June 14, 2008 – Still not chasing

by JDH on June 14, 2008

First, Happy Father’s Day, tomorrow. My father, and 20 other members of my family, will be over today for a barbecue, so I’ll keep my comments brief, as there are preparations to be done (all of which my wife has already handled, so my job, other than working the barbecue, will be to stay out of her way).

As for the markets this week, well, they were down. Almost everything I owned was down this week. The worst performers were the silvers: SVM.TO – Silvercorp Metals Inc., down 13.8 %, and FVI.V – Fortuna Silver Mines Inc., down 12%.

Next on the down list were the golds, led by K.TO – Kinross Gold Corp. down 8.5%.

Am I surprised? No, not at all. For the last month I have been saying that I expect the typical summer swoon, and that’s exactly what’s been happening. A month ago I raised cash, and now, on this weakness, I am beginning to deploy that cash. I have made a list of what I want to own, and I have placed my stink bids on those stocks. On weak days, if they fall to my buy levels, my purchase orders are automatically triggered. I don’t need to watch every day; I just, to quote a famous T.V. pitchman, “set it, and forget it”.

You can see the stink bid list here on the Buy-High-Sell-Higher.com Target Portfolio.

This week the following stink bids were triggered:

AXR.TO – Alexco Resources Corp. at $3.50

AEM.TO – Agnico-Eagle Mines Ltd. at $67.19;

DML.TO – Denison Mines Corp. at 7.64;

K.TO – Kinross Gold Corp. at $19.17

G.TO – Goldcorp Inc. at $39.97 and

UUU.TO – Uranium One Inc. at $4.50

Did I buy too early? Probably, but again, I’m not worried, because I’m not buying my full expected position at these levels. I’m still holding 37% in cash, in anticipation of even better bargains over the next month or two.

My approach next week will be the same: I’ll evaluate my portfolio, determine what stocks I want to own that I don’t yet own, and look at their charts to see where their corrections will likely end. That’s the level where I’ll place my stink bids. If they get filled, great. If not, when the stink bids expire, I’ll place them again. I normally place my stink bids good for a period of two weeks, so every two weeks I can re-evaluate their levels, and adjust up or down as necessary.

The key here is that I am not chasing anything. I will be patient. If it means I go a week or two without making a trade, fine. Many stocks are in trading ranges, and what goes up, comes back down, which is where I’ll buy.

For example, here is a one year chart of G.TO – Goldcorp Inc.:


As you can see, we are in both a short term downtrend and a long term up trend; I’m betting that it will resolve to the upside, so I’m satisfied to slowly build my position on days of weakness. Here’s a short term chart


As you can see over the last month, $39 is very solid support, so I think anything under $40 is a good level for a stink bid (which of course is why I was buying at $39.97 this week). I have accumulated close to my full Goldcorp position, so this week I’ll put in a stink bid for a few more shares at $39 to round out my holdings, although it’s possible that it won’t get filled.

Obviously I have re-entered the uranium market with AXR.TO – Alexco Resources Corp. , DML.TO – Denison Mines Corp. and UUU.TO – Uranium One Inc. , albeit with relatively small positions. I’ll add to them over time with more stink bids. Nuclear fuel is our only hope, so I expect great things over the medium to long term, and at these depressed levels I full expect to see some merger activity over the next six months as well.


Switching gears, I’d like to make some brief comments on the political discussion that erupted this week over on the Buy High Sell Higher Forum. The discussion was focused on the effect that Obama or McCain as President may have on the markets.

For the record, I’m a Canadian, so I don’t get a vote in this November’s U.S. election, and if I did, I think it would be a difficult choice.

I consider myself to politically be a pragmatist, so I don’t fit into the “conservative” or “liberal” label. I acknowledge that government does play a role in our society. I don’t really want traffic laws privatized, and I think the armed forces are best run by the government, not by private enterprise. I think the government should run the police and the justice system.

Beyond that, it appears to me that government just gets in the way.

In Canada we have “free” health care for all. If I break my leg, the government run health care system will fix it, at no charge to me. In theory this is great, because in Canada your bank balance does not determine whether or not you can get your broken leg fixed.

In practice, resources are scarce, and they must be allocated somehow. In a purely capitalist system, money is used to allocate resources. Whoever has the most money can buy the most resources. In the Canadian health care system, resources are allocated by a waiting list. If I need heart surgery, I may need to wait six months or a year until my situation becomes so critical that I am moved to the top of the list. Of course, I might be dead by the time my turn comes up.

So what’s the solution? Only let the rich people have health care? Or let everyone die equally?

I personally believe the government should pay for all basic health care, but I should be able to choose where I get those services. If private enterprises were allowed to run hospitals, it wouldn’t take long for specialized “niche” hospitals to spring up. There would be hospitals that specialize in heart surgery, or broken bones, or cancer treatment, or whatever. The doctors and staff would get very good at those specialized services. Bloated hospital administrative costs would be reduced. The government would decide what a procedure was worth, and I could have it done anywhere.

The public pays, but the private sector delivers.

I favour the same model for education, but I digress.

Does it matter if Obama or McCain wins? I think not. The economy and stock market grew under Mr. Clinton, and hasn’t under Bush #2. Mr. Bush, the supposed conservative, has spent line a drunken sailor, racking up the highest deficits in U.S. history. He is an embarrassment to all fiscal “conservatives.”

That being said, will Obama be any better? I have no idea. He purports to be a free-trader, but has said that upon becoming President he would “call the President of Canada to re-negotiate NAFTA”.

First, we have a Prime Minister in Canada, not a President, and second, Canada is America’s largest trading partner, so “calling to re-negotiate” will take more than a simple phone call.

My gut feel is that whomever is elected will probably make matters worse, not better. Obama will swing the government to the left, which generally means more government spending and therefore a continued debasement of the dollar. McCain will presumably want to keep the war going until he “wins”, which will have the same dollar de-basing effect.

As an investor, my approach is simple in the face of continued government meddling: buy gold.

And, as we have already seen, that’s exactly what I did this week.

Enough about politics; what I think in that area really doesn’t matter. Politics is a dangerous game, and for the most part it is better to not let political feelings cloud our investment decisions.

Please continue to post your thoughts on the Buy High Sell Higher Forum, and thanks for reading and contributing.

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