Practical Investment Commentary – No Hype

For the first time in the history of writing this newsletter, I actually got up early on Saturday morning, shaved, had a shower, and then started writing. Usually I write, do my workout, and then have a shower. – JDH, January 14, 2012

Long time readers of this Buy High Sell Higher blog will know that I have subscribed to The Dines Letter for many years (since 1999, actually). Each year I write a post on The Dines Letter Annual Forecast Issue, and each year that post is my most popular post. (Take a look at the “Most Popular Posts” category on the right hand side of this page). Strange, isn’t it, that the most popular posts I write are my thoughts on someone else’s writing….

So, in honor of Mr. Dines, I started today’s blog with a true but irrelevant quote. Mr. Dines likes to do that as well (although, to be fair, some of the quotes are pretty good).

Before I comment specifically on the 2012 Annual Forecast Issue, my thoughts on Mr. Dines, well documented in the electronic pages of this blog, are as follows: I believe he is very good at spotting macro trends well in advance of “The Herd.” He was correct to invest in gold, uranium, rare earths, and internet stocks well before most of the rest of the investing public. That’s not to say that he was the only one to clue in that gold would be a good investment. Doug Casey was also a proponent of gold and uranium many years before their peaks. But, to give credit where credit is due, Mr. Dines was there as well, and subscribers who took his advance had the opportunity to make significant profits.

I have two criticisms of Mr. Dines:

First, while he is good at buying near the bottom, he’s not very good at selling near the top. I’ve never met the man, but I’m sure if he was given a chance to respond to that accusation he would tell you that “it is your responsibility to decide when to sell, based on your own personal circumstances. Set targets for yourself. Sell half when the stock rises 50%, and keep selling all the way up.” That’s a fair point, and I agree. It doesn’t matter what guru you follow; ultimately it’s your money, so only you, and you alone, can decide when to buy and sell.

However, he has had some spectacular failures on this point, the prime example being PNP.TO – Pinetree Capital Ltd. Again, you can go to the right hand side of this page and click on the Topics button and read the 57 previous times over the years that I have referenced Pinetree in these august digital pages, but the most succinct word on the point is my post on March 31, 2011 where I sarcastically commented that Dines Sells Pinetree! That’s Amazing! My point in that post was the Pinetree peaked at $16.15, and Mr. Dines subsequent sell recommendation occurred many months later, in the $3 range. Oops. I still don’t understand how a disciplined technician like Mr. Dines, with proper stop losses, could watch a stock lose most of it’s value before pulling the trigger on a sell order.

My second criticism of Mr. Dines is my perception that he is something of a front runner. I have no proof of this. He quite freely admits that he invests in stocks he recommends. I have no problem with that. In fact, I encourage it. If you aren’t willing to put your own money in your recommendations, why should I? My objection is that he will include a small note in The Dines Letter, or in an Interim Warning Bulletin, saying “buy Stock XXX, no stop yet”, and that’s it. No commentary, no rationale for making the purchase. It leaves the impression that he bought the stock, and now wants the rest of us to jump in.

I contrast that with the apparent approach over at Casey Research, where they explicitly state that they are buying along with everyone else, and they always give advance notice before they sell their own personal positions. Casey may be lying, but at least they are attempting to appear ethical. Also, when Casey makes a recommendation, it is very detailed. In most cases they have visited the mine, talked to management, and reviewed the financials. With Dines, it’s more like “buy because I said so.”

So, with my biases fully disclosed, here are my thoughts on the The Dines Letter 2012 Annual Forecast Issue:

It’s starts out pretty good. Nice summary of mass thought and behavior, and commenting on the “Occupy” protests he summarizes very nicely the problem with government intervention:

Now that students are demanding to know where the jobs are, Washington has decided to “create” them, which is like trying to “create” eggs instead of raising chickens such that eggs follow naturally.

I won’t quote extensively from this four pages of introductory comments, but they are very good, and accurately summarize the screwed up state of our world today.

As for his thoughts on gold, he agrees with me, and with everyone else who reads this blog: gold is going higher. They fly in the ointment at the moment is “when will gold stocks start going higher?” No-one knows, including Mr. Dines who, like the rest of us, is waiting for the psychology of gold share investors to catch up with the psychology of gold bullion investors. It would appear he is suggesting to wait until gold stocks turn up for further purchases.

On the markets, he correctly observes that the blue chips remain in uptrends, while the speculative juniors are not doing as well, in what would appear to be a flight to safety. True, but when will this trend reverse? No-one knows. Not me, or Mr. Dines.

He comments on his favorite rare earth recommendations, and despite significant recent weakness he still rates them a buy. This is a very volatile section of the market, so only time will tell if he is correct. His comments on uranium are the same: they’re down, but not out, so hold on. He doesn’t mention it explicitly, but at the end of the letter he produces a chart showing relative performances of commodities and stock indices, and in 2011 uranium stocks were down 58%, and the Dines Rare Earth Index dropped 64%.

Oops. It’s going to take a really good year to get back to even.

In conclusion, the 2012 Annual Forecast Issue is a good read. Will I take any action based on it’s contents? Probably not, since it confirmed what I already thought. I like gold, and despite what Mr. Dines says I’m not ready to jump into uraniums or rare earths quite yet.

I believe we should all consider a wide range of opinions before making our decisions. The Dines Letter is one such source of information, and so it’s worth a read, if nothing more.

Next week, time permitting, I’ll get back to my own thoughts. Feel free to comment below, or on the Dines board on the Buy High Sell Higher Forum, and thanks for reading.

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