I'm gonna take a trip around the world
I'm gonna kiss all the pretty girls
I'll do everything silver and gold
And I got to hurry up before I grow too old
Oh I do a lotta things I know is wrong
Hope I'm forgiven before I'm gone
It'll take a lotta prayers to save my soul
And I got to hurry up before I grow too old
So my portfolio is close to an all time high, thanks in big part to mister Barack Hussein Obama II and his homeboy “Helicopter” Benny Bernanke . His reelection was celebrated with a glass or two of red wine, an rather disappointing Amarone della Valpolicella from 2008. Someone posted a graph of what kind of stuff that has actually increased in value during Obamas time in the white house. Let's just say it's not the USD...
I'd like to write some more about stocks I like just because it makes me actually read a bit more about them and it's kind of fun.
This is obviously not investment advice, I'm not a certified anything that I can think of right now and nothing I write should be taken as a advice to buy any stock, commodity or anything else.
Anyway, remember that Nulegacy Gold thingy I wrote about a few weeks back? When I wrote about it it closed at 15 cents but in a unusual case of good timing I think (not important enough for me to be bother to fire up my other computer and have a look) I got it at 14.5 cents. Thanks to some renegotiation of one of their contracts they now have a much lower burn rate and can concentrate on their most promising project which is good for a few reasons:
1. No more annoying financing until a little later. They'll probably need to do something within a year or a little bit more, but it's still cool.
2. Better chance of getting good drilling results faster which would be fantastic since stock owners would really like to see the stock gain a bit of value before the next round of financing since that will make sure it won't be as damaging to the stock price. Better that a company can raise 1 million by selling a million shares at 1 USD/share then 10 million at 10cents/share, obviously. Not that this particular stock will cost 1 USD any time soon unless the drilling results are really, really great, but you get the idea.
Anyway, that was good enough for a gain of 10% or so the day they broke the news and according to yahoo finance it's now trading at 17cents for a gain of more then 10% in a month or so. I'd brag about this but everyone who knows anything about small stocks knows that penny stocks swings more then a 3 handed game with Isildur, Gus and Ilari where everyone is required to take a shot every 15 min and the game is 5 card PLO. That's why my holdings are fairly small, less then 2% of my portfolio. Oh well, it's a good start.
Another of my favorite companies right now is Avino Silver and Gold mines. It's a silver company in Mexico that I've been buying in different sizes for over a year. If you check out a graph of their stock market price you can tell that I'm down a bit... Not that bad thought, something like 20% on average and it was much worse before the stock started to gain momentum the last month or so. I have a fairly big position in this company. The company have a handful of projects but the ones they're working on is the old Avino Mines and The San Gonzales mine. They already are already making money from stockpiled resources that they process in their own mills so financing will probably work out fine and they hopefully won't need to raise more money before they can declare commercial production. The San Gonzales mine will declare commecrial production of about 250tpd in the near future and The Avino mine (~1000tpd) will do the same sometime 2014 if everything goes according to plan. The last is a key phrase when it comes to miners but except for one little fuck up (for which Wardrop Engenering rather then Avino was responsible) Avino has been very good at not fucking things up, doing things according to plan and keep costs down. What the total silver production would be is kind of hard to guess unless you know much more then me.
The Swedish blogger “Scoris” (http://www.marketsbyscoris.com/ it's in Swedish) has a good relationship to this company and intived the CEO to Stockholm to talk about the company in front of some Swedish stock owners a month or two back. Then they talked about how the Avino Mine, back in 2003 before it got closed due to low silver prices (it was 4USD/oz back then, now it's 30) produced about 800 000 oz silver, between 5 and 10k oz gold and 3.5 M lbs copper per year. That's equal to a production of between 1.3 and 1.6millon oz of silver. Given a production cost per ounce of about 10 (which would be really high, remember, they did not close it until silver was down at 4) that would give 1.3-1.6 million * 20 or between 26 and 32 million USD in profit per year from that mine.
I did some math on the smaller San Gonzales mine and I have no idea if it's correct but my highly speculative guess would be that the cash flow from that one would be about half of the cash flow of the Avino Mine. That'd put their yearly profit from the mines between 40 and 46 million per year within 2-3 years. So basically I think this company with a market cap of less then 50 million seems like a decent enough bet for me considering how they already have most of the material in place, is in a good place as far as finances goes and they tend to do decent enough when it comes to getting shit done on time.
Biggest share holders are Sprott Asset Management and Sprott Private Wealth which is something you very much like to see in Silver miners.
So, what's the downswide then? Well, first of all it's in Mexico. They say parts of Mexico is fairly safe but I'd still like to mention that. Then there is always a risk in miners. Shit happens, basically and fairly often it happens to miners. Then lastly it's the silver price. If silver ever goes back ot where it was 10 years ago or so the company is worth shit. However, if it happens to keep at these levels or increase even more it's great.
Another cool thing is that it's traded, like most mining stocks, in CAD instead of USD which keeps you solidly out of risk of the currency risk known as Barrack's and Benny's dollar printing dream team. Someone mentioned in some topic that the Dollar was even weaker during Bush then during Obama. That's only true if compared to other big currencies. Considering how the Euro, Pound and japanese weird fish money is just trash that's not a hard feat to archive. Compared to stuff people actually need (food, gas etc) and compared to traditional stores of value (gold, silver, maybe land depending on what part of the world you're in) the USD is at it's weakest point in it's history. Just because I sometimes get good stats in pub games when I play Dota 2 and Navi sometimes have players with negative stats in some games I can't claim to be a stronger player then someone in Navi.
My book
So I'm writing on a book about what shit actually costs. So far I've made some fairly extensive calculations on the cost of fining cannabis users. Working on what we are paying our politicians and what we could save by cutting their wages to the level of high school teachers and cutting back on their very extensive pension plans. So far it's about 6k words and I'm aiming to get maybe 60k words in total about all kinds of dumb shit in society. It's really fun for me because I'm really diving into weird laws, public reports and all kinds of stuff that our government has to publish statistics about but no one really reads for the most part. I know that's a bit like admitting to liking German Porn but for some reason I find dull reports on various topics relaxing. Plan is to try to get someone to publish it for me and if rejected just put it up on the internet for free in some way.
Nice, how come u know all this stuff about macroeconomics and how businesses are run, did u study something relevant?
Also, several ultranoob question about investing, you seem to be going for value investing and understanding exactly how businesses in one very specific sector are run. But I heard diversification across different asset classes is the way to go and that flies in the face of what you're doing, unless u got a lot of other stuff in portfolio not mentioned, and just watching mining closely out of personal interest? Also I heard if u know 1 sector really well u can do 'pair investing' or something where you buy one company in a sector u think is running its business well and short another company in the same sector u think is overpriced or running its business like the old full tilt, and in doing so eliminate systemic risk of the whole sector.. Any plans to do something like that in the mining sector maybe?
edit: valpolicella region in general is pretty good imo:D
On November 13 2012 10:40 Ket wrote:
Nice, how come u know all this stuff about macroeconomics and how businesses are run, did u study something relevant?
Well, I have a law degree which is fairly relevant in that I'm very used to reading a lot of documents and being critical of them. I also have taken about a semester's worth of micro and macro economy, although I missed the last part due to deciding that some poker tournament in Bulgaria was more fun. Other then that I've read a lot about Austrian economics, which is obviously not the accepted theory in universities around the world but it makes a lot more sense to me.
In case you want to get a fast crash course in Austrians vs Keynes (basically the big battle of economics the last 100 years) you can watch this:
and this:
The first part actually covers almost everything on the macro part of the class I took. Obviously biased but it's probably the easiest way to get the basics down of both ideas together with some random wiki-reading in case you want to get a quick fix for economic understanding.
Big thing that makes me feel that precious metals investments to be the place to be is that I, and Austrians, believe that the problem with the economy is not lack of spending but rather bad investments. When the governments and central banks lowers the interest rates to increase spending, they're really lowering the price of money which makes people spend more and save less compared to what they'd do if the rates were set on a free market. That means that people will buy a bunch of shit they don't really need and by doing so building up bubbles in the economy that, when they burst, fucks shit up. The Keynesian answer to this is more spending to get the economy going. My favourite example is the Nobel prize winner Paul Krugman who just a year or so ago wanted to fix the crisis by investing a ton of money and creating jobs trying to build up a defence against a Alien invasion. I'm not even kidding. It's obviously very possible that I'm wrong but I've tried to get my head around this for a few years and for me it just makes more sense that the way to fix an economy is to get people to work, save and invest in stuff they actually think are good rather then building a bunch of shit just to make a bunch of paper and numbers in computers go around faster and faster.
On November 13 2012 10:40 Ket wrote:But I heard diversification across different asset classes is the way to go and that flies in the face of what you're doing, unless u got a lot of other stuff in portfolio not mentioned, and just watching mining closely out of personal interest?
Well, that's the way most people do it and it's probably the right way to keep a things going slow and steady. I think it's slightly overrated just because banks really wants you to buy a bunch of different things to make sure they can get commission out of you rather then having you taking a more +ev route that might be higher risk/variance and include less chances for them to sell you some products where they can get their cut on you. However, obviously it's a good point and I'm looking to start to diversify a little bit next year, but the big part of my portfolio (probably 80%+) will be in gold, silver and oil for the foreseeable future. Basically I'm betting that this bull market will continue until various countries decides to get their act together and stop printing money, which can only happen when they balance their budgets, which will take a fair few years.
The stuff I'm looking to get into other then Precious metals and oil includes:
1. Fertilizers (we need moar foooodz!) and food. Going to do Due Diligence on among others:
http://finance.yahoo.com/q?s=SIAF whenever they get their small yellow asses to a serious stock market. A lot of people who seems bright seem to love this company and their numbers looks really, really great. However, it's Chinese so I'm not sold that it's not some sort of huge scam just yet.
http://finance.yahoo.com/q?s=AAA.TO&ql=0 - Might get bought up soon, looks fairly decent the little I've looked at it and as was the case with SIAF a lot of people seem to think it could be great. Potash is something that's used to make fertilizers and Allana is mining for it in Africa. Africa is close to India and China which is great.
http://finance.yahoo.com/q?s=TNH - I don't really know much about it except that it's fertilizers, they're printing money and a lot of people likes it. Will check it out at some point.
Basically when not in mining I'm looking for companies that makes a lot of money in sectors that can withstand rough times in the world economy and that gives good dividends. That's for later though, for now I'm mostly looking at miners and such.
On November 13 2012 10:40 Ket wrote: Also I heard if u know 1 sector really well u can do 'pair investing' or something where you buy one company in a sector u think is running its business well and short another company in the same sector u think is overpriced or running its business like the old full tilt, and in doing so eliminate systemic risk of the whole sector..
Yea according to what I've heard a lot of Hedge Funds played that game by shorting miners and going long gold for a while last year. Idea is that miners won't go up unless gold does but miners can go down even if gold goes up due to mining accidents, bad drilling results and whatever. They're basically trying to freeroll.
On November 13 2012 10:40 Ket wrote: Any plans to do something like that in the mining sector maybe?
That's a little to advanced for me. Also it's fairly risky to short miners since they tend to move a ton on news you can't really foresee, like "oh, we found a big pile of of gold, that's cool"... Shorting things either requires a fair bit of extra work or that you do it through some kind of bank certificate that for the most part isn't really worth it since they've built by banks for banks.
To end it all, while I'm in a sector traditionally seen as high risk I think we need to make a distinction between risk and variance. Staking a nit who plays 5/5 in 6-max regardless of line up for 1/2 PLO is very high risk since he'll most probably lose all the money sooner or later. Staking me for say 1/2 PLO would be much higher variance but the risk is not as high since I'm a proven winner over a couple of 100k hands. That's kind of the way I look at it, the variance will always be high in miners, but assuming I'm correct about the relation between money printing and the value of gold, which is fairly proven, and the fact that the US, the Euro zone, the British Central bank, the Japanese central bank and probably a lot of others will have to keep printing a lot of money and creating inflation to deal with the debt problem the real risk is not that high. So basically, I'm banking on those two things to be true and other then that it's just up to me to pick a big enough number of miners that are competent and have enough money to be able to keep up production (it's hard as hell for miners to loan money now, so those who lacks enough funds to get their mines going is generally not very interesting to me).
Also, if everything turns to shit and I'm completely wrong, I still have like 100k or whatever and a law degree. So the downside is at least slightly limited.
Yea I agree with the parts of that I understood (not familiar with gaussian distribution-based models except in a very, very, very basic way etc).
My portfolio is not optimal from that perspective and I've done my fair share of fuck ups in stock picking. However, I tend to go for miners who already have a decent cash flow (except for that Nulegacy thing) and my biggest bet is on Sandstorm Gold which, probably, is about as low risk as you get when it comes to gold. Good points.
I have a few rules:
1. I have to be able to read their latest financial statement and go: "Ok, it really seems like they have enough money to do what they say they want to do according to both their and my calculations based on burn rate and such".
2. I must have good reasons to believe that the key people in the company not only are really competent but also have a history of not fucking shit up. If they've created a lot of value for shareholders in other companies it's a big +.
3. Has to have reasonably low production costs and a history of keeping them down. USD goes down = Oil prices goes up and it takes a ton of gas to mine gold.
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eestwood United Kingdom. Nov 13 2012 19:53. Posts 700
great post man, tons of interesting stuff. also this wtf ?!
My favourite example is the Nobel prize winner Paul Krugman who just a year or so ago wanted to fix the crisis by investing a ton of money and creating jobs trying to build up a defence against a Alien invasion. I'm not even kidding.
My favourite example is the Nobel prize winner Paul Krugman who just a year or so ago wanted to fix the crisis by investing a ton of money and creating jobs trying to build up a defence against a Alien invasion. I'm not even kidding.
United Kingdom. Nov 13 2012 11:40. Posts 8665
