I refuse to call it “Due Diligence for Dummies,” because I know my readers are anything but. I never liked that terminology for entry-level texts, anyway. Hence the train wreck of a title above.
But I do want to help those who can’t travel and kick the tires (or rocks) on investment opportunities the way I do. So here’s quick a list of do-it-yourself ideas that every speculator can employ at home:
- Google. You can and should use Google to search for key members of the management team of companies you’re considering speculating on. A history of past wins is an obvious plus. A history of failed projects and lawsuits is not. You can also often find articles and reports on the prospects and projects themselves—not written by management. Sometimes new management changes the names of projects, but former names can usually be found in the project history section on the company’s web site. Google is not foolproof, but it can give you a lot of information that, at the very least, is not being spun by management.
- SEDAR/EDGAR. Public companies all have mandatory filings with market regulators that are made available to the public. In the US, these are available through the SEC’s EDGAR site, and in Canada, through SEDAR. There’s a lot you can tell from any company’s quarterly financial statements and other public filings. For example, are they spending more on general and administrative expenses (their salaries and offices) than they are on the project? Are their filings often late? Does the management discussion and analysis (MD&A) disclose things not mentioned in the glossy corporate presentations on the company website? You don’t have to be an accountant to see, for example, that a company that’s spending $1 million per year and has $300,000 in the bank is in dire need.
- Corebox.net. This website is a free tool that displays drill results in 3D. This is a great help for amateurs and professionals alike to get a visual representation of what a mineral exploration company has found in the ground. The tool has widgets that let you examine drill results in several ways. The key thing you’re looking for is consistency. My favorite is the grade slider, which lets you see where the high-grade hits in a deposit are. Best of all is that you don’t need any special software. It’s simply a web page that does all the work for you.
- Study the subject. Whether it’s mining, marijuana, biotech, or blockchain, you want to learn as much as you can about whatever you’re investing in. This may seem too obvious to state, but a lot of people let themselves get intimidated by the task. They rely on experts, falsely assuming that they will never be able to decipher the jargon in company press releases and so forth. It’s daunting at first, I understand, but it’s a no-lose proposition. Every single thing you learn is one more thing you can figure out for yourself going forward.
- Pick up the phone. You may think you’re not expert enough to grill management on the phone effectively, but don’t sell yourself short. Even if you’re not an expert, you can tell a lot from how well management answers questions. Do they hesitate a lot? Repeat themselves a lot? Do they try to snow you with jargon when you ask a simple question? People are critical to the success of any venture, and every human being on earth has some sense for slick talk vs. straight talk. You might be surprised how often a CEO in a shaky company shows it by not being able to answer simple questions like: “What’s your budget this year, and how much cash does your company have in the bank?”
One more thing: you don’t have to stay at home. If you’re an investor or a potential investor, you can sometimes get included in a due diligence trip the company itself puts together. They usually have only enough room for analysts and major investors, but sometimes they book a bus or a plane that’s larger than needed for their main guests, and they may let others join the trip. All you have to do is ask when you speak with management.
I plan to expand this into a more detailed How To report in the future. For now, this brief should be enough to help those just getting started.
Good luck, and happy hunting.
Thursday, May 31, 10:08pm, EDT, 2018