Defrauded!

I am so embarrassed.

You may recall that I recently purchased some shares in a Canadian goldminer Crystallex (KRY). Well today at work I decided to check up on it shortly after lunch. It had recently taken a beating and fallen from where I bought it ($3.00) to around $2.82 or so. Well I was delighted to see that the share price had skyrocketed in about 5 minutes from the mid $2.80's to almost $3.00! What could be going on? I checked out my favourite finance blog, billcara.com, and found that someone posted a news article from Dow Jones newswire time-stamped at 1pm stating that KRY had received their environmental permit!

Yippee! This is what I had been hoping for! The long awaited permit! The share price was sure to double! Or triple! Perhaps it wasn't too late to buy more shares?!? The news was just released minutes ago!!!

So, fool that I am, I put in a limit order for 300 shares at $3.25. The order was immediately filled at $3.04/share. It was my "lucky" day.

...........except, it turns out the news story was a complete fraud:

Crystallex's Share Price Jumps On Fraudulent News Report

Jan 30, 2007 15:30:00 (ET)

CARACAS (Dow Jones)--A fraudulent news story Tuesday on the Venezuelan operations of Canadian miner Crystallex International Corp. (KRY) pushed the company's share price up nearly 10% before profit-taking pared the gains.

The fake article, which resembled a Dow Jones Newswires report, claimed that Venezuela had at last approved a long-awaited environmental permit for Crystallex to begin exploiting the Las Cristinas gold mine.

The phony report was posted on a Yahoo message board. Shortly after it appeared, Crystallex's share price on the American Stock Exchange rose as high as 9.3% to $3.07 before the gains were trimmed. The stock stood at $2.96 per share, up 6.1%, at 3:23 p.m. EST.

Crystallex officials have denied the report. "As of now we're just fielding questions from investors," said Richard Marshall, vice president of investor relations for Crystallex. The company has yet to decide on other actions such as contacting the U.S. Securities and Exchange Commission, he said. "We'll bring it up with our board and to (legal) counsel to see what we can do."

The bogus story included a fabricated quote attributed to Venezuelan Mining Minister Jose Khan.

-By Raul Gallegos, Dow Jones Newswires; 58-212-564-1339; raul.gallegos@dowjones.com

KRY is currently trading back down at $2.88 and I am $60 poorer.....or wiser (depending on how you look at it). I have learned three very important lessons:

1. Price action, even the high volume price action that happened today, may not mean anything.
2. Never trust anything people post on the internet about a stock, even when it is supported by an observable price movement in the market.
3. I am a moron.

Crystallex (KRY)

Today I bought 3 units of Crystallex....a Canadian gold miner. This is a pure gamble. I bought in at $3.00 US. They currently have the rights to the Las Cristinas deposit in Venezuela which is one of the richest (if not the richest) unmined gold deposits in the world. The potential problems with them are twofold:
1. They are waiting on an environmental permit before they can commence operations. In the meantime, they burn cash.
2. Venezuela is a political hot potato these days because of Hugo Chavez's propensity to piss off the USA and his socialist leanings. Recently they've nationalized the oil and telecom industries....so there's some fear that they will do the same to mining.

I think the main concern is #1. My feeling is that concern #2 is, if not unwarranted, at least overstated. I believe that mining is already nationalized and that this is priced into the stock. Venezuela owns the Las Cristinas deposit, not KRY. KRY just has the mining rights. Furthermore, even though Chavez nationalized the oil industry there are still many western oil companies doing business in Venezuela, so business with the Venezuelans can't be that bad.

I'll know by the spring if this was a good buy....

Financial Blogging

I have recently jumped into the exciting world of investing. This month I opened an account with the online discount brokerage Etrade, and wired the bulk of my net worth ($49,123,457) into said account. I've decided to blog any trades I make. This is boring for you the reader, I know, but it forces me to express my investment ideas and think through my reasoning before I do anything rash.

At the end of the day when my finances are in shambles and I sit at a bar spending my last $20 on shots of Jack Daniels tearfully mumbling "How could this have happened?" I will at least have a well-documented record to answer my own rhetorical question.

First trade was executed earlier this month:

I bought 1.25 units of Silver Wheaton (SLW) at $9.00. SLW is a silver miner that buys the silver stream production of other mining companies and sells it on the open market. Apparently gold miners like to do this because there is pressure by investors for them to remain unhedged to gold. By selling their silver production via long-term fixed price contracts they can use this revenue to hedge (i.e. to protect themselves against fluctuations in metal prices) while maintaining the appearance of being unhedged to gold investors.

Why I bought:
I believe we are in an environment that is favourable for precious metals. Inflation seems to be a real concern and since interest rates seem to be staying fairly constant, that means real interest rates are at risk of declining. The economy also seems to be at risk of entering recession which, from what I gather, is historically associated with falling real interest rates. Precious metal stocks are reasonably priced relative to the price of the metals themselves. Furthermore, silver is a metal with many, many industrial applications and demand currently exceeds supply. SLW is a bet that this year silver prices will increase.

What scares me:
SLW doesn't really seem to have a competitive advantage other than a close relationship with Goldcorp. I mean, what's to stop somebody else from coming in and buying up contracts and eating SLW's market share? What makes them so special? On the other hand, they only have about 4 employees and several long term contracts, so I assume they can stay profitable as long as silver prices are reasonable....so I think there is a limited potential for catastrophe.