Hi, Paul.

PE> 1. I haven't received anything from you yet.

You're the second. A lot of stuff went out on the same day, 1 other
client has said he's received nothing (but (all?) the rest have. Will
mail CHESS stuff today.

PE> 2. You haven't told me the minimum brokerage for buy + sell yet.

Confirm $75 both sides.

PE> 3. I have sold my SBR at 1.7 + 1.8c, after holding on to it for
PE> 7 months.  1 more week would have given me the 2c I was looking
PE> for, or holding would have given me 2.7c that I wasn't looking
PE> for!  :-)  That's the first stock I've sold at a loss.

Yeah, pity you couldn't have held. It's a problem when you have no free
$ outside the market, you may have to sell just at the wrong time, if
you need $s for something.

PE> 4. I have completed the important trades at SHAW already, got the
PE> balance of the PRM at 3.3c, asked for the account to be closed
PE> down, and I'll probably move my CHESS soon, and Xiayi's will
PE> probably not see any action, dependent on...

You can do that as soon as I send you the CHESS sponsorship agreements,
and authority letters to transfer from SHAW.

If you want to tell me what you've bought/sold, when & what price, I'll
update my records so I can send you EDWARDS.TXT when you ask for it.

PE> 5. I am formulating a new trading plan.  Can you elaborate on what
PE> you mentioned some months ago about me sailing close to the wind.

I'll have to go back and see in what context I said that. Can you give
me a time frame closer than "some months ago"?

PE> Why did you consider buying a *selection* of mining stocks risky,

Once again I'd like to know the context in which I said that. Buying
*one* stock is risky, the more you buy the less risky is your total
portfolio because the gains and losses balance out. Which of course also
means that you don't get the same potential for spectacular gain in your
whole portfolio.

That's somewhat simplified, it depends on the correlation between the
expected return on the stocks.  Let's say you had two
companies which each owned half of say a gold mine or prospect, and
nothing else. Obviously the correlation between those two companies is
100%, and buying both does not change the risk of your portfolio at all
from buying just one.

Then take two companies who both own gold prospects, but different ones.
The correlation is now not 100% although it's still quite high because
both for example are dependent on the price of gold. Buying both would
reduce the risk because there would be a chance that one would find gold
even if the other didn't. But because you've got half (perhaps) of your
money invested in each, your total return is less than if you had it all
invested in the company which happened to find gold.

Then take a gold explorer and say an industrial company which has
nothing to do with mining or gold or mining equipment or whatever. The
correlation between these two will be quite low, but not zero because
they are still dependent on the overall market, the health of the
economy, etc.

You could even have two investments having negative correlation but I
can't think of a plausible example right now.

A mathematical approach to investing called "Modern Portfolio Theory"
(MPT) tells you what proportion of your funds to invest in which
companies to maximise your return for any given level of risk, or
minimise your risk for any given level of return. It also shows that you
can increase your return, and risk, by borrowing to invest. The
relationship is linear (this one, not the risk/return relationship
without borrowing which is from memory quadratic) and theoretically
without limit. Unfortunately lenders require security for you to borrow
and that is not without limit.

PE> and aren't you doing it yourself anyway?  Aren't you sailing just
PE> as close to the wind?

Probably, if I knew the context in which I made those remarks.

PE> I am interested in "long"-term averages.

Then consider a diverse range of investments, weighted according to MPT.
You'll need some theory, and some software.

PE> 6. What's the future of NTS looking like?  I want to hold onto it
PE> for 5 years, any problem with that?

No, but I expect the largest gains to come in a relatively short time.

PE> Will it ever return a dividend,
PE> or are we just meant to watch silly buggers buying and selling
PE> something that doesn't actually appear to do anything at all?

NTS is unlikely to pay a dividend for a long time. However that does not
mean people are playing silly buggers. Some very successful companies
pay little or no dividend, DEC in the U.S. being the best-known example
- they've *never* paid a dividend. Those companies believe that they can
improve shareholder wealth more by re-investing their profits in growing
the business than distributing them.

What is likely to happen with NTS is that what they have in Vietnam will
be sold into a new company with a Canadian partner who also has a good
prospect (in Canada) and the new entity will be listed on the Toronto
Stock Exchange (and probably here). Even if that doesn't go ahead it is
likely that NTS will list in Canada. Part of the process for doing that
involves the other party (actually an independent expert) doing a 'due
diligence' examination of NTS's assets. This will result in the
valuation of the Vietnam property at its perceived potential as a gold
producer, rather than the current value in NTS's books which is what
they've spent on it - $4m from memory. That valuation could be $40m. Or
more. That due diligence exercise is taking place right now, and this
is why I expect a significant increase in the share price in the
reasonably near future.

PE> 7. I think there is a lot more volatility, on average, in a 4c
PE> stock compared to a $1.40 stock.  Is this generally true?  What
PE> is it that makes Climax at $1.40 different from PRM at 4c?  My
PE> guess is that the small holdings mean that the large swings come
PE> in when a large shareholder moves and swamps the market.

This is often but not necessarily so. You also really have to look at
the total capitalisation of the company, the share price times the
number of shares on issue. There is no reason that BHP shares couldn't
be 4 cents, if they had 500 times as many shares on issue as they have.

The large swings don't tend to come from a shareholder "swamping the
market" per se. The stocks with lower share prices tend to be the more
speculative ones, whether it be mining, technology, whatever. One day
they may achieve what they're trying to do - find gold, develop a cure
for AIDS, perfect some high-tech invention or whatever. Then the share
price rises rapidly. It might even happen before that's announced,
either due to rumours/leaks or just diligent work by an analyst. If you
were an analyst covering companies in the medical business for example,
you might keep a close eye on the progress of the clinical trials of
some new pharmaceutical product, talk to the people doing it, etc. You
may then be able to deduce, before it's generally known to the market,
that the company really had something big. Or that it's a flop, and as
soon as that's known the shares will fall out of bed.

You have, if I'm not mistaken, all (or a lot of) the data which would
allow you to determine which were the most volatile shares on the market
and whether that did correlate with a low share price as you suggest. A
quick program in C should do it. :-)

PE> Just answer from the top of your head rather than waiting for
PE> input from official sources will you?

I did, except where you want my comment on something I said a while ago
and I need a better idea of when.

What is your new trading plan?

Regards, fIM.

 * * I'm from the Taxation Department and I'm here to help you
@EOT:

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