Portfolio Update: It’s Beet Red These Days! (November 12, 2015)

by FI Fighter on November 12, 2015

in Precious Metals Updates

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Recently, a good friend of mine decided to start investing in the junior mining sector space. It did not take long for them to realize just how cyclical this market really is! Since surging in October, gold mining stocks have been trading in a severe downtrend for about the last 10 trading sessions or so. My friend was not fortunate enough to be able to time the market exactly (but seriously who can?) and is now somewhat discouraged to see their portfolio down a good 15 to 20% in such a short period of time…

Have no fear, I say! Although my friend’s reaction is natural, this is just the nature of the business that is the natural resources space; if you want to speculate here, you must have a strong stomach for insane volatility!

For myself, I’m not doing much better and in fact am feeling a lot of pain right now. I wasn’t planning on putting together an update on my overall mining portfolio until the end of the year, but I think now is as good a time as any to post an update…

Readers can see first-hand the type of short-term devastation these type of speculations can impart on a portfolio:

As of market closing, November 12, 2015:

Screen Shot 2015-11-12 at 1.37.30 PM

Yup, that’s right — currently, I’m down about 10% and over $22,000!!!

Would you say I am discouraged and regretful?

Absolutely not!

I know that you can never time type these things exactly, and I accepted upfront that I might potentially lose 10% or 20% or even 50% of my principal along the way… before the tide ultimately turns in my favor.

Similarly, when the shares are trading UP, UP, and UP, I don’t let the good news get to my head… It feels like an eternity ago, but around this time last month, this SAME exact mining portfolio was UP about $23,000

Things sure change quickly in this space!

As long as the fundamental story hasn’t changed (for each individual company), why trip out about it?

In the long run, I’m convinced (more than ever) that this move will play out and we will ultimately emerge victorious. We must be approaching near a bottom because gold and silver are currently trading at or near the cost of production

From Gold Price:

Screen Shot 2015-11-12 at 2.11.22 PM

There is much talk that gold will soon drop below $1,000/oz… If that were to happen, I would more than welcome it! Even at the current spot price of $1,085/oz, gold is trading at a bargain… Ditto for silver at $14.28/oz

In fact, I’m hoping to save up some cash over the next few months so I can add more physical metal to my portfolio. It’s hard to turn away from such a rare buying opportunity!

But if the spot price were to decline precipitously further, I can only imagine that demand would go through the roof… and the decline would be very short-lived!

In almost no other market will you be able to find a commodity that decreases in value as demand goes up!

From Gold Core:

Gold-Demand-Trends2

Not to mention, the Comex is currently leveraged 300:1 (300 oz of paper gold for every 1 oz of physical gold)… So, who knows how long that game can continue to go on before FINALLY breaking?

Also, we are starting to witness large copper and zinc mines shutting down, which will only further constrain supply of both gold and silver (much of the world’s silver is produced as a byproduct of these mines)… And with emerging markets like China and India continuing to grow out their middle-classes, we can all rest assured knowing that the world’s appetite for metals will not be satiated anytime soon… If anything, demand into the future will only continue to skyrocket further, especially at such low prices!

So, I refuse to be deterred! I continue to approach this speculation with a long-term perspective and not that of a short-term trader:

I learned from real estate back in 2012 that it’s fruitless to try and pick out absolute bottoms; in the end, it isn’t necessary when you are able to buy assets for pennies on the dollar!

I purchased Rental Property #1 for $315,000 and overpaid by $70,000 or so… Had I gotten in months earlier, I probably could have won a similar property for $270,000… In 2012, it seemed like a pretty big deal… In 2015, it’s been long forgotten… Whether I won the property at $315,000, $330,000, or $350,000… cheap is cheap!!!

Over time, the delta of negotiation between the best deals always just end up looking like tiny drops in a bucket…

Today, in the case of gold mining stocks, I truly believe that we are much, much, much, much closer to a bottom (final capitulation) than we are anywhere near a top… which can’t be said for the S&P 500.

For gold and silver, quite simply:

  • Demand is strong.
  • Supply is constrained.
  • And prices keep falling…

As a deep value investor, you’ve got to love that! Whether we are talking about physical gold and silver, or the mining stocks, they are both trading at absurdly cheap levels right now. All I can think about is: BUY, BUY, BUY!!!

And it’s at the near bottom of markets where we have to fight human psychology — It ALWAYS feels like it can go lower at the bottom… until it doesn’t anymore.

Just like it ALWAYS feels like prices can ONLY keep going up at the top of the market…

But if there was ever a time to be GREEDY, it’s NOW!

So, again, I’m not going to even bother wasting my time trying to pick out the absolute bottom… Right now, I’m finding bargains everywhere I look…

 

That’s where my focus is.

 

This feels like deja vu… Actually, this is even (better) than it was when I was buying up real estate in 2012…

 

Happy Speculating!

 

Photo Credit: Free Digital Photos

{ 15 comments… read them below or add one }

1 Jon November 12, 2015 at 3:33 pm

Hi there

Do you generally like the Casey research stuff?

Reply

2 FI Fighter November 13, 2015 at 8:37 am

Jon,

They specialize in analyzing the junior resources sector but I’m not a subscriber to their products…

Cheers!

Reply

3 Income Surfer November 12, 2015 at 5:07 pm

Haha, funny isn’t it Fighter. Three years ago, everyone was a gold expert….and believed the spot price was going to $5000 per oz. Now that the appetite for hard assets is subsiding….and furthered by a strong dollar……everyone is an expert and the spot price is going to zero. Silly Sheeple!

I will add to my BBL position, but now that it’s an “accidental high yielder” at 9%…..i am tempted to wait for the inevitable dividend cut 🙂 Like you said, can’t time the bottoms perfectly.
-Bryan

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4 FI Fighter November 13, 2015 at 8:39 am

Bryan,

Haha, you gotta love human psychology… when prices go up, everyone thinks the sky is the limit… and when prices are down, it can ALWAYS go lower!

I don’t need $5,000/oz gold for this speculation to play out, but if that were to happen, who knows how high these stocks would rise? Even $1,500/oz gold would probably cause many of these stocks to triple, or more…

BBL is looking extremely cheap these days. Even with a dividend cut, it looks like the yield would still be pretty high. I love commodities down here as well, but I’m focusing mostly on precious metals right now since I think there will be more time to load up on base metals later.

All the best!

Reply

5 Vivianne November 12, 2015 at 5:40 pm

I think you are right about precious metal. I’m thinking of buying up mining as well. I’m on the look out for fcx. I’m waiting for the first interest rate increase. People are speculating December, but the Fed might not make any move at all.

The interest rate increase would make the dollar more valuable, in turn would make commodity prices cheaper. It would be a great entry point then. But like you say, it’s all speculating at this point. In the meanwhile I’ll keep my 401k in mostly s&p 500, and my taxable in dividend paying stocks so I can build up some cash flow,,getting ready for retirement mode.

Cheers!

Reply

6 FI Fighter November 13, 2015 at 8:48 am

Vivianne,

FCX is looking very cheap right now. I used Copper Mountain as my proxy into the copper space.

Right now, my own focus is more geared towards precious metals as opposed to base metals since I believe those still have further to fall (oversupply for the most part). Also, precious metals (gold and silver) are also viewed as money, so they have the fear trade element associated with them that the other metals do not.

Long-term, I really like copper and uranium, but I’m probably going to wait to add to those positions.

Sounds like a great plan you have in place!

All the best!

Reply

7 Financial Samurai November 13, 2015 at 6:20 am

You are a brave man, man!

I’ve been buying structured notes with downside protection e.g. a Netflix note with 35% downside protection to earn 14% a year. I’m just trying to hit singles and doubles. Good luck to us all!

S

Reply

8 FI Fighter November 13, 2015 at 8:49 am

Sam,

Go big or go home?

All the best on your strategy!

Reply

9 mike November 13, 2015 at 8:03 am

FiFighter,

It takes a lot of courage to lay what you got on the table. Most people would downplay or not disclose the truth in what their real return is. It speaks a lot about your character, to which is admirable.

keep up the good fight son!

Reply

10 FI Fighter November 13, 2015 at 8:50 am

Mike,

Thanks, I appreciate the support!

Yup, just trying my best to keep up the good fight and to lay it all out there. What you see is what you get…

All the best!

Reply

11 joe November 13, 2015 at 8:35 am

will either be a home run or a very expensive lesson

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12 FI Fighter November 13, 2015 at 8:51 am

Joe,

We are swinging for the fences here… I’m not buying junk so I have no doubt the overall speculation will work out.

It’s always scariest to buy at the bottom… But I’m not worried because I have full conviction that it’s the least bit risky down in these parts…

It’s a matter of “when” not “if”.

Cheers!

Reply

13 Ryan November 13, 2015 at 9:46 pm

FiFighter,
First of all, like many here, I admire your honesty as you so openly disclose to your current and significant losses. That takes guts!
You mentioned briefly copper in this post. It’s currently at a 6 year low. If you’re interested in buying commodity as cheap as possible, including metals, I’d say Buy Buy Buy to copper. So I guess I’m curious as to why you’re favoring silver over copper? Or are you not investing in more copper simply because your buying power has been reduced lately?
All the best and in the meantime, sit tight 🙂
Cheers!

Reply

14 FI Fighter November 14, 2015 at 8:27 am

Ryan,

Thanks for the support!

Yup, copper and other base metals (lead, zinc, aluminum, etc.) are all extremely cheap right now… Same for platinum and palladium, in addition to gold and silver.

In regards to copper, I do have large exposure through Copper Mountain and Ivanhoe Mines… Actually, my largest single position is currently Ivanhoe Mines!

In general, I favor gold and silver because they are monetary metals whereas copper is not. Silver is unique in the sense that it is both an industrial metal as well as monetary.

In a deflationary environment, my guess is that copper will ride along with the other base metals (and oil) and could continue to decline further… I’m more bullish on gold and silver because I think their particular bear market is long in the tooth and if there is any kind of widespread fear in the markets, gold and silver will decouple from the other metals and move upward.

Long-term, I LOVE copper and uranium! Those commodities are absolutely essential to everyday life, so to be able to buy them at current prices is a huge gift. I’m just not as eager to load up at this particular moment in time…

All the best!

Reply

15 BeSmartRich November 23, 2015 at 3:03 pm

Gotta love your strategy. Who knows when the market turns. The commodities have been beating badly and it will eventually turn. Maybe a month or two or even longer but it is at historical low and therefore the risk is minimized!

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