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

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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!

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

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

Hristo
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Hristo

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

Tax News
Guest

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

No Nonsense Landlord
Guest

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

mike
Guest
mike

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

Randy
Guest
Randy

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.

Tawcan
Guest

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

Jon
Guest
Jon

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?

Jon
Guest
Jon

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!

Srini
Guest
Srini

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

brian
Guest
brian

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??

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