-- Posted 2 June, 2005 | | Source: SilverSeek.com
We learn from experience that men never learn anything from experience.
G.B.Shaw
Mining stocks are in the midst of a severe decline these days and it seems like there is no hope. The light at the end of the tunnel appears to be as dim as it’s as ever been and many think there is no light and there never was one. At least their actions assert that very outlook.
In most situations people know what they should do. They just don’t do it. We know that we need to sleep more, eat less, exercise regularly yet how many of us do it? On occasion we dab into “the right thing to do” area, but overall, we largely ignore this ageless wisdom and continue on doing what we do day in and day out. In retrospect we kick ourselves for being so hopelessly undisciplined. It happens time and again, over and over. And if that is how we behave in everyday life regarding things that are important to us, how can one expect people to be rational and do what they “should” in the stock market? After all is it not just a hobby, a kicker, something we do above and beyond our immediate needs, something that does not directly effect our present situation?
Ask anyone - what to do in the market - and chances are you will get a sound piece of advice: seek value, invest for the long term, don’t try to time the market, buy dips, don’t yield to hype on the way up or down, don’t follow the herd, buy low and sell high. Yet if you look in his/her brokerage account nine times out of ten you will see the opposite. How many of us actually do “the right thing”? How many of us follow those simple guidelines that we so easily and willingly impart to others? How many successful investors do you know? Are you one of them? This reminds me of a poker game when if in half an hour you don’t know who the dope is, you are it. Who is the dope in this resource market?
A friend phoned this morning to get my take on the markets. I actually went on to say that the only investor we commonly know is Warren Buffett (not personally, of course). Most everyone else is a trader, speculator or an outright gambler. Buffett purchased his silver in 1994 and has been sitting tight since. Do the math folks, that is 11 years! Storage fees only on 130 million ounces of silver over 11 years should amount to quite a sum. His formula is simple: find value, take a position and stay with it, not for a few weeks, months or years, but as long as necessary for the market to realize that value. That’s investing.
Incidentally, Buffett is known to say that “gold is a stupid investment because it earns no interest”, but we like gold and won’t hold it against him. After all, he is Warren Buffett, the king of value investing and we’re just die-hard silver bugs. Be as it may, actions speak loader than words. I was going to say that Buffett owns a ton of silver, but he actually owns many tons of it.
We spent two days at the NY Gold Show and report to you that our impression was that the whole show (exhibitors and attendees) was sliced in half as compared to last year or the year before. However when we talked to silver companies as we always do at these conferences, to our surprise several of them were quite happy with the public turnout and pointed out that while the quantity was on the lighter side, the quality was there. As it happens in all markets when times are good and stocks are flying high everyone wants be in the game and interest is abundant from all sorts of investors. When times are not so good – like now – interest from unsophisticated investors virtually disappears as they stage an exodus from these stocks. In contrast, sophisticated investors and others in the know, those who believe in the fundamentals of the silver story take out their check books and go shopping.
Even Bob Prechter was not able to scare off investors with his keynote presentation discussing the end of “bear market rally” in gold and silver and the resumption of a long term downtrend. As much as I respect Prechter’s work I just don’t see how he could be right this go around and neither did a long list of other presenters with impressive track records and personal fortunes attesting to their investing prowess over the years. Doug Casey summed it up best by saying that as risky as the resource sector is, he doesn’t see a better place to be in the next decade or so.
Not every speaker was optimistic about the near term outlook for gold and silver equities and some advised caution through the end of this year, yet that very prognosis made them very excited. They were looking forward to final capitulation sell-off in this correction to load up on beaten down stocks once again.
We also attended the gathering for World Silver Survey 2005, a joint effort of The Silver Institute and GFMS Limited of London. Many of the same faces that we saw at the NY Show were present. Philip Klapwijk, Chairman of GFMS delivered the presentation in which the silver market was thoroughly dissected. You will be happy to know that they concluded the prospects for silver price to be optimistic. GFMS is very conservative in their analysis but even they don’t see any considerable downside to silver price.
To play the devil’s advocate we ask ourselves - what is the down side? The only logical conclusion based on the presentation is that even if silver price were to slip down from here, there isn’t much of anything to keep it down for any sustainable period of time.
With that in mind do as you please with your portfolio - the pundit will be buying between now and Christmas.
The whole concept of investing in the resource sector is based on the idea that these are real assets. We overheard that the main reason why some people in the know are waiting on the sidelines is because apparently some hedge funds overextended themselves and are now forced to liquidate their positions and that is fueling this latest decline in mining stocks. The more they sell, the lower stock prices go and even more investors are then forced to sell, especially those using leverage. That to some extent explains the disparity between fairly firm metal prices and fire-sale prices for stocks in the same sector. So for the umpteenth time - whatever you do, please stay away from leverage. Good news is that it works exactly in reverse on the way up: the higher stocks go, the more interest they get.
They tell me resource sector mutual funds are selling too. Well, if you know anything about mutual funds, there’s little else they can do when there is net outflow of capital from the fund. They are not selling because they want to, but because they have to pay out the money to distressed investors opting out. The bottom won’t materialize until we run out of sellers.
Investing can be rather boring if you as you should keep asking yourself – did the fundamentals change? And so long as the answer is “NO” stick with your positions. But we can’t expect the markets to be rational, can we? Trouble is, in the long run they are and that is exactly what we’re betting on.
May 26, 2005
Sean Rakhimov
Editor, http://SilverStrategies.com
Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed herein are those of the author and are subject to change without notice. The information herein may become outdated and there is no obligation to update any such information. The author, entities in which he has an interest, family and associates may from time to time have positions in the securities or commodities discussed. No part of this publication can be reproduced without the written consent of the author. © Copyright 2005 by Sean Rakhimov.
-- Posted 2 June, 2005 | |
