Friday File: Cheap Insurance and Expensive Silver
by Travis Johnson, Stock Gumshoe | April 17, 2020 5:37 pm
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Source URL: https://www.stockgumshoe.com/2020/04/friday-file-cheap-insurance-and-expensive-silver/
I for one appreciate the time and detail you put into your thoughts on the market
Thanks kidd!
Agreed
I do believe you are spot on Travis, in your soothsaying process. A very good epistle analysis. However, in Feb-March pullback, gold really did not flourish as I thought it would have. So, in the next big pullback, it probably will not rise greatly again, and silver will probably drop into the single-digits. I fully recall the 1978-80 Jimmy Carter malaise-inflation, where gold went from approx $280 to $800 per oz., and silver with Hunt Bros trying to corner the market went up to $40 per oz. I now have realized the NVDA and Mollox final China approval benefit this week, and sold, and now mostly in cash and intend to hold until a big pullback. I may miss some upwardness, bur will risk that. Beware the Ides of March (15th) err I mean the Ides of April 22 and later. Big wind is a-coming. Just my opinion along with gleaning wisdom from your analysis. Thanks
Gold held up a lot better than stocks during the crash, but it typically sells off during a crash when people face forced selling — its after an ugly market but before the recovery is really trusted that it tends to shine. Like 2010-2012.
I see what you did there..
Hi Travis, great write up as usual. I have a quick gold related question ( if you could kindly endulge my very amateur and long winded thoughts. )
Regarding a royalty stock taking your favourite sandstorm as an example i’m struggling to understand why you would keep it in your portfolio long term if it doesn’t immediately inverse/ limit downside during a market crash (or at least pay any dividends).
The share price doesn’t appear to appreciate in a bull market anywhere near what most (particularly technology) stocks do. Taking a quick look at the chart in the recent sell off it went from roughly $7.5 at the end of feb to $3.88 at the march low (a similar price that you could have got it for in 2016) therefore worse than the overall market and a lot worse than the large technology stocks.
If it is likely that gold stocks are a winner in the months/years following a crash would it not be better to not own it at all in the good times making your money in higher growth stocks (taking profits along the way in cash) and then buy when a crash such as this happens just as everyone is selling everything to increase their cash position?
You could then hold the stock through any bear market until the gold rally (hopefully)starts so not missing out on the upside whilst limiting the underperformance in the good times. Does this makes sense? Or do you think growth is going to the come to the company regardless (when for example their future revenue streams such as hot maden come on board)?
Or more likely (as i frequently do) have i completley missed the full picture?
That all makes perfect sense in retrospect, and of course in a bull market you want to own only the best growth stocks… and you want to own gold-levered stocks mostly when gold is soaring. The trouble is in buying and selling at the right points to capture that return, because that requires some
Knowledge of the future… or a lot of churning the portfolio as you try to get in and out at inflection points, which people tend to be a lot more terrible at than we realize.
Not all bull markets are like this past one, when everything went up but one sector was responsible for the overwhelming share of the gains,
So having some relatively low risk gold equity exposure through royalties is a basic baseline for me. (Other commodities, too, though the others are far more cyclical and Altius has been a terrible long term investment for me at this point even if it still plays an important role in my portfolio).
Sorry if I missed it.. but how are you buying gold? GLD? and gold miners (NEM?)
Personally, for direct gold exposure I mostly buy gold coins… though have no particular objection to “paper gold” like the GLD ETF. For gold equity exposure I prefer royalty companies, my largest holdings in that area are Sandstorm Gold (SAND) and Royal Gold (RGLD)
Any thoughts on OR? It seems it can t go back up like SAND did after March 23rd…
I’m not crazy about their strategic shift to prospect generation, which is why I haven’t made it a bigger position, and the diamond project (their second biggest revenue generator) is a disaster — so that’s holding them back, I think, though Canadian Malartic is such a monster that if they can extend that mine’s life a bit it will make up for a lot.
Travis—what do you think about PRU as an insurance holding—beaten down like the rest of them, but with a nice yield. One of the biggest fixed income houses and Loeb seems to be an activist trying to stir the pot as well.
Haven’t looked at them, but life insurance is a really,
Really rough business with rates approaching zero.
Great job as usual. Stock Gumshoe is the biggest bargain in financial commentary. Like you I’m intrigued by Fastly (FSLY). Would you share your thoughts on how you determine an appropriate price to pay for this stock? Thanks
Great research Travis! I am concerned about gold and other precious metals that don’t have a lot of intrinsic (i.e. industrial) value. Much like Bitcoin the price of gold is primarily controlled by what people think it should be not what value it has to a manufacturer. I am expecting some very tough economic times ahead and luxury goods probably won’t fare well. Marc Andreesen just wrote a great piece on building for tomorrow that is shaping my thinking towards those types of investments instead. Thoughts?
Could be. The best hedge against anything is a strong and enduring business that has pricing power and can keep its margins up through recessions, gold is certainly not guaranteed to rise in value and it doesn’t generate any cash flow. I do put some stock in 2,000 or so years of human obsession with gold, that doesn’t seem likely to be the kind of “perceived value” that will disappear because of a couple bad quarters, but while I have a lot more confidence in gold than I do bitcoin I know it can certainly fall. It lost almost half of its value between 2012 and 2015, if you’d like a recent example.