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XMFSinchiruna (27.54)

Gold and Silver Investing Made Easy

Recs

36

November 30, 2010 – Comments (20) | RELATED TICKERS: GLDX , SIL , CEF

I'm like a walking ETF. I own about 70 individual equities in the metals mining and exploration space, with the vast majority of that focused upon gold and silver. They are not all equal weighted, by any means, with individual holdings ranging from 15% down to 1% of my total. When I was acquiring these positions primarily in 2005-2006, this was the approach that I considered most appropriate for my investment objectives.

If I had it to do over again, however, with today's tools at my disposal, I may have been able to produce a roughly similar portfolio of precious metal plays using just a small handful of holdings. Newcomer Fools approaching the mining space today have the luxury of using the newer equity ETFs to gain the same sort of highly dispersed (though thoughtfully weighted) access to the industry.

The article linked here attempts to lay out a formula for precious metals investment that essentially mimics my own approach ... only in a much more efficient manner than I was able to achieve when I built my positions. For the record, the relative weighting among the four vehicles listed (in order of appearance in the article) that would most closely resemble the structure of my own portfolio, would be 30%, 30%, 25%, and 15%, respectively.

Just like with SLW and Great Panther, once again the relative latecomers seem to gain an advantage.

Please let me know what you think of the article, and the basic formula outlined with the above-indicated relative weightings. And, as always, thank you in advance for reccing the article at the source if you find the content of value.

Please note: the formula proposed in the article is merely a rough approximation of my own hldings in the sector. It would not, for example, capture my outsized position in Great Panther or select other major bets on some of the micro-cap names in particular. But for a 4-component approximation of my approach, it's still a mighty attractive option in this Fool's view.

http://www.fool.com/investing/general/2010/11/30/gold-and-silver-investing-made-easy.aspx

20 Comments – Post Your Own

#1) On November 30, 2010 at 1:56 PM, XMFSinchiruna (27.54) wrote:

"They are not all equal weighted, by any means, with individual holdings ranging from 15% down to 1% of my total."

Correction: that should have read: "<1%" ... I have some truly tiny bets in the mix.

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#2) On November 30, 2010 at 3:03 PM, starbucks4ever (97.71) wrote:

Gold... Silver... Platinum... Zinc... Copper... Iron... Silicon... Carbon... Sodium... Potassium... Antimony... Mercury... Arsenic... Lead... Sulfur...

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#3) On November 30, 2010 at 9:29 PM, rd80 (98.28) wrote:

Very good article. 

Why miner ETFs but no physical silver or gold ETFs?  Is that to get more leverage on the metal price or because they have earnings or ???

 

 

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#4) On November 30, 2010 at 10:16 PM, ikkyu2 (99.19) wrote:

I have been following you for a long time, Sinchi, no one can accuse you of not putting your money where your mouth is.  ETFs generally carry about a 0.5% load in fees, much more than that leaves a bad taste in my mouth and I start looking at how badly I would do trying to replicate the performance on my own with retail brokerage.

The Fool ought to hire you to start a precious metals fund.  I'd throw 10% of my portfolio into it. 

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#5) On November 30, 2010 at 11:23 PM, XMFSinchiruna (27.54) wrote:

rd80

CEF is for bullion exposure.

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#6) On December 01, 2010 at 8:53 AM, rd80 (98.28) wrote:

Sure 'nuf.  My eyes and brain didn't synch up and I missed the CEF paragraph.

Thanks!

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#7) On December 05, 2010 at 2:05 AM, silvermind (< 20) wrote:

Sinch,

Thanks for your past thoughts on the miners.  Back in May of this year I bought shares of Great Panther at the 79cents point. Also I purchased SLW back in May.  It is doing well!  Are you attending the NW Mining Association meeting in Spokane next week? Which  miners would you purchase to maximize growth if you were buying miners around 2 to 3 weeks?

Bill

 

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#8) On December 05, 2010 at 2:41 PM, jamo101 (< 20) wrote:

I've been trying to purchase shares of great panther, but my limit order has not been filled.  The price just keeps getting away from me.  Do you recommend buying at 2.50 a share?

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#9) On December 05, 2010 at 6:43 PM, silverminer (30.66) wrote:

verymildbill

I'm glad you moved into those stocks at an opportune time. Congratulations. I will not be attending the Spokane meeting, unfortunately. As for your last question, I need to clarify whether you mean you would like to buy miners "in" 2 or 3 weeks, or "for" 2 or 3 weeks? 

jamo101

I am not permitted to make transaction-specific recommendations of that sort, but I can say I do still believe this stock's growth story remains in its early stages.

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#10) On December 06, 2010 at 2:40 AM, silvermind (< 20) wrote:

Sinchi,

Thanks for asking for the clarification!

I will be purchasing my most sizeable amount in about 2 to 3 weeks from now.  I will hold onto the mining stocks for as long as it makes sense.  I have owned a tiny amount of SLW and Impact Silver since 2008.  Then in May of this year I bought a larger amount of SIL, SLW, and GPR.  Now I am in a position to buy a larger amount of stock around the 22nd of this month.  I need growth in the values of the stocks I purchase.  I will also be purchasing some mining shares via a 401k we set up this year.

Bill

 Do you own any Uranium stock yet?

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#11) On December 06, 2010 at 2:48 AM, silvermind (< 20) wrote:

Sinchi,

To further clarify, in case it helps, I will be purchasing stock through our corporation as a normal purchase AND purchasing stock in a 401k - all in about 2 to three weeks from now - to be held as long as it makes sense.  Looking for growth in these purchases.

Bill

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#12) On December 06, 2010 at 7:30 AM, silverminer (30.66) wrote:

verymildbill

My microcap holdings fulfill my most growth-focused portion of my holdings, and it is from the smaller names that the most outsized moves are yet to come IMO. Great Panther remains one of those "small names", though perhaps is now transitioning to a better-known junior miner.

I see great fortune ahead from the likes of Copper Fox Metals, Alexandria Minerals, and Tyhee Development. I am invested in all three. Further up the food chain, I think Brigus Gold is beginning to look primed for some growth, and Eric Sprott added a position last quarter. Still, it is hard for me to fathom a company as solid as Great Panther ... that stock's ride has only just begun, IMO.

Good luck with your investments.

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#13) On December 06, 2010 at 10:07 AM, jamo101 (< 20) wrote:

Thanks for the feedback on great panther.   I finally got in this morning after another increase in price.  I would have liked to get in below 2 dollars a share, but I can always add later if it drops again.

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#14) On December 07, 2010 at 3:14 AM, silvermind (< 20) wrote:

Sinchi,

Thanks for your thoughts on microcaps!

What fundamentals make GPR so very solid?  Their P&L shows about $1.5M profit in the 3rd quarter.  Let's say they make 2 million this quarter due to increased gold bullion prices.  If GPR can do that for 4 quarters that would equal $8 million per year in earnings (EBITA).  The market cap for GPR is $320M at $2.75/share.  So the extrpolated best-case P/E is 40:1(320 divided by 8) --- not so great is it?  Can you identify any serious errors in this math and logic please?

verymildbill

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#15) On December 07, 2010 at 3:14 AM, silvermind (< 20) wrote:

Sinchi,

Thanks for your thoughts on microcaps!

What fundamentals make GPR so very solid?  Their P&L shows about $1.5M profit in the 3rd quarter.  Let's say they make 2 million this quarter due to increased gold bullion prices.  If GPR can do that for 4 quarters that would equal $8 million per year in earnings (EBITA).  The market cap for GPR is $320M at $2.75/share.  So the extrpolated best-case P/E is 40:1(320 divided by 8) --- not so great is it?  Can you identify any serious errors in this math and logic please?

verymildbill

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#16) On December 07, 2010 at 3:31 AM, silvermind (< 20) wrote:

Sinchi,

BTW - even SLW, one of our favorites, seems very much a "sell" if we look at P/E.  It looks like SLW may do $300M in profit this year - 2010.  Market cap of about $14B at the current stock price - which has doubled to about $40/share in the last 4 months.  This gives SLW a P/E ration of $14B/$300M which equals about 41:1.  This is not a great time to buy SLW based on that.  Now if silver goes up to $120 oz. --- it would put the P:E ratio to a level at which I consider buying a company --- that level being between 5:1 and 10:1.

Am I missing something?  Looks like SLW is overpriced no?

verymildbill

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#17) On December 07, 2010 at 9:20 AM, silverminer (30.66) wrote:

verymildbill

P/E is such a useless metric for mining stocks. I pay close attention to earnings, of course, but I ignore price-to-earnings completely. Miners are their own special breed of company, where reserves and resources must be seen as akin to a manufacturer that holds decades worth of inventory of the raw materials needed to create its product. If such a manufacturer existed, that inventory would figure prominently into the market's valuation, and would thus make its P/E ratio rise above the average ratio for broader equity indeces. It would be incorrect, however, to then conclude that such a manufacturer must be overpriced on that basis. 

If you see analysts using P/E prominently to discuss mining stock valuations, and particularly if they point to high nominal values alone as a reason to avoid stocks in the sector, it's as clear a mark as any that the person in question has failed to understand the specific nature of the industry in question. This industry has its own valuation tools, which must always take reserves and resources -- as well as metal prices -- into proper account.

Check out some of speedybure's valuation work (now Hyperinflation at Seeking Alpha). He gets it, although I'd like to see him use enterprise value instead of market cap in some of his metrics.

Let me know if you have remaining questions.

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#18) On December 14, 2010 at 2:59 AM, silvermind (< 20) wrote:

Sinchi,

I am checking out speedybure's stuff.  Thanks for reference.  In which metrics would you like to see him use enterprise value instead of market cap?

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#19) On December 14, 2010 at 11:15 AM, silverminer (30.66) wrote:

notjoe,

EV/MVPPR is my preferred reserve-focused metric. EV to market value of P&P reserves. 

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#20) On January 03, 2011 at 5:55 PM, silvermind (< 20) wrote:

silverminer,

Okay - here's another basic question.  How do you calculate Enterprise Value?

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