First, to my fellow Canadians, Happy Thanksgiving. Monday is a holiday in Canada, so no trading, just lots of turkey eating. (For my American friends, sorry, you will have to wait until next month for your turkey fix; however, Happy Columbus Day on Monday).
Now, to the first important news item of the week: it appears that scientists have discovered the purpose of the appendix (the body part, not the thing at the end of a book). It appears that your appendix produces and protects good germs for your gut.
For many years we all believed that the appendix served no purpose, since many people have them removed each year, and live perfectly normal lives. However, it appears that there is a massive amount of bacteria in the human digestive system; in fact, there are more bacteria than human cells in a typical body, most of which are good and help us digest food. Sometimes these bacteria die, such as with diseases such as cholera or amoebic dysentery, and the appendix’s job is to reboot the digestive system.
In modern life we don’t usually get diseases like cholera, so our internal bacteria don’t die, so we don’t need a re-booting appendix. In fact, in our hygienic society, sometimes the appendix can over-react and cause real problems; it must be removed, or you die.
So, what does the appendix remind you of?
It reminds me of that useless commodity, long regarded as an anachronism from the long dead past. A commodity so bad that it doesn’t even earn interest, so central bankers want to surgically remove it:
Gold.
And yet low and behold, we now find that gold actually serves a useful function. You can’t print gold, and so gold becomes the ultimate store of value. As the U.S. dollar depreciates towards oblivion (even our Canadian dollar is now worth more), where can you invest your wealth so it won’t disappear?
Gold.
As discussed here last week, gold has been on a tear recently, but I predicted (along with pretty much everyone else) that gold was looking over bought, and was due for a pullback. Last week gold closed at $739 and was in over bought territory with an RSI of 76.25. Here’s the chart now:
As you can see, gold dropped early this week into the $730 range, before recovering to close the week up at $747.20. More importantly, the RSI has eased to 67.41; still over bought, but now below the psychologically critical $70 level.
What does this mean? I think it means that gold may still pull back some more; it would not surprise me to see it back into the $700 to $730 range before the upward trend resumes. However, this week’s pullback could also indicate that there will not be a significant pull back. I don’t have a crystal ball, so I don’t know for sure what will happen.
Given this uncertainty, the only logical strategy, as discussed last week, is to begin buying, very slowly, and with stink bids, to gradually accumulate a position during the balance of October, in anticipation of a much higher November and December.
I therefore took this week as a buying opportunity, and placed a number of bids on the stocks I want to own, at below market prices, on the assumption we will have some down days which will carry my selected stocks into the range at which I want to buy.
Below is a link to my target portfolio.
Here’s what I attempted to do:
First, I wanted a portfolio close to these levels:
Gold – 32%
Silver – 26%
Uranium – 32%
Other – 9%
In other words, basically a third in each of gold, silver, and uranium shares.
Of the uranium shares, the 32% is made up of producers (6%), close to production (2%), advanced exploration (7%), and juniors (16.5%). The heavy weighting in juniors obviously increases the risk, but also increases the potential profit.
Next, I wanted a portfolio heavily weighted to the Canadian market. It is logical to assume that the Canadian dollar will continue to appreciate against the American dollar, so I see no point in holding U.S. dollar assets. Besides, I’m a Canadian living in Canada, so Canadian currency is of more use to me than any other currency.
Also, we could see more down then up over the balance of this month, so I don’t want to buy 100% of everything now. I will start with picking up 25% of my eventual position, and gradually increase it on weakness. (Some stocks are 50% or 100%, depending on whether or not I believe they are good buys now).
Finally, on some of the stocks I plan to hold longer term, I bought them and then immediately covered them (by selling October out of the money options); this gives me a potential extra profit, with virtually no risk, since if the stocks immediately move higher I buy back the options and sell them farther out. Those stocks are highlighted in purple on the spreadsheet. I expect to be doing more covering on any upticks in the coming weeks.
How did I assemble the list?
I started by assembling a list of all uranium stocks (you can find a comprehensive list at u308.biz) and all gold stocks (a good list can be found at gold-stocks.com). I then chopped these lists down to stocks trading in Canada, which is where I want to focus for currency reasons. Then, I took a quick look at the charts and recent news on Google Finance to chop the list down some more. I also consider what others, including Dines, Casey, and members of the Buy High Sell Higher Forum, are saying about these stocks.
Finally, with my further reduced list, I looked at charts, RSI, MACD and Money Flow Index levels to determine appropriate buy points and stink bids. This list is the result.
For the uranium stocks I also tried to determine who’s drilling and who isn’t, and where they are at in the production cycle.
It’s a long list. Most of the stocks I have discussed previously; over time I’ll post my thoughts on the new ones as time permits.
Is this a perfect list? Obviously not, and no doubt it will be refined as we go on, but I have started buying. I am currently at 62% cash, down from the 80% cash I was at in September. I expect that by the end of October I will be closer to 20% cash, perhaps less. It will all depend on when the stink bids get filled.
Do you think I’m crazy? Post your thoughts on the 2007 Predictions section of the Buy High Sell Higher Forum, or in whatever category you want.
Now, for something different.
Some Thoughts on Mr. Dines
On Friday I was shocked to see The Dines Letter appear in my in box. The last few letters have arrived three days late, and with multiple copies. Apparently Mr. Dines has figured out this new fangled e-mail thing. Good.
This week’s edition, as with most editions for the last two years, talked about what a great investment uranium will be. (I’m not giving away any secrets here; he has said this publicly many times). I particularly liked the chart at the bottom of page 2 of one of his favorite recommendations. He notes that he recommended buying on May 19, 2006, and after quadrupling in value, by August 16, 2007 it had fallen back to it’s buy point. His note: “Editor: Note 5 previous Consolidations, a Correction, and a new Double Bottom Formation”. Actually, when a stock falls back to it’s original point that’s not a consolidation or a correction; that’s a crash. Oh well, it’s just semantics, I guess.
I also loved the Letters to the Editor section, obviously designed this week as a shot at his critics.
In the first letter a reader complains that the stock he recommended in the last issue (with no commentary or reasoning, I might add) was up 20% the day the newsletter was issued. Dines response was that he “checked with company management, and they had had a presentation of their company’s prospects on Thursday, a complete coincidence.” Wow. He then goes on to say “Please lighten up.”
Hmm, I guess if this had never happened before we would lighten up, but we have seen this type of run up before, and it’s hard to lighten up when Mr. Dines does not share his thoughts on why he recommended the stock in the first place.
The next letter says “I inadvertently read some bozo’s comments about you online. Even though he implies that you apparently have lost your touch, and do not have as big a following as you used to have, he still reads your comments. Perhaps you will realize who he is when I mention that one of his biggest problems with you is that he receives several copies of TDL and three copies of your IWB.”
Mr. Dines responds by saying that “we now have our largest circulation in history, do no advertising, and are considering closing our subscriber list to new arrivals.”
Wow.
I personally have been critical of the fact that I have received multiple copies of his letters, and I have received them late. However, I don’t think I’m the bozo referred to in the letter, because the screwed up e-mails are not my biggest problem.
Mr. Dines, instead of boasting about your large circulation, how about an apology, or an explanation, along the lines of “I want to apologize to my subscribers for the technical problems we have been experiencing over the last two months. We switched to a new e-mail provider, and there were some bugs, for which we apologize. We regret the delays this has caused, and give our loyal readers our commitment that we will work hard to prevent these problems from occurring again in the future.”
Doesn’t that sound better than “I’m great; screw you.”
I am more critical of the “Low State” of Not Being Able to Admit I Made a Mistake.” Readers of this blog know that I constantly own up to my screw ups, of which this year there have been many. When I see some of his recommendations drop by 78% (see my comments from September 8) with not even a word about “oops, perhaps some serious profit taking was in order”, I do start to lose faith.
Yes, I understand that it’s up to me to decide when to sell, but the whole point of subscribing to an investment newsletter is to get some advice on buying and selling. I have a day job. I can’t spend 10 hours a day managing my portfolio. I look for advice from others. When the advice is poor, I am disappointed.
Mr. Dines did include a section on Page 10 about how to do tax loss selling to recover some of your losses. As far as I can recall, this is the first admission that there even were losses. Mr. Dines: don’t hide; don’t just write articles about tax losses, actually admit that some sell orders should have been placed at the market got toppy in the spring.
The third letter to the editor asks about when to sell. The response is “find the time to chart your stocks” and then “perhaps sell 5% to 10% of a position every time it rises 50% or 100%.” That’s good advice, because by the time a stock has risen 1,000% I will have sold it completely. A discussion of stop losses when stocks drop 78% may also have been appropriate in this response.
On the plus side, I still believe Mr. Dines serves a valuable function. I give him credit for identifying the internet boom, and the uranium boom, early on in the cycle.
However, I do believe criticism of his methods is justified. He often remarks that “I’m showing you how to do this, so that you can learn to do it on your own.” Well, Mr. Dines, including a recommendation in fine print on the last page of your newsletter, after it has already risen 20% that day, without any explanation whatsoever, is not “showing us how to do it.”
A much better approach would be to tell us about management, the company’s projects, technical analysis of the company and the industry, compare the company to it’s peers, and then make a recommendation.
It’s due to this disappointment that less than one third of my JDH Target Portfolio is comprised of Dines stocks, and some of those stocks were in the portfolio before he recommended them. Time will tell if the master has lost his touch, or if I’m simply being critical because we are in an inevitable and healthy correction and I’m not seeing the big picture.
As always, thanks for reading. I look forward to your thoughts on the Buy High Sell Higher Forum. Happy Thanksgiving, but be careful not to burst an appendix.
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