Portfolio Update: It’s Beet Red These Days! (January 12, 2016)

by FI Fighter on January 12, 2016

in Precious Metals Updates

fresh-beetroot-juice-100290613

No, I didn’t make any new transactions today, but I think now is a good time to post an update on my mining portfolio for readers.

The reality of the mining sector is this — These stocks are extremely volatile!

I know that I have stated the above too many times to count in the recent months, but that’s just the cold, hard truth…

These stocks aren’t for everyone…

Here is where things stand now, at the conclusion of today’s trading session.

January 12, 2016:

Screen Shot 2016-01-12 at 8.59.55 PM

The purpose of this update isn’t to try and convince anyone why now is a wonderful time to buy… But obviously, if you were to ask me, I could really only say one thing…

If I thought shares were already cheap before…

Now, I’m down 14.08% and the price of a brand new, luxury German automobile!

Green = Good
Red = Bad
Yellow = Really Bad (20%+ drop)!

Anyway, I think that today’s bloodbath was healthy for me as it gives me a chance to reflect a bit…

Never Chase Up

This is something I learned in October… And it’s now registering loud and clear in my mind what happens when you chase rallies upward!

Check out some of my more dismal performers — Pretium Resources (PVG), Lake Shore Gold (LSG), Klondex Mines (KLDX), etc.

Yes, Ivanhoe Mines (IVPAF) and Copper Mountain (CPPMF) are down more, but I don’t feel too bad about those stocks… I didn’t chase those on the way up, they just crashed hard thanks to the massive decline in base metals (copper)… It’s not like large caps such as Freeport-McMoRan (FCX) are doing any better…

For each one of those gold stocks (PVG, LSG, KLDX), I loaded up after big rallies when the spot price of gold was trending higher…

Screen Shot 2016-01-12 at 8.45.49 PM

My cost basis for PVG is $6.34/share… The stock is now trading at $5.03/share

Ouch!

On rallies, what I really need to be doing is selling and booking short-term profits…

Again, NEVER CHASE UP! That’s a recipe for ABSOLUTE DISASTER!

Be More Aggressive at the Bottom

But what if I sell out too soon and a new bull market takes flight?

LOL!

Gold and silver have been in a brutal bear market (for seemingly eternity) and we are now entering Year 5…

I would say the odds that “this time it’s different” are pretty low…

In any case, if I load up BIG during the drops, then trimming off some positions shouldn’t be a problem, right?

That’s my logic, anyway…

Otherwise, I’ll be too tempted to hold onto EVERYTHING on these mini-rallies… Only to end up doing NOTHING and watching the “gains” vaporize faster than they first appeared.

Mining stocks seldom ever run away for good… Most likely, whatever stock takes off today will come crashing right back down (to even lower levels) tomorrow…

Energy Fuels (UUUU) is the PERFECT EXAMPLE of that! Just over a week ago, I was up over $9,000 on my shares…

I did nothing…

Now, I’m back in the RED again!

So, lesson learned… I shoulda booked some profits (at the very least sell SOMETHING!).

Not only would I have made a pretty penny (realized gains), but I would have also freed up a ton more capital that I could have used to aggressively dollar cost average (DCA) on this most recent downturn (win, win).

I’m slowly realizing it is very possible to make a ton of money in the short-term, while I wait for the long-term thesis to play out…

I just gotta be less stupid about things! 🙂

Take Less Risks

As if mining stocks weren’t risky enough… I really need to work on fine-tuning my portfolio so that I’m making sure that I’m only buying into the best stories…

For instance, I’ve been meaning to liquidate out of Eldorado Gold (EGO) due to concerns related to Greece (the company issued a news release yesterday, announcing plans to suspend activities in Greece due to issues obtaining permits/licenses to advance certain projects).

The stock was down 20% today, due to that press release…

Another ouch!

Shoulda listened to my gut instinct and gotten out sooner…

Frankly, I just need to smarten up a little and take less risks…

Obviously, I cannot eliminate risks entirely if I’m going to participate in this space… Mining is, after all, a high risk, very high reward type of proposition…

I did sell 5,000 shares of Balmoral Resources (BAR.TO) last week, as I wanted to lighten up my allocation in very early stage exploration stories…

That’s a start…

I really should just stick primarily with the “tried and true” best-of-the-best mid-tier producers.

If I’m going to gamble on the more speculative stuff, the shares really need to be trading at a substantial discount to “fair value” for me to load up aggressively.

Stay the Course

This last point, I have no problems with…

Stay the Course!

If I didn’t have full conviction that I was doing the right thing with my money, I wouldn’t be playing in this space right now…

As always, I’m just simply providing my thoughts, actions, etc. on this blog… These updates are my way of sharing the early FI journey with readers. With that said…

Please Note: I will NEVER recommend anything to anyone reading this blog. I don’t provide investment advice, so please do your own due diligence! Mining stocks are extremely volatile and risky; Invest/speculate at your own risk!

Anyway, these are just some ramblings for today…

I’m still a work in progress and learning as I go.

Hopefully, I’ll start making some better decisions in the future.

 

Happy Hunting!

Related Posts :

{ 33 comments… read them below or add one }

1 Financial SamuraiNo Gravatar January 12, 2016 at 10:20 pm

I admire you for sticking to your guns and providing this update.

How much more do you plan to buy if things get worse?

Reply

2 FI FighterNo Gravatar January 12, 2016 at 10:33 pm

Sam,

A lot more ($300k would be my cap)… But I need to lower my cost basis, for sure…

Gotta sell some on the next rally!!! 🙂

Cheers!

Reply

3 Financial SamuraiNo Gravatar January 13, 2016 at 4:15 am

From $233-$250k to a $550k portfolio?All in current positions?

Is the $300k cash sitting in a money market account? I’m thinking of mobilizing my cash in venture debt or p2p to take advantage of rising rates.

Reply

4 Dividend Growth InvestorNo Gravatar January 13, 2016 at 7:21 am

I have found as an investor that my upside takes care of itself, but that my job is to manage downside and risk. So if a company I like ends up cutting dividends, I am out one second later – I know this means I was wrong. If a company like Altria keeps raising dividends, I will hold on to it even if it triples or quadruples from my purchase price.

So at what stage would you determine that this strategy is not working for you? Because at the end of the day, your goal is not to be a hero, but to reach your financial goals without sacrificing the nest egg that you traded your health for in the past 8 years.

Reply

5 FI FighterNo Gravatar January 13, 2016 at 7:47 am

DGI,

I feel very confident that this strategy will work out for me. It never seems obvious without the benefit of hindsight, but gold miners are so beaten up right now, they can’t help but overshoot to the upside when things finally turn around.

It will happen.

There’s no way I can be convinced that commodities will stay depressed forever and ever.

The world is not coming to an end and all these China fears are overblown… China is slowing down, but it’s still growing and the base from where it is growing from now well exceeds where things were a decade ago.

The world runs off of commodities, but the fear is overwhelming right now so most won’t touch this space.

I’ve got the conviction to ride this trade out.

Cheers!

Reply

6 FI FighterNo Gravatar January 13, 2016 at 7:43 am

Sam,

$300k all in… Not $300k more. So, $50k more from where I’m currently at.

That’s my limit, but I probably won’t contribute that much. Actually, I’m probably good with where I’m at now.

I’ve got enough in this trade, lol.

But knowing me, I won’t be able to resist a supersale on top of a supersale…

Reply

7 HristoNo Gravatar January 12, 2016 at 11:33 pm

Hi FIF,

Volatility of gold/silver stocks is something that amazes me. How can a stock to increase 15% for a couple of days and in the next 2-3 days to plunge to the same old level. Moreover, these things happen on less than 1% movement of gold prices. That is insane. It comes just to show us that these stocks are really, really risky but on the other hand offer high returns if the prices of the underlying asset spikes in future.

With that said, I think you said it very clearly – “I’m slowly realizing it is very possible to make a ton of money in the short-term, while I wait for the long-term thesis to play out…”. We might wait several more years the big shot to arrive but meanwhile the market offers opportunities every 2-3 months. I don’t know how much longer this will continue and playing with the volatility may lead to miss the initial stage of a long-term ascending trend but the opportunities to realize some short-term gain is here.

As a conclusion I would like to thank you for sharing your experience good or bad with the audience. It definitely helps me to learn some valuable lessons for the gold/silver stocks and be a bit more prepared when I feel ready to touch these stocks. And I do not mean only these portfolio updates but also the whole process how a person with zero knowledge in the field of geology can start to understand the underlying business of these companies.

Regards,
Hristo

Reply

8 FI FighterNo Gravatar January 13, 2016 at 7:52 am

Hristo,

Thanks! I’m glad you are finding these updates useful.

Yeah, gold miners are insane… you really can’t just buy and hold them… Well, I guess you could and just wait for the upturn, but the day-to-day volatility is so crazy, I’m guessing it might just be a better strategy to trade in and out of certain positions to book short-term profits.

For instance, I’ve watched a stock like First Majestic Silver (AG) go from $3.40 to $2.80 about 4-5 times since I started investing…

That’s a 20% return each time…

Similarly, a stock like B2Gold (BTG) likes to peak around $1.20 and drop to about $1.00 (this time even lower down to about $0.80!).

Back to $1.20 would represent a 50% gain or so…

Why not book some profits every now and then?

Take care!

Reply

9 Tax NewsNo Gravatar January 13, 2016 at 12:39 am

Hope everything gonna be okay before the month ends.
Is this the time to invest for gold? or…..

Reply

10 FI FighterNo Gravatar January 13, 2016 at 7:54 am

Tax News,

I have no idea, but I do love to buy when prices are low…

It’s pretty low now…

Take care!

Reply

11 No Nonsense LandlordNo Gravatar January 13, 2016 at 7:18 am

I think you will find the S&P will prove to be your friend…

Reply

12 FI FighterNo Gravatar January 13, 2016 at 7:54 am

Eric,

Let it correct by 50% or so first and then I’ll start getting interested…

At these levels, no thanks.

Take care!

Reply

13 mikeNo Gravatar January 13, 2016 at 7:59 am

Besides, wasn’t the S&P flat last year? One of the greatest quotes I ever heard:

“Poor people work for money. Rich people make their money work for them.”

Sounds like your money took a nice long vacation eric

Reply

14 FI FighterNo Gravatar January 13, 2016 at 8:22 am

Eric has done an incredible job with his rentals and reached early FI awhile ago, even though he still chooses to continue to work (although for not much longer).

S&P 500 and the other major indexes will all do exceptionally well over the long run (8% or so CAGR, according to most stats out there)….

But I think the trap is most everyone forgets that the S&P 500 can return flat or negative, on occasion…

We’ve all been so spoiled these last few years!

I wrote a post recently:

From January 2000-2010:

Barrick Gold (ABX) 119.56%
Goldcorp (GG): 1,283.89%
Newmont Mining (NEM): 104.28%
S&P 500 (SPY): -21.98%
Dow Jones: -9.43%

That’s a lost decade for index investing…

But ask most anyone around today if index investing is risky and you’ll find almost no one to take the other side of the trade…

I sold out of all my index stocks last summer and have never felt better…

Reply

15 RandyNo Gravatar January 13, 2016 at 8:39 am

You might have been a bit too harsh on your self. I do know that UUUU stock was up a pretty penny a few weeks ago. I am in this stock as well got in around $1.88 at the low point. I could have booked some profits and sold out but don’t want to get too carried away with the day to day. Not to mention Captial Gains vs Long Term Capital Gains if you are still a working stiff. I keep an eye on it but don’t sweat the day to day as you are correct this sector is beat to hell. Maybe that could have been your catch line for this post considering the picture.

Reply

16 FI FighterNo Gravatar January 13, 2016 at 2:31 pm

Randy,

“beet to hell” I like that!

Thanks for the support… Long-term, I think UUUU will do very well… I just had a feeling it would snapback, and it did…

Great point on tax consequences… It is much preferable to pay long-term capital gains.

Sometimes, you just gotta go with gut instinct… I didn’t and left a lot of money on the table.

Take care!

Reply

17 TawcanNo Gravatar January 13, 2016 at 11:10 am

It’s been getting pretty nasty lately. Way to go on sticking with your guns and stay course.

Reply

18 FI FighterNo Gravatar January 13, 2016 at 2:32 pm

Tawcan,

Thanks! Not always easy to do, but that’s why we’ve got to do our homework and form a thesis that we believe in.

All the best!

Reply

19 JonNo Gravatar January 13, 2016 at 2:22 pm

I really want to buy into this strategy, but I just can’t. Got it that junior miners are down 80-90%, and the HUI / gold ratio is at an all time low. And it seems mean reversion should bring solid returns.

But if we look at gold, it still seems well above its long term average real, inflation adjusted price. It’s easy to look at a chart of GDXJ and think that the only way is up, but much harder to do so when we look at a chart of gold (nominal or real) over the last few years.

What is your view on the price of gold vs historic levels and its implications on miners?

Reply

20 JonNo Gravatar January 13, 2016 at 2:26 pm

PS I’m much more convinced by oil, but have no idea how to efficiently play my long view. ETFs and derivatives have an insane negative roll yield, and equities seem pretty low beta vs the actual oil price. The best way seems to be physical, but at 30 bucks a barrel that’s a lot of oil to store to make any sort of a return!

Reply

21 FI FighterNo Gravatar January 13, 2016 at 2:35 pm

Jon,

Gold mining stocks aren’t for everyone… In regards to inflation adjusted numbers, that’s very debatable and you can find arguments from both sides…

I don’t know enough to say who is right and who is wrong, so I just go with intuition… And that’s telling me that these precious metals are selling at bargain basement prices right now.

The fact that Russia and China are buying up all they can get only reaffirms my beliefs in the long-term outlook for these assets.

I found this online, but please take with a grain of salt and do your own due diligence:

https://www.caseyresearch.com/articles/gold-is-near-an-all-time-inflation-adjusted-low

“Adjusted for the 1980 inflation measure, the gold price is approaching its bear market low of 2001. In fact, gold is now below the 1975 price when it became legal to own it again!”

Gold/silver have been money for 5000+ years… I have absolutely no worries about this investment.

Take care!

Reply

22 JonNo Gravatar January 13, 2016 at 2:40 pm

Yeah I saw this also. It’s by Casey Research though, so obviously super biased. Also, they just arbitrarily choose the 1980 CPI calculation method as ‘fairer’ calculation but offer no explanation as to why. This was literally the only source I could find that suggested that gold was below its long term real average.

Reply

23 FI FighterNo Gravatar January 13, 2016 at 2:42 pm

Jon,

Exactly, I always take what I find from Casey Research with a grain of salt… However, John Williams from Shadow Stats has a pretty good reputation from what I can gather…

So, like I mentioned above, I just go with intuition more than anything else… Most stats are bs and you can always fudge them to support your argument.

Reply

24 FI FighterNo Gravatar January 13, 2016 at 2:41 pm

http://finance.yahoo.com/news/shanghai-gold-exchange-saw-record-164756542.html

“In 2015, the SGE saw a record high of withdrawals of approximately 2,596 tons, which marginally fell short of analysts’ expectation of 2,600 tons. The 2015 figure surpassed the 2013 record high of 2,181 tons. In the final week of 2015, when the price of gold floated between $1,060 and $1,080 per ounce, the SGE witnessed a withdrawal of almost 41 tons.”

China is the world’s largest gold producer and export none of it. They also imported at record levels in 2015…

Reply

25 JonNo Gravatar January 13, 2016 at 2:47 pm

You can’t really trust this Chinese data. They only disclose what they want you to know. I’d trust Casey research over this! 🙂

I’m still not convinced that the current levels of gold are not attractive from a historic perspective. I’d love to hear more opinions on this.

Reply

26 FI FighterNo Gravatar January 13, 2016 at 2:55 pm

Jon,

You can look at export data out of London if you don’t believe the Shanghai numbers…

https://www.bullionstar.com/blogs/koos-jansen/uk-gold-export-to-china-hit-record-in-september-chinese-gold-import-156t/

Koos Jansen writes a lot about these import/export figures, but he’s a bullion dealer, so again, take everything with a grain of salt 🙂

I should probably try and get him on for a podcast sometime…

China is not transparent at all, so no one has a clue what they are up to… we are all just guessing from afar.

The Shanghai withdrawals are about the only insights outsiders have to the China market.

Anyway, I think there’s enough data to indicate that demand is robust in the East, and that’s about good enough for my investment thesis.

I follow the 800 lb gorillas when I invest… same with real estate.

Reply

27 FI FighterNo Gravatar January 13, 2016 at 2:50 pm

http://www.reuters.com/article/us-silver-coins-usmint-idUSKCN0UP2E120160111

“American Eagle silver coin sales jumped on Monday after the U.S. Mint said it set the first weekly allocation of 2016 at 4 million ounces, roughly four times the amount rationed in the last five months of 2015, after a surge in demand.

More than half of the week’s allocation sold on Monday, the first day of 2016 sales, the mint said, a sign that demand remains strong as spot silver prices hovered above a 6-1/2-year low of $13.60 per ounce hit in December.

The mint said nearly 2.76 million ounces of American Eagle silver bullion coins sold, about half of the 5.53 million ounces that sold in all of January 2015.

First-day sales of American Eagle gold bullion coins were also strong at 60,000 ounces, compared with the 81,000 ounces that sold in the entire month of January 2015, mint data showed.”

Demand for physical gold/silver is definitely there… Yet prices remain depressed…

With mining companies in distress, once the large zinc/copper/lead mines start to close shop, it will be fascinating to observe what happens to supply in silver… 60% or so of the inventory is derived as byproduct from these large base metal mines…

Lots of demand and record low prices (for the mining shares)?

Doesn’t make sense to me, but as a buyer I’m not gonna question these type of gifts from the marketplace.

Reply

28 JonNo Gravatar January 13, 2016 at 2:55 pm

I can absolutely get in board with a long silver thesis. Too bad there aren’t many pure play silver mining stocks, as, like you say, it is mainly a byproduct.

Reply

29 SriniNo Gravatar January 13, 2016 at 11:51 pm

Jay,
As Rick Rule famously says “People expectations are based on their (markets) experience in immediate past” and I am sure many of us have heard him say and try to make sense out of it.

Rick is vindicated when we analyze how low market expectation is for commodity in general and PM’s in particular.
– In 2011/12/13 timeframe everyone was looking to buy and hold on to, in anticipation of higher commodity price but the strategy that has worked till date is to sell on rally and buy on new lows in anticipation of technical bounce.
– Now the overall expectation / preference may be is to sell on rallies and enter again on lows to bring down the acquisition cost.

I am not saying what is right or wrong in terms of strategy, but it evolves around the personality of investors in question (which itself is a different topic altogether) and the question in my mind is ” is this an impulsive reaction (comfort feel) to be right every time in-spite of having bought into historic lows of bear market(with 20 to 30% deviation)” . I understand 20 to 30% seems to be a large move from where we are today but will it matter looking at the overall cycle of bear and bull.

I feel it’s very important to reflect Rick’s above statement every time there is an urge to buy or sell stocks or the urge to be on the right side of every trade.
I will stop here and hope this helps in defining /refining your strategy.

P.S : I wrote a msg to you some time back and realized that it didn’t get submitted. I don’t know if its late but still

Quote
I am curious to understand why you have 21 companies in your portfolio and continue to keep looking for new companies? I will agree that almost all the companies are good to great companies in my opinion. I am all for diversification.

a) B2G vs IAMGold. I honestly feel Steve Letwin of IAM GOLD should have been kicked out for the miserable performance. I would consider shifting IAM Gold to B2G.
b) Eldorado : You already said what I wanted to share. So not repeating.
c) Finally Copper Mountain: be cautious with debt load and survival. I liked it at 1.5$ and above but that was in higher copper prices. At low copper prices in short to medium term, small producers will be crucified in my opinion.
UnQuote

Reply

30 FI FighterNo Gravatar January 14, 2016 at 8:13 am

Srini,

Thanks for the comment! In regards to long-term vs. short-term mindset, I’m with you and agree that in the big picture, these sharp declines won’t mean much…

However, when the turn arrives is anyone’s guess… So, I’m comfortable with trading in and out of positions while we wait for that inevitable day to arrive… My strategy requires more active participation, but it’s just a way to generate some income along the way… By buying more shares at the lows, I should be able to trim some positions during any rallies… If the stocks never pullback again, that’s just fine with me as I’ll be well positioned either way.

The mindset is to hold onto core positions though…

Thanks for your take on my portfolio. In general, I would like to keep the portfolio around 20 positions… I’m not really actively looking for new positions, and most of the time, I’m just adding more shares to companies I already own.

A) I prefer B2Gold myself. Plus IAMGOLD also operates in Burkina Faso, and I have True Gold as well… I don’t need that much Burkina exposure. IAG is a stock I’m actually looking to sell. I wanted to trade this position for quick gains (didn’t happen), and I completely agree that it’s one of my weaker positions.

B) Eldorado is another one I’ll look to exit if an opportunity presents itself.

C) I got in b/c I noticed a lot of insider buying going on and Jim O’Rourke is running the show… Agreed on the debt load. I am planning on exiting this position as well. I prefer Ivanhoe Mines for copper, and they are years away from production so low copper/platinum/palladium/zinc/etc. won’t impact them in the short-term.

D) Balmoral Resources is the other stock I want to liquidate…

That about sums it up, but all in one, I totally agree with you 🙂

Cheers!

Reply

31 brianNo Gravatar January 19, 2016 at 3:27 pm

FI,

I can’t totally argue with your reasoning of “speculating” on the mining sector, but wouldn’t an ETF be less risky? I don’t know anything about the mining sector and wouldn’t want to spend the time researching all the individual companies…so for us newbies that see some logic in your thinking could you recommend an ETF??

Reply

32 FI FighterNo Gravatar January 19, 2016 at 6:35 pm

Brian,

Definitely, an ETF would be less risky. I would go with GDX and/or GDXJ as my proxy to play the gold trade more “safely”.

Cheers!

Reply

33 FI FighterNo Gravatar January 19, 2016 at 6:38 pm

The reason for going with individual holdings is to take advantage/exploit any weaknesses when any particular company sells off on bad news, or for no apparent reason (this tends to happen a lot in the gold space).

Also, it gives a trader more flexibility when selling, since you can book profits more easily as each individual position moves freely and not as an aggregate.

Of course, the ETF approach is way more passive and you mitigate risks such as individual company failures…

It’s really a question of active vs. passive approach, and risk vs. reward profile.

Reply

Leave a Comment

 

{ 4 trackbacks }

Previous post:

Next post:

Copyright © 2012 FI Fighter