Forum Archive Index - June 2004

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi mick,
 
>
>Risk/reward is very subjective
>I think you ,Snoopy have a totally different idea about risk than i do
>

Probably.  My idea of a 'risky share' is one that you invest in that might 
suddenly undergo a share price collapse from which it cannot recover.  

What's yours?

> 
>My idea of a high risk company is one such as Sky City
>Very liitle shareholders equity,up to their eyeballs in debt
>and still running around NZ and Oz buying out casinos ,all with
>borrowed money. Would I be right in assuming that you still hold 
>these shares?
> 

Yes, but I take issue with the phrase 'up to their eyeballs in debt'.    If 
that were so, the banks would think twice about lending them more 
money.    Yet it seems they have no problem with doing it.  Sure the 
SKC debt level is well above average, but so is the SKC ability to 
service that debt.

Having said that, I will acknowledge that SKC is more risky than 
before, following the Darwin and Christchurch acquisitions.   I wonder if 
had the timing been reversed, and SKC had bought into the 
Christchurch Casino first, whether they still would have bought Darwin 
as well?  Still as the MD says, the opportunity to buy up casinos does 
not come every day.  I agree that the debt position of SKC needs 
monitoring, but it is far from being a concern.

>
>My idea of a low risk company is one such as CRS / ASX
>They have one million ozs of gold in reserves, 20 million cash in the
>bank, no debt and are producing 230000 ozs of gold per year Pays 
an
>annual dividend as well.
>

Ah, but what is the dividend yield?   And the divvie doesn't have NZ 
imputation credits does it?

I grabbed an old broker recommendation from the other channel on 
CRS

----------

6th February 2004

QUOTE - Croesus mining (CRS, $0.90) BUY 

Paul Pekish, a senior client adviser with Paterson Ord Minnett, 
says his firm prefers Croesus Mining because of its exposure to 
the gold price. 

"Croesus also has significant exploration upside 
and low capital expenditure requirements - generating significant 
free cash flow and increased earnings ," he says. "Paterson Ord 
Minnett is very confident that the Central Norseman gold mining 
operations will continue for many years." 

------------

Based on that, and your own comments, I can see why you would think 
of CRS as a low risk company   Of course I would regard the market 
that CRS is in (the gold market) as being high risk.

So with CRS you have a low risk company in a high risk market.

With SKC I have a higher risk company in a low risk market(*)

(*) By low risk I mean a legislated monopoly position.


I've never really thought of it that way before, but I guess my 
'investment style' consists of looking for low risk consumer markets, 
with the result that I am less concerned about the individual riskiness 
of the players in those markets that I choose to invest in.   Note that I 
said 'less concerned' and not 'unconcerned'!

> 
>I could name a few more in similar situations as CRS
>I suspect you would refer to CRS  as a high risk company Snoopy
>I see CRS as a low risk company with high upside potential 
>(a bargain at todays price)
> 

Fair enough.   You have obviously put some thought into this and not 
picked up 'just any gold share'.   But how high is the potential?    The 
problem with the gold investments is that you can ride the escalator to 
higher and higher heights, yet the sky still looks blue each step the 
escalator rises.   What is high and what is low?    If there was some 
fundamental way of answering that question then I might invest in gold.
If you can't answer that question then the 'risk of ruin' becomes your 
constant demon companion.

Nevertheless if you must invest in a commodity that responds to 
'troubled times' (whatever that means), why not choose oil?     Doesn't 
that offer all of the potential upsides of gold, but with far less downside 
risk because it is a consumable and is currently being used up as fast 
as they can pump it out of the ground?

SNOOPY







--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
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bite them by accident"


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