July 12, 2008 – The Strategy Backfires

Clearly I have no idea what I’m talking about, so after my long-winded commentary last week, I’m going to keep it short this week. It is, after all, the summer, so let’s all get away from our computers and enjoy it.

Last week I talked about the Tampa Bay Devil Rays, the best team in baseball, who promptly went on a four game losing streak.

I then said this:

“In the month of June I had a good run with K.TO – Kinross Gold Corp., G.TO – Goldcorp Inc. and AEM.TO – Agnico-Eagle Mines Ltd. At the start of June I increased my holdings, so at the start of July I took profits and sold. My reasoning, quite simply, was that the relative strength was looking toppy, so I sold them. To be clear, I didn’t sell all of my holdings. I doubled my holdings in early June, and then sold those shares this week, so I still hold a core position in all of the gold stocks.

I then immediately put in buy orders at below the current market price, generally around the 50 day moving average. The gold shares have dropped this week, so so far the strategy looks good, but unless I can get back in at lower prices my strategy will backfire.”

Well, guess what. My strategy back-fired.

Yes, the gold stocks did pull back from where I sold them, but they did not fall to my buy points, so my stink bids were never filled. Then, on Friday, prices exploded upward, with some of the gold stocks making new highs.

Oops.

Fortunately I did not sell all of my gold stocks; I just sold what I bought in early June, and I didn’t sell any silver stocks, which were also considerably higher. However, in hindsight, and unless we have a big correction on Monday, I would have been better off to hold.

My biggest winner on the week was RH.V – Red Hill Energy Inc., which is of course a stock I thinned out on a few weeks back; it was up almost 15% this week. Of course it’s about 1% of my portfolio, so it didn’t help much.

SLM.TO – Silver Wheaton Corp. was my next biggest winner, up 8.3% on the week. With it’s recent great performance it is now my biggest holding, at 11% of my portfolio, so prudence dictates that I should probably take some profits. At this point, I’ll be letting my profits run.

The big gold stocks also did well; the juniors, less well.

The plan for the week? I don’t plan to sit and start at my computer screen all day long. I don’t plan to watch CNBC.

For the last few weeks I’ve been getting up early and enjoying the good weather by going for an early morning run, or weekend bike ride with my boys. It’s the summer; let’s enjoy it.

As for the market, the world is ending, so on any weakness over the next few weeks I will deploy my remaining cash (currently 27% of my portfolio) in gold stocks.

As always, thanks for reading this less verbose missive today, and feel free to post your thoughts, verbose or otherwise, on the Buy High Sell Higher Forum.