How to Invest in Mining Stocks

Investing in mining is a less volatile way to invest in gold, silver and other natural materials.

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Base materials always have been an attractive investment. These materials are the basic building blocks of everything. Mining stocks are a way to invest in these base materials, but as an ongoing business rather than directly in a certain commodity. Investing in mining stocks is as simple as buying any other stock, but you do not always have to buy stock in the companies to invest in them.

Step 1

Create a list of mining companies, as well as exchange traded funds (ETFs) that invest in mining companies. You can find companies by searching by sector or industry on stock screeners. ETFs can be found through the ETF database. ETFs are the quickest way to diversify your investment and can simplify research and monitoring. ETFs pool capital and invest in a way that is consistent with their focus. There are general mining ETFs or specialized ETFs, such as those that invest in junior miners.

Step 2

Study how the company's stock moves with the primary metals it extracts and sells. These are companies, so standard business metrics such as profit margins apply to the analysis, but they generate revenue by extracting and selling metals. Keep in mind that price changes in the metal will have an effect on the price of the mining stock, though this factor varies among companies and metals. Most companies do not focus on only one metal. The relationship is not always clear, but understanding the relationship between the price of the metal and the mining stock will help identify significant events.

Step 3

Buy the stock once you understand it, and monitor both the mining company and the metals to keep an eye on any significant developments. For ETFs, you can look at the overall metal and the mining company with the most weight in the ETF. When buying ETFs, keep an eye on expense ratios and transaction fees, which eat into overall returns.