My Best Ideas – Gold, Silver, and Lithium

by FI Fighter on June 13, 2016

in Lithium, Precious Metals

jerry-m

These days, I’m running out of good ideas and things to buy… Since I’m leaving for Hong Kong on June 27 (I decided to stick around the Bay Area slightly longer), it’s probably for the best that I stop focusing so much on investing, and instead turn my attention to having fun! ūüėČ

Anyway, before I turn the page for good and start yet another new chapter in my life, I just wanted to summarize my thoughts briefly for readers.

If you will allow me to ramble…

My Best Ideas

Gold – If you don’t own any of it, what are you waiting for? Seriously? The bear market in precious metals ended on January 19, and it’s been “Happy Days” ever since. Once gold can convincingly take out the $1,300/oz mark, we will be back off to the races again.

Since breaking through $1,200/oz, gold has pretty much been range bound and consolidating between $1,200-1,300/oz over the last few months. I’m not expecting this trend to continue indefinitely. By September, I have full confidence that gold will be trading at over $1,300/oz.

Screen Shot 2016-06-13 at 8.52.45 AM

With the world going increasingly negative interest rates, the argument that gold returns no yield is looking sillier and sillier by the day.¬†Gold (physical bullion) is money, it’s risk-free, so therefore it should NOT return any yield… If you want yield, you have to take risks!

Gold mining stocks would be the “riskier” way to play the gold trade. Certain blue chips, like Franco-Nevada (FNV) can, and in fact, do provide a dividend yield. And if you asked me, FNV would be the absolute best (safest) way to play gold for those investors who can’t stomach the day-to-day fluctuations and volatility found in your typical mining stock, but still want a way to incorporate¬†leverage into their gold investment (which physical bullion cannot offer). FNV is a royalty and streaming company, with a very diverse¬†asset portfolio that ranks second to none; in short, you get comparable leverage to that of¬†an individual gold miner without having to take on the risks of operating/maintaining a gold mine.

Most financial “experts” advocate a person hold¬†10% of their portfolio’s allocation in gold.

In this current environment?

I own probably closer to 40% of my net worth in gold…

And I don’t think that’s anywhere near enough for me…

As always, please do your own due diligence before making any kind of investment decision! What works for me, may or may not be suitable for your own investment goals and objectives.

Silver РEverything I said above also applies to silver. Gold is the money of kings and silver is the money of the people. Personally, I prefer gold myself, but with the gold-to-silver ratio currently sitting at ~1:74, in a bull market, I have no doubts that silver will outperform gold on the way up and start to compress the ratio back down to say 1:40 as this bull market starts to pick up steam over the next few years.

GSR

What does this mean for the silver stocks? Similar to the physical bullion, I would expect the silver stocks to continue to outshine gold stocks as well…

If my funds were unlimited, I would definitely be looking at adding more silver shares at this time…

Lithium¬†–¬†It’s no secret to readers that my main focus over the last two months has been on “white gold”, or “white petroleum”. The price of lithium carbonate and lithium hydroxide have doubled, even tripled already this year. Lithium-ion batteries are going to be vital in reshaping the world as we move increasingly away from fossil fuels and towards a cleaner, more¬†electrified world. Point blank, I cannot see another battery technology gaining mass adoption over¬†the next 10 years. When you consider the fact that there are currently 12 Megafactories in development, on track to come online by 2020, it becomes quite easy to see why¬†I have such full conviction¬†that investing in lithium stocks is the way to go to best play this coming revolution.

Although I strongly feel that the broader stock markets are overpriced and due for a substantial correction, I also think that it makes sense for me to setup a portion of my portfolio now to get well positioned for the future with the best lithium stocks. But please note, if we do enter a recession and the major indices (S&P 500, Dow Jones, Nasdaq, etc.) all sell off, lithium stocks will take a nosedive as well.

Lithium stocks are a play on future prosperity, but they provide no insulation when it comes to market calamities; only precious metals are suitable as an investment hedge, or “fear trade” vehicle.

Wild Card Idea

Graphite¬†– Similar to lithium, I have a developing interest in graphite. Whereas lithium is used to produce the cathode¬†of a lithium-ion battery, graphite is needed to construct the anode. Interestingly enough, for your typical lithium-ion battery, you actually need about 10x more graphite than you do lithium. Currently, over 80% of world graphite production comes from China, but that will probably change in the near future. Mozambique, Tanzania, and Sri Lanka are other known jurisdictions that provide access to economical, and high-grade natural graphite. I’m still new to the space, but my understanding so far is this:

Mozambique РLarge-scale operations, very high grade, but lower sales price for final end product due to lower purity (e.g. deleterious impurities such as trace vanadium are present). Purity may need to be improved/enhanced through expensive acid solutions in China.

Tanzania –¬†Medium-sized operations, decent grade, but much higher sales price for final end product due to higher purity (less reliant on chemical/thermal treatment).

Sri Lanka- Modest-sized operations, exceptionally high-grade, high purity. Vein graphite is truly world class, but because the mines themselves are so small, Sri Lankan graphite is probably best suited to serve the growing graphene market ($50,000/t), which can fetch extremely high margins.¬†Although this same graphite can be refined into battery grade material, without having the ability to scale up mine operations to the degree of its peers in Mozambique and Tanzania, it’s probably not worth the time and effort to do so. If I was an investor in a Sri Lankan graphite company, I would want their focus to be solely on commercializing their graphite for graphene production.

Graphene, the material of the future (200x stronger than steel, 1000x more conductive than copper, and lighter than a feather!), is already available (sort of) today… We might be 10-15 years away from mass adoption, but don’t go to sleep on graphene, it may well be the next major game changer! Can you say, graphene supercapacitors? 500+ mile EV range and a charge time of just minutes!

From Clean Technica.

Graphene

As a huge fan of technology, one can dream, right?

Anyway… graphene is currently too far down the road for me to be able to see it clearly. Definitely, I’m excited for its future prospects, but as an investor, I need to focus on the here and now. So again, in the clean energy space, that’s strictly lithium and graphite at this time.

Unfortunately, my two best graphite ideas aren’t exactly cheap anymore, and the third one¬†is highly speculative. At this moment in time, my favorite¬†lithium stock ideas make for much more compelling investments (due to risk vs. reward proposition), so for the meantime, I’m paying close attention to the graphite space, but not investing in it.

Yet.

But if my graphite ideas start to retrace in share price, I may look into starting some new positions.

I will send out an e-mail alert to subscribers this week, informing everyone of my top picks (3 stocks) in graphite.

Other Thoughts

I have ZERO interest when it comes to investing in real estate, dividend growth stocks, and the S&P 500, Dow Jones, and Nasdaq.

In fact, I refuse to touch any of those investments with a 100 ft. pole until they correct back to fair value.

No need to rush things…

Asset classes go up and they come back down. History just keeps on repeating itself. If the merchandise is overpriced, I simply walk away and bide my time. As readers know full well by now, I don’t discriminate when it comes to investing; I love all asset classes, but I just feel like there’s a good time and place for everything…

Believe me, I would like nothing more than to liquidate out of my mining stocks so that I can convert those proceeds back into investments that produce cash flow/passive income.

Make no mistake about it, the end game for me (and everyone else) will always be early FI… and perpetual early FI (my uhhh new mission with these investments).

Never fall in love with your investments and don’t lose sight of what you are fighting for!

For 2016, I really only see 3 ideas that I like – gold, silver, and lithium. That’s my story and I’m sticking to it.

 

Thanks for reading.

 

Happy Hunting!

{ 20 comments… read them below or add one }

1 FromcentstoretirementNo Gravatar June 13, 2016 at 11:18 am

Hi

How about European stocks low as hell given the Brexit, some of which are trading at 6 times cash flow. Whats your thought on that?

BTW, when you expect the stock market to crash? Are you able to increase your liquidity having only investments in Real Estate and precious metals?

Thanks

Reply

2 FI FighterNo Gravatar June 13, 2016 at 11:38 am

Thanks for sharing your thoughts! As it pertains to European equities, unfortunately, I am grossly ignorant in that space, so please forgive me, as I am not in position to comment on current valuations. If you have some good ideas, please leave them below!

As for general market crash, it could happen at any moment. A Brexit event would of course cause a short-term panic, but I don’t know if that alone would be enough to crater the entire global markets… In any case, I’ve been setting myself up for one since 2015, when I cashed out of all equities.

Actually, selling some real estate now wouldn’t be a bad idea and it’s something that I’m seriously contemplating doing… In regards to liquidity, I have over $100,000+ in cash/cash equivalent, not counting the mining stocks.

I will be ready, whenever it finally decides to happen…

Take care!

Reply

3 desidividendNo Gravatar June 13, 2016 at 9:49 pm

I agree on the gold,i like accumulate if possible at cheaper than spot prices every time ebay has sale on gold.

Reply

4 FI FighterNo Gravatar June 14, 2016 at 6:47 pm

desidividend,

All the best to you, it has been a great time to accumulate gold over the last year or so.

Take care!

Reply

5 Rudy SMTNo Gravatar June 16, 2016 at 9:26 pm

I didn’t know can buy gold on EBay.

Can you expand on the right way to proceed?

In Asia, I just walk in a shop and buy as much gold as I’m pleased, but maybe Ebay can work for Europe.

Reply

6 markNo Gravatar June 14, 2016 at 12:48 pm

Can you share with readers how you obtained medical coverage? (private market?).
I think its very expensive if you are self insuring. An article or your thoughts on how you picked the right plan would be very helpful.

thank you

Reply

7 FI FighterNo Gravatar June 14, 2016 at 6:48 pm

Mark,

There are many options out there, but what I’m doing probably won’t apply to most people striving for early FI:

http://obamacarefacts.com/questions/330-day-rule-living-abroad-work/

Everyone’s situation is different. I have no dependents and have aspirations to travel and live overseas.

Cheers

Reply

8 BeSmartrichNo Gravatar June 14, 2016 at 1:40 pm

I have about 25% of my portfolio in oil, gas and mining companies and 3% in gold. It is quite hard for me to have a strong conviction in gold like you. Very impressive indeed and I think you have the biggest balls among all investors I know. Everything worked out perfectly so far and hope that continues. Good luck!

Reply

9 FI FighterNo Gravatar June 14, 2016 at 6:49 pm

BSR,

Yeah, you just have to do what you think works best for your own situation. I’m a firm believer in gold, so it’s easy for me to be “overweight”.

Take care!

Reply

10 PonNo Gravatar June 14, 2016 at 5:46 pm

Yes, I have the same question, as I’m starting to plan for FI.

Reply

11 FI FighterNo Gravatar June 14, 2016 at 6:52 pm

Pon,

I’ll write a more detailed article regarding health care plans in the future… Depending on your own situation, you might want to look at:

http://obamacarefacts.com/questions/330-day-rule-living-abroad-work/

http://rootofgood.com/affordable-care-act-coverage-subsidies-pitfalls/

https://www.medicaid.gov/index.html

Cheers!

Reply

12 Rudy SMTNo Gravatar June 16, 2016 at 9:33 pm

Hi FI Fighter,

impressive article. I read your comment on Roadmap2retire.com.

I totally share your thoughts about gold, Lithium, and Graphite. Would be nice if you share which stocks are dealing with these materials.

I just researched about Graphene and found this article given the possibility to use the materials in chips: http://www.theinquirer.net/inquirer/news/2461622/graphene-breakthrough-could-make-chips-a-million-times-faster

I’m with you about the S&P 500 overvalue. Actually, most markets in the world are.

I wrote about my prediction for 2016 with the best ETFs in my opinion which are; Energy and Metal/Mining.

I’m going to contact you today.

Cheers

Reply

13 Adrian BarrettNo Gravatar June 25, 2016 at 6:57 pm

Could you share what the 3 picks were from the newsletter? I don’t have it.

Much thanks!

Reply

14 AdrianNo Gravatar June 25, 2016 at 8:46 pm

Thanks for the message! I appreciate your thoughts and work on the blog. My portfolio is nowhere near yours and I’ve been involved in the metals since 2009… using same principles of sound investing though… hope to contribute what I can.

Some names that come to mind you may wish to look at…
BRI
Rye Patch Gold
MXGold
Alexco Resources
K92 Mining
Avino Silver

Just adding to discusison…

Best,

Reply

15 FI FighterNo Gravatar June 25, 2016 at 8:56 pm

Thanks for sharing those names Adrian. Many of them have done exceptionally well so far this year.

I have most of those on my watchlist, as I like to keep tabs on most of the juniors in gold/silver.

Cheers!

Reply

16 AdrianNo Gravatar June 25, 2016 at 9:01 pm

I’m really debating how much to put into each… dividing my own portfolio up into 3 sections… majors / mids / explorations

Don’t have too much to work with but trying…

I had Bear Creek Mining listed as a buy for some reason too but can’t find my notes on it now.

Reply

17 FI FighterNo Gravatar June 25, 2016 at 10:49 pm
18 AdrianNo Gravatar July 1, 2016 at 1:55 pm

Thanks for this – going to read it now

Reply

19 AdrianNo Gravatar July 1, 2016 at 2:09 pm

Here’s a screengrab of companies I’ve tried putting into 3 groups and each group is then split up into percentages…. making up the whole pie.

I have about 20-25Kish to work with…

http://prnt.sc/bnnmsq

Do you have any thoughts on these? Too many companies? I struggle a bit with finding all of the latest technical-lingo on drill results, so I’m always browsing around trying to find analysis on these companies. Hard for me to know how much room each company has to grow and I don’t know how to “score” a company.. I just know more shares isn’t that great and less debt and cash flow is good.

Not sure if I should split up into 20-30 companies or put most into say 5-10 and then put the rest into a couple like GDX or SGDM

Reply

20 JimNo Gravatar July 4, 2016 at 6:44 am

It was a pleasure seeing this journey! Congrats, I hope some day I will follow into your FI footsteps!

Reply

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