July 19, 2008 – Heavy buying this week, and some thoughts on James Dines

Well, overall, this was a week pretty much as expected.

Two week’s ago, I said that gold was looking over bought, so I sold a bunch of my holdings (at a nice profit).

Then last week, in My Strategy Backfires, I scolded myself for saying that I sold out of the gold’s too soon, as they continued their run.

Well, maybe I’m not as ignorant as I think. After peaking around $990, gold dropped big on Wednesday and Thursday, and then closed Friday at 954.87. So here, then, is my fearless prediction:

Gold is finishing it’s consolidation, and is heading upward. This week was the first try at breaking the magical $1,000 level (which happened for one day in March of this year, before correcting down to around $850. I think the next try, which could be as early as next week, will be successful, and this time it may hold.

Since the May bottom, gold peaked around $930 before falling to around $870. Then it peaked again at $950, dropped slightly to around $920, then ran to $990 (intra-day) this week before falling back to $955.

In other words, we have had a series of higher highs and lower lows; that’s an uptrend, and that’s what we want to see.

On Friday I put my money where my mouth is, and bought back all of the gold shares I sold earlier, at a lower price than I sold them, so I’m happy. Quite happy. I increased my holdings in K.TO – Kinross Gold Corp., G.TO – Goldcorp Inc. and AEM.TO – Agnico-Eagle Mines Ltd.

I was also buying silver stocks, including FVI.V – Fortuna Silver Mines Inc. and SVM.TO – Silvercorp Metals Inc.; they are both down significantly recently, so I averaged down my cost by grabbing more.

I even picked up some more UUU.TO – Uranium One Inc., since it’s a uranium producer that’s down, and I grabbed some more WND.V – Western Wind Energy Corp., and alternative energy company.

Finally, I added to my holdings of HND.TO – HB NYMEX Natural Gas Bear+ , a play on a drop in the price of natural gas. All energy stocks, including oil, have been very high recently, but now the summer is here and high prices have curbed demand, I’m placing a small bet that the price of natural gas will drop over the next month or so. This is a short term trade, with a tight stop loss, since this stock will move at twice the volatility of the underlying price of natural gas. You can track the price of natural gas here.

My buying spree this week has left me holding only 6% cash, my lowest cash holdings in a very long time. I betting, heavily, that the gold run will resume, and I don’t plan on being on the sidelines when it happens. We will see if I am correct.

The Dines Letter

We also had a fun discussion this week on the Buy High Sell Higher Forum about the Dines Letter, prompted in part by an article by Peter Brimelow on CBS MarketWatch. I happen to like Mr. Brimelow’s writing, but he, like most writers, can spin a story any way he wants.

He makes the comment that Dines was the Investment Letter Editor of the Year in 2006, obviously due to the spectacular success of his uranium recommendations. He then goes on to say:

“The Dines Letter is up 28.2% over the past 12 months vs. 15.1% for the dividend-reinvested Dow Jones Wilshire 5000, according to the Hulbert Financial Digest. And over the past 10 years, Dines is up an even more impressive 19.8% annualized vs. 7.4% for the total-return DJ Wilshire.”

Hmmm. So from July 1, 2007 to June 30, 2008 Dines is up 28.2%? What was his return during 2007? Obviously he didn’t win Editor of the Year that year.

Here’s my favourite quote:

“These stocks are rated “buys” in Dines’ top-performing “Long-Term Growth” portfolio: PAA.TO – Pan American Silver Corp., DML.TO – Denison Mines Corp. , LAM.TO – Laramide Resources , FRG.TO – Fronteer Development Group Inc. , MGA.TO – Mega Uranium Ltd. , PDN.TO – Paladin Resources Limited , UUU.TO – Uranium One Inc., and Arafura Resources”

Interestingly, that’s a list of 8 stocks; there are actually ten on that list, with the other two stocks also rated a buy, but not doing particularly well of late.

I’m surprised he didn’t pick the “Low Priced Stocks” portfolio, all of which are rated a buy, and all of which are down between 37% and 87%. Yikes.

However, I guess the point is that you can look at whatever period you want, and draw your own conclusions.

If you started investing with Dines at the start of 2007, you hate him. His recommendations have cost you a lot of money. If you’ve been with Dines for the last 10 years, you are up about 20% per year, so perhaps you love him.

I neither love him or hate him. He is a commentator with his own opinions. Some will be right, some will be wrong. Like many people before him, he has a big ego, and may be tempted to tout a stock that he owns for his own gain. So be it. We all know how the game works, so if you don’t like it, don’t subscribe to his newsletter.

(Obviously I have a big ego as well, or else I wouldn’t be writing a blog every week. Unfortunately my subscriber base isn’t as large as Mr. Dines, and therefore whatever I say has not impact on whether a stock goes up or down, which is probably a good thing).

Another hot summer day is upon us here in Southern Ontario, so I will leave the computer and go outside and enjoy it.

As always, thanks for reading my somewhat less long summer commentaries, and feel free to post your thoughts, long or otherwise, on the Buy High Sell Higher Forum.