Precious Metals: Nitpicking the Bottom

by FI Fighter on December 7, 2015

in Precious Metals, Real Estate Thoughts

house

Currently, in the precious metals space, most everyone knows that these mining stocks are trading at a significant discount relative to their historical valuations. Some speculators, such as myself, have started to jump into this sector with hopes of scoring some BIG gains in the upcoming future.

With that said, it wasn’t that long ago when I was last buying into a brutal bear market… In 2012, I began loading up on real estate because I was convinced that the potential reward (upside) greatly outweighed any remaining risk (downside).

When it comes to investing and speculating, it’s important to always consider the risk vs. reward curve. If it is about a 50-50 proposition, I personally would err on the side of NOT buying.

However, when merchandise starts selling for 50%+ off (and it generates substantial cash flow), I start to pay closer attention. In addition, I’m also all ears when assets are in liquidation for 80% or 90%+ off (yet don’t generate any income).

Yes, I love passive income, but I’m NOT going to turn away from a spectacular deal just because I’m unable to obtain that!

Everything has a price… And if the price is low enough, I will back the truck up.

But it’s human nature that when we are at or near a market bottom to nitpick the hell out of an already good deal!

The Home That Got Away

I want to take you back to early 2012, when I first got interested in buying real estate. I found a REO property located in San Jose that was almost turkey ready and located in a very good neighborhood.

Further, I absolutely LOVED the fact that this unit was a 4/2.5 configuration. Sure, I didn’t know anything about real estate, but even then I was smart enough to realize that:

More bedrooms = More rent!

But because the market was so depressed at the time, I was hesitant to “overpay”. I spent way too much time going over numbers and got trapped into “analysis paralysis”.

In the end, I listened to people who knew nothing about real estate, and were even more nervous about the deal than I was! My agent at the time advised me to “overpay” about $10,000 because it was such a good deal.

I didn’t listen.

My final offer was for $235,000.

I lost.

The house sold for $240,000.

deal

How is that very same property doing today, a little more than 3 years later?

Deal_2

$436,000!

Let’s rewind the tape again…

Back in 2012, I had the opportunity to purchase a wonderful 4/2.5 townhouse for $240,000 that today would generate close to $3,000/month in gross rents!

But I refused to “overpay”…

The beauty of hindsight…

But I will tell you this, again, in the trenches of a brutal bear market, NOBODY wants to buy or “overpay” for ANYTHING!

However, with hindsight, everyone and their grandmother suddenly becomes a market timing expert…

Years later, all you hear from them is this:

“Well, yeah, of course it was a no brainer at those prices… Why didn’t you offer just a little bit more?”

“You should have bought more houses, bro…”

“Who didn’t know prices were cheap… It was so obvious!”

 

So, whether the winning buyer paid $240,000, or $280,000, or even $350,000… it’s completely irrelevant at this point… Ultimately, the winner made out like a bandit (which is all that matters)!

Eventually, I DID win my first house, for $75,000 MORE than this townhouse… and it fetches LESS monthly rent… And even then, I STILL managed to make out like a bandit!

When cheap becomes stupid cheap, you really can’t lose…

But in the trenches of a bear market, again and again, we tend to over analyze already spectacular deals.

Mining Stocks

The brutal bear market that I had previously experienced with real estate only makes it that much easier for me to purchase gold mining stocks today…

When something is cheap DIRT CHEAP, I know that instinctively human nature will take over and force us into scrutinizing the living daylights out of it… But when I can remember to see the big picture, it’s a reminder to myself to JUST RELAX!

So, right now, I’m just trying to do my best to:

  • Buy right.
  • Sit tight.

Outside of some light trading (to earn an income from these stocks), I really don’t care much for daily price movements… Further, in a universe filled with thousands of companies, I know that I cannot own them all…

What I’ve done is put together a list of 20 or so stocks that I think will do well, but again, I’m not going to bash my head into a wall trying to fine-tune that list to perfection either…

When a market is in liquidation, EVERYTHING (even the highest quality companies) is a screaming bargain! You don’t have to look for any needles in the haystack…

Endeavour Silver (EXK), First Majestic Silver (AG), Fortuna Silver (FSM), or Pan American Silver (PAAS)?

They are all cheap!

 

Yamana Gold (AUY) or New Gold (NGD)?

They are both cheap!

 

Lundin Gold (LUG.TO) or Kaminak Gold (KAM.V)?

Flip a coin! You’ll probably do well with either one…

 

You get my drift…

 

Ultimately, just stick to buying high-quality… Many years down the road, if I make 300% returns off this gold mining speculation, and you make 500% returns, I really don’t think that either one of us will be complaining! Instead, we will both probably be too preoccupied, grinning from ear to ear and high fiving each other over a nice dinner, to want to nitpick the results…

But even WITHOUT the benefit of hindsight, most anyone can already see TODAY that an eventual rebound in precious metals is basically a slam dunk (we just don’t know when) proposition…

Timing the absolute bottom is an impossible task.

But you don’t need it to win BIG!

As I’ve mentioned time and time again, my favorite time to buy is when I can essentially throw darts at the dartboard while blindfolded and still manage to hit a bullseye (like with real estate in 2012).

Lastly, although there are NEVER any guarantees when it comes to speculating (do so at your own risk!), that’s just how convinced I am that this brutal bear market in precious metals will someday turn around most violently and surge back in the other (winning) direction.

 

I have seen this song and dance before…

 

My biggest mistake with real estate?

 

I didn’t “overpay” and buy more!!!

 

Happy Hunting!

{ 6 comments… read them below or add one }

1 SeanNo Gravatar December 7, 2015 at 6:08 pm

I like your perspective on miners. Back in 2011 all of these companies could do no wrong, now they are being taken to the brink. I remain convinced that hui 100 serves as some support ( it has so far) but even if broken will not stay below for long. For the record I picked up some exk and mux today.
Check out YouTube video from rob mcewen 5000 gold still in the cards. It really shows his solid management. If gold just reaches 2k in next 5 years mux will be 20 bucks, exk will be 15-20, auy and ag will be 30+.
I cannot imagine the value first finance.

Reply

2 FI FighterNo Gravatar December 7, 2015 at 6:31 pm

Sean,

Great buys! I’m with you, and even though I don’t know where the exact bottom is, I always love to buy on down days like today. I’m personally waiting for tax-loss season to pick up steam and will hold a good chunk of capital until after the FOMC meeting…

For those interested, here’s the most recent Rob McEwen interview (gold $5,000) Sean mentioned above:

https://www.youtube.com/watch?v=jcPkFxXAkwY

Also, here’s a longer keynote that’s worth a listen:

https://www.youtube.com/watch?v=ruplsjX7TlI

All the best!

Reply

3 FI FighterNo Gravatar December 7, 2015 at 6:34 pm

And the Mark Dice reference!

https://www.youtube.com/watch?v=bYhTFz_SGw0

Reply

4 vinitNo Gravatar December 7, 2015 at 10:52 pm

I like your analysis and your ability to explain it clearly to the readers. I am with you on First Mining. One particular thing I want to ask is some of your stocks in the portfolio are from Canadian stock exchanges. Any particular reason why you buy on Canadian exchange rather than an OTC market.

Reply

5 FI FighterNo Gravatar December 8, 2015 at 6:42 am

Vinit,

Yes, that is to take advantage of a strong USD:

http://www.fifighter.com/financial-independence/thoughts/2015/12/taking-advantage-of-a-strong-us-dollar/

Also, the volume traded on the TSX, TSX-V is going to be much higher than OTC…

But the main reason, really, is to exploit the USD strength and current CAD weakness.

Cheers!

Reply

6 Alexander @ CashFlowDiariesNo Gravatar December 9, 2015 at 3:04 pm

So I know you mentioned this before to me about international investing but do you use Schwaab as your main investing platform?

I still havent decided what brokerage to sign up for. I really like the idea of gold and want to jump in on it but just dabble with it a little. What do you recommend is the best platform/brokerage for me to get in being a newbie in this arena?

I know low fees is what I want and I doubt I will be doing a ton of transactions.

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