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Dudley Baker Explains Warrants Offer Leverage

on 12/28/2011

Dudley Baker, the owner and editor of Precious Metals Warrants, was a recent speaker at the San Francisco Hard Assets Investment Conference. He discussed where the best opportunities in the natural resource sector are for the next 2 years and the benefits of including long-term warrants in your portfolio.


Mr. Baker started Precious Metals Warrants in 2005 providing details on all warrants trading on natural resources shares. Through the investment service, he also provides access to his entire portfolio in his, “A Look over My Shoulder.” Though home for Mr. Baker is Ajijic, Mexico, he has a worldwide subscriber base.


What are Warrants?

If you’re not familiar with warrants,, has a learning center with information to explain what is a warrant, difference between options, private vs. publicly traded and the leverage offered by warrants.


The basic definition of a warrant is the right to purchase the underlying stock at a specific price, within a specified time. A company may issue warrants in connection with a private placement or a financing arrangement. Many of the warrants remain privately held; however, some warrants are tradable on the exchanges, just like the common stock.


Mr. Baker notes that, despite the name, “We’re so much more than warrants now.” Initially, Precious Metals Warrants was just a database of all the warrants that were trading in the U.S. and Canadian markets. “Over the past couple of years, we’ve expanded this into one of my passions following the insider trading of all the junior stocks. I look at the insider transactions and what the insider holdings are on all of these companies. Then I also opened up my own personal portfolio,” he explains.


“Subscribers get to see 3 pieces of the pie, so to speak: Everything that I do; all the insider activity that I follow; as well as the warrants database,” highlights Mr. Baker.


Mr. Baker says all of his research gives him insight into what is going to be some of the future winners. Naturally, he has in his portfolio what he believes are going to be the big winners. “And I find them through different avenues,” he explains. “Several of the positions are companies that have warrants. I own the warrants on some of the resource companies. Others I’ve come in via the insider buying into some positions. I have a reach with a lot of the other analysts and newsletter writers in the business.” Mr. Baker mentions there was some great talent at the Hard Asset Investment Conference and it provided access to some different perspectives. “So I listen to a lot of stuff that they’re doing as well,” he adds.


A Look over My Shoulder

Subscribers to Precious Metals Warrants receive access to Mr. Baker’s full investment portfolio. At the conference, he shared some of the companies that he is watching and holds in his portfolio. Living in Mexico, Mr. Baker mentions that Mexican companies are a big part of his portfolio. “I love the Mexican companies. Aurcana Corporation is going to be one of the big up and coming silver producers,” he shares. “Great Panther has been one of my long term holdings. Robert Archer is a great guy.” Mr. Archer is President and CEO and of Great Panther Silver. “Another Mexican company that I love is Soltoro. These 3 companies have great management teams, I like the guys, and I think in the next couple of years we’re going to see incredibly higher share prices.”


“That’s what it’s all about,” explains Mr. Baker. “seeing some great gains in the coming months for me and my subscribers.”


Mr. Baker reveals his portfolio currently consists of roughly 39% in the gold sector, 30% in silver, and includes 3% in uranium. He mentions he also has some small oil and gas in his portfolio and that approximately 22% of his portfolio is in warrants. “So, kind of a smorgasbord of different opportunities,” he says.


Mr. Baker thinks that his portfolio could use a larger position in silver. “I’ll be looking in the coming days or weeks to maybe increase my ownership of a few of the silver stocks, like Aurcana, maybe Arian Silver,” he mentions.


Why Buy Warrants

Mr. Baker knows many people are not familiar with warrants. He even realizes many analysts and newsletter writers are not up to speed on what warrants are and why they should be talking about warrants as well.


He says leverage is the number one reason why to invest in warrants. “You’re going to get more bang for your buck. If you can find a company that has warrants that are trading versus the common stock, you’re going to make 2 to 3 times your money.”


Mr. Baker recommends finding warrants with 2 years of remaining life or more. There are some available that are at 5 to 7 years. “Think where these markets are going to be in the next 5 years. I think it’s going to be at substantially higher prices. It’s all about leverage,” he declares.


No Greater Risk

Mr. Baker reminds us that there are no guarantees in the business of investing. “You can control risk, by the amount of money you put into it,” he explains. A warrant is similar in some ways to a call option. The warrant could expire at a time when the market price is below the exercise price. “That’s one reason why we like to focus on long term warrants,” Mr. Baker clarifies. “You want to find companies that you are comfortable with as an investor and you need to think that there’s a high probability that this company that you like is going to execute on their business plan; the markets are going to cooperate, and the share price will be selling at substantially higher levels.” This realistic situation is where Mr. Baker says an investor can see a return 2 to 3 times greater versus the common stock.


Mr. Baker points out that a long term warrant helps to manage the risk and provide more time for the market price to increase. “If you do it carefully, there’s no greater risk. If there is a perceived risk, you just put a little less money in there for the greater reward at the end of the day.”


Mr. Baker’s final thoughts are optimistic. “I think the best of the bull market is definitely in front of us. In the remaining time of this bull market, we want to make as much money as we can for ourselves and our subscribers.”

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