My Investment Strategies in a Gold & Silver Bull Market

In this post I will try to explain my overall investing strategy when it comes to my effort to maximize gains in a precious metal miners bull market by reducing my opportunities to make an untimely exit (mistake). This post is not about day- or swing trading based on technical analysis, but rather “company story” trading.

Personally I find getting the entry and exit point right, is a very hard thing to do in practice. If one does not have a CLEAR strategy before entering a position, the chances of making money goes down accordingly, since there will be too much emotions involved in the decision to sell. IMHO the easiest form of company to own are the ones with the simplest exit strategies, where ones inexperience/emotions/lack of discipline has the least chance of screwing up the “optimal” selling point. If one were to own only high tier advanced development companies which would prime targets for the majors, there wouldn’t be many opportunities for someone to make poor decisions, since in a take over the decision and exit price will be automatic. All owners of the stock will get the pay day at the same time, at the exact same price (regardless of TA and market experience). The hard thing is of course to pinpoint which of all companies are most likely to be acquired in the not too distant future.

Investing in companies with proven top tier management is also a good way for especially inexperienced market participants to ride a bull market. This is because management’s experience and integrity would decrease the odds of the company making stupid and costly mistakes which perhaps would be difficult for an investor to even realize. For example there are not many independent investors who can accurately assess drilling results, strategies and a deposits economic viability. There have been many cases of incompetent/fraudulent resource estimates being re-examined and then cut in half, to the detriment of shareholders. Things like this is much less likely to happen if a company is run by experienced managers with integrity and preferably skin in the game (high insider ownership)… If they defraud investors, their reputation and their own money would go down the drain along with the retail share holders.

I will argue that most of my portfolio companies can be categorized into four different types:

• District scale long term plays (Core holdings)
  • Examples: Orca Gold, Novo Resources
  • “Buy and hold” long term plays
  • Current projects could (should) bring catalysts for many years to come
  • Top quality management
  • High insider ownership
  • District scale potential
  • High prospectivity
  • Preferably a top jurisdiction
  • A relatively high company specific bet
  • No fixed short/medium term exit strategy

Since this is my core (“buy and hold”) companies, they are the ones that should have good management, size, longevity and prospectivity. These are companies that I believe will have potential AND probable catalysts for years to come, and the people involved to theoretically be comfortable with not following the price movement on even a weekly basis (“fire and forget”). Companies in this category will of course have the highest density of quality characteristics. A company could have a tier 1 project, but to be able to “fire and forget” it should also have a competent management with high integrity etc.

• Revaluation plays aka short to medium term catalyst plays
  • Examples: Telson Resources, Sage Gold , Santacruz Silver etc
  • Short to medium term plays
  • Higher risk and must be closely watched for a change in the original thesis
  • A relatively high company specific bet
  • Exit when revaluation and/or catalysts have materialized (unless story has changed for the better)

This category can be seen as high risk bargain shopping plays. Not enough boxes checked to label them as a tier 1 long term plays. Thus will not be pass the test to reach core portfolio status. Reasons for this ranges from execution, management, land size, prospectivity and jurisdiction etc etc. One should note that things can of course change and that the current strategy and category is based on the currently known factors… Costs could come down showing better execution, acquisitions could be made for bigger land holdings, recruitment of top tier managers etc.

• Gold and Silver “Banks” / Explorers 
  • Examples: Dolly Varden, Kootenay Silver, Avnel Gold etc
  • The more metal that is banked (Economic threshold already surpassed etc), the less is the need for involvement
  • Potential for low involvement natural exit point (Acquisition)
  • More of a beta play on the precious metals compared to the above categories
  • Aiming for a “natural exit” with a take over

This can be considered to be a pretty straight forward “buy and hold” category akin to a “core holding”. The difference is a higher beta portion since there are fewer long term company specific catalysts  involved (often one project with resources more or less defined already).

• Finally we have the “crapshoot” category, the pure drill plays
  • Examples: Sunvest Minerals, Fiore
  • Potentially very short term plays
  • Exceptionally high risk/reward
  • Chance for company story to evolve in the case of good hits
  • Exit dependent on short term drill outcome

More than often the result will be negative, but with an out sized return if they hit something good. This should be considered as more or less gambling with very little “alpha” to be had on most occasions. Unless an individual investor feels he or she has a better grasp of the chance for success than the market of course.