whose revenues and earnings are growing at 15 and 20% per year, respectively. In conjunction with the revenue and earnings growth, you'll be looking for companies whose margins are expanding rapidly, have little debt in their capital structure and are using more cash than they bring in. In other instances, you might accept less revenue and earnings growth in return for greater cash flow generation. The key for most growth investors is a valuation that exceeds small-cap indexes, like the S&P Small Cap 600 or the Russell 2000. On the other hand, if you're looking for a value stock, it's all about the price you pay.
These are often companies misunderstood by the markets, or relatively unknown, and competing in niche industries. Here, revenue and earnings growth is less important. Instead, value investors look for companies with strong management, excellent balance sheets, positive cash flow and valuations below the index. Over time, value tends to outperform growth. This doesn't mean, however, that you should include only value stocks when constructing your equities portfolio.
Diversification is always a good thing, whether we're talking geography, investment style or market cap.
The Bottom Line
Small-cap investing, when done correctly, can improve the overall performance of your portfolio without adding a great degree of risk. In the end, success comes when these smaller companies grow into larger ones. It doesn't happen all the time, but frequently enough to seriously consider making them an important part of your portfolio.
For More:
http://www.investopedia.com/articles/stocks/11/value-small-cap-stocks.asp
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To quote the Article Above:
"On the other hand, if you're looking for a value stock, it's all about the price you pay. These are often companies misunderstood by the markets, or relatively unknown, and competing in niche industries. Here, revenue and earnings growth is less important. Instead, value investors look for companies with strong management, excellent balance sheets, positive cash flow and valuations below the index. Over time, value tends to outperform growth."
"Value stocks are those businesses whose growth is slower than the market, and thus falling out of favor with investors."
The market has yet to really absorb how good the Value is here but it will; of that I am confident.
I like this info as a sound basis in understanding...
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The Top 7 Things to Look For
This is where the Fundamental Approach shines. All of your investments should fulfill a few key checkpoints:
- Look for companies where management owns a large percentage of the stock. A vested interest at a higher share price is even better.
- Look for a tight capital structure. A bloated outstanding share count is a red flag. As is a history of management carelessly diluting away shareholder interest by issuing new stock.
- Look for a thrifty management team. A good company should spend their capital on projects, not swanky new offices.
- The company's mine should remain profitable even if gold drops to $1,000 per ounce. It could happen.
- Look for companies with enough cash to finance their current drill program, expansion plans, feasibility study, or construction phase. This year in particular, companies are having a very difficult time finding financing. Those who have adequate cash are diamonds in the rough.
- Know which countries support mining. A tier-one asset under the control of a wildly corrupt government isn't really a tier-one asset. You don't want to get caught in the middle of a government dangling final permits above managements’ heads.
- Know the geological potential of the exploration area. A four-million-ounce gold deposit is swell, but what if your company discovers not just one gold mine, but an entire new gold district? How will you factor in that upside?
Source:
http://www.caseyresearch.com/articles/what-not-to-do-when-investing-in-miners
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In my opinion TON ticks all the boxes and is my second pick of the year. Excellent really. In my opinion the Basics are shining forth here like the morning sun right now coming through my window. Each to their own and the future is still to surprise us - Hopefully for the good !
What do you think?
@ozpolarbear
@earlyrise
@jackarooz
@Pauldola
And all the other excellent posters on here....
Kind Regards
DYOR !!!!
(20min delay)