Mining Stocks – When You Feel Good, Sell (Something)

by FI Fighter on February 12, 2018

in Mining Stocks

Mining stocks are an extremely volatile asset class where the odds of any investor getting into a story, experiencing impressive gains, only to then take a round trip back to break-even… and finally into NEGATIVE territory are actually quite high (sadly)… In fact, that dreaded rollercoaster ride where you see all your once “hefty” profits in any single position later eviscerated into NOTHING is something that I’ve experienced more often than I’d like to admit…

Yes, it’s impossible to ever perfectly “time the market”, but I think it goes without saying with mining stocks — Whenever you’re in healthy profits and feeling good about yourself, it’s a prudent idea to consider booking some profits!

Now, the key word here is “some”… For each investor, it’ll vary… Perhaps, you might consider “selling 1/2 on a double”, or start trimming down some stock in tranches… In the most extreme cases (these are actually my favorite scenarios), you’ll be very open and honest with yourself and declare most adamantly that you’ve had a spectacular run and it’s now worthwhile to close out the entire position and call it a day…

From my own experience, I will vehemently concede this universal truth with selling high:

Everytime I sold into immense strength, I felt like a total idiot… because everytime I succeeded in the strategy of “buying low and selling high”, the stock would almost ALWAYS keep surging higher, higher, and higher still immediately AFTER I cashed out…

It is so incredibly painful to watch a stock that you once believed in so strongly do well, and then continue exceeding your wildest expectations and dreams…

But hey, shit happens…

I mean, if you just accept straight up, right off the bat that you’re never ever gonna be good enough to catch the exact top, then I think over time, the task of selling just becomes that much easier…

Let’s face it — Markets go up and they go down… In the wacky world of mining stocks (ok not as wacky as cryptos, but still), you’re almost guaranteed to go through interim bull markets and bear markets… It just comes with the territory, so again, whenever you start feeling overconfident and your SMUG reaches an apex, it’s time to SELL SOMETHING.

In 2017, I think I did a decent job of selling some stocks high, such as the following:

I’ll be completely honest with everyone here, when I sold Ivanhoe at C$4.00/share, it felt exhilarating as hell to book such a large win (for me personally), but I felt almost sick to my stomach when I watched it surge right passed C$4.00/share and into the C$5.00/share range…

Well, like I mentioned, you’re never going to nail the exact top, so you just have to accept that! I mean, the worst thing I could have done (with the benefit of hindsight) was to dwell on “missed gains”, give in to irrational FOMO, and chase the stock that I had just sold for massive profits into record high valuations…

Again, this is mining we’re talking about here! Roundtrips are a dime-a-dozen

In the case of Ivanhoe Mines, here’s where we stand just a little over 1 full year later…

No, not exactly a roundtrip, but still, it’s quite the fall from grace (C$5.00/share) for a stock that is usually an industry favorite…

As for Klondex Mines? Damn, that downfall has been brutal…

As discussed at length in the link above, I sold out of my last tranche of KLDX at $5.60/share, and here we are now at $1.55/share

In the case of Klondex, it was more luck than skill… but a win’s a win, so I ain’t gonna complain!

No, I don’t always get it right, and sometimes I let go of a high quality stock way too early… such as Kirkland Lake Gold…

Also in the link above, it shows that I walked away from my Kirkland Lake shares at C$11.94/share (selling the whole enchilada), and here we are today with shares of KL.TO trading at C$16.75/share, a whopping 40% higher than my exit point…

It’s mining…

You win some, you lose some…

But regardless, no one goes broke taking profits!

Quite frankly, I think there’s just constantly way too many new trains arriving at the station for us to ever dwell too much over missed opportunities…

Just live to fight another day!

And like I ALWAYS emphasize on this blog, we don’t live in a binary world, so we shouldn’t approach investing/speculating in that light, anyway…

Going back to the KLDX example, an investor/speculator didn’t have to sell EVERYTHING at/near the 52 week highs, but I mean even trimming some stock, or periodically selling off tranches into such immense strength wouldn’t have been a bad idea! I mean, even if you were still RED today on your KLDX position, selling anywhere near $5-6/share would have de-risked your position by reducing the cost basis substantially!!!

To succeed in mining, over the long run, I think that’s the key — Book your profits and don’t let them vanish away… because if you give it enough time, those gains will disappear!

Well, of course, it’s easier said than done!

Recently, here are some of my favorite mining stocks that I’m struggling with…

  • Birimian Limited (BGS.AX/EEYMF)
  • Nzuri Copper (NZC.AX)
  • Critical Elements (CRE.V/CRECF)

Birimian Limited has fallen from A$0.84/share to now just A$0.475/share

Nzuri Copper peaked most recently at A$0.48/share, and now it’s trading at only A$0.30/share!

And lastly, Critical Elements has collapsed from a 52 week high of C$1.86/share to C$1.19/share

In the case of Birimian Limited and Nzuri Copper, I haven’t sold down any shares (well, not really… just a minuscule amount of BGS.AX), so yes, I most definitely rode the wave up and all the way back down again…

It sucks…

Not gonna lie…

Do I wish I was less GREEDY?

Absolutely!

It really doesn’t matter how much I still believe in those individual stories and how much higher I think these stocks will run (in the proper bull market environment), because at the end of the day, it’s all about making $$$ and securing our financial freedom…

Mining stocks are just a vehicle to help propel us (faster) to the top of the early FI mountain, but they are no doubt meant to be discarded after they’ve served their intended purpose…

So, yes, this is another case of live and learn for myself…

As for Critical Elements?

Well, here’s a stock I’ve actually managed to do quite well with (I have a negative cost basis on my remaining shares), because I actually stayed disciplined and sold off many tranches as the stock was ascending to the moon!

From August 26, 2017:

I sold some shares of Critical Elements at C$0.89/share, C$1.22/share, C$1.45/share, and now C$1.70/share

 

Anyway…

 

Clean energy/EV stocks (cobalt, lithium) are really struggling right now, which is a shame… but a good reminder to investors/speculators to never get too greedy when they are in good profits.

 

Next time around, I hope I can stay more grounded and realize that selling into strength and watching a stock rip much higher is not such a bad thing…

 

The alternative (a nasty death spiral), is far, far, far more painful a situation to find yourself experiencing (e.g. cryptos for anyone who was buying BTC at $19,000/coin)…

 

So, next time around, if lithium and cobalt stocks are soaring into record highs, I’m gonna have to take a good look in the mirror and realize that:

  • I’m not that good.
  • When I feel smug and smart (a huge RED FLAG), it’s time to sell SOMETHING!

 

After all, these are mining stocks we are talking about here…

 

What goes up, will come crashing back down again… eventually…

 

Don’t lose sight of why we are doing this — Fall in love with early FI, not your mining stocks.

 

Fight On!

{ 6 comments… read them below or add one }

1 JoeNo Gravatar February 12, 2018 at 5:22 am

Have you decided what to do with Birimian?

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2 FI FighterNo Gravatar February 12, 2018 at 5:58 am

Joe,

Birimian is currently a HOLD for me… Nothing has deteriorated fundamentally, it’s just negative sentiment towards lithium as a whole that is driving this stock down. The last drill results were outstanding and I’m excited for the upcoming resource upgrade and revised PFS.

Do I wish I sold some at the top? Of course, but that’s a lesson for the future.

Oftentimes, the macro trend (short-term or long-term) will triumph over individual stories…

Cheers!

Reply

3 NickNo Gravatar February 12, 2018 at 6:52 am

I find it difficult to decide when to sell. I’ve sold off most of my Birimian shares but still feel that it’s got a long way to run in the medium term. Hard to balance taking profits with the overall macro bullish trend. On one hand I want as much exposure as I can to this space but on the other we are talking about volatile mining stocks. I keep learning and hearing that even you struggle with this does help 🙂 I’m relatively new to investing in individual stocks, I was riding the ETF bandwagon for a long while. Thanks for the update.

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4 Income SurferNo Gravatar February 13, 2018 at 4:09 am

Nicely said Jay. The same predisposition toward volatility that makes mining companies a tough long term holding…..make them a fun trade. I have been trading them and been fortunate enough to have booked some great profits over the last year, sans Klondex of course.

I think the weak dollar trend and ridiculously large deficits (proposed) should provide a tailwind for commodities into the next crisis. That’s my theory anyway. Happy hunting and safe travels.
-Bryan

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5 alNo Gravatar February 13, 2018 at 4:15 am

” I’ll be completely honest with everyone here, when I sold Ivanhoe at C$4.00/share, it felt exhilarating as hell to book such a large win (for me personally), but I felt almost sick to my stomach when I watched it surge right passed C$4.00/share and into the C$5.00/share range… ”

I had the same issue with my own trading, until I started to enter and use trailing stop loss sell orders to get out, sometimes in tranches or preferably 100% out at the first profit taking move.

Set your trailing stop loss order x% or x$ under current share price, enter it with a GTC order, and you are sure to get out at the predetermined trailing stop loss price if things go south.

If the share price continue to go north, your trailing stop loss order will automatically go up north in sinc with the increasing share price, because it keeps the x% or x$ differential with current share price at all times (when share price continue to go up), and does not go lower when the share price start to go down, so your profits continue to increase, while your losses are contained to the entered or current now higher trailing stop loss sell price.

This will allow you to get out at a possibly far higher price than when you first wanted to sell, if Mr Market is in a good mood and the party goes on far longer than you foresaw.

The only drawbacks: the market maker on the other side of the trades see how you are positioned and can take advantage of this, and if the market immediately turns around just after entering your trailing stop loss orders (that is x% or x$ lower than current share price, to avoid being triggered at order entry), then you are out at your x% or x$ lower price point than the current immediate selling point, thus lowering your profits.

The HUGE advantage : It allows you to lead a decent life, while not being glued to your computer trading screen at all times, since you know your setup allows you to get out on time at your preset stop loss exit points or a much higher price if the trend is your friend and continues to go upward for a long time. You sleep well, knowing you are out when things turn sour, while making more profits than first envisioned, when Mr Market decides to still continue climbing the wall of profits for some time, before shorters pop up, to poop on and end the ongoing party.

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6 ElleNo Gravatar February 13, 2018 at 4:33 pm

Your title reminds me of how I feel about cryptocurrency. Nothing is guaranteed to go up forever, so cash out when times are good!

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