\nA Major Silver-Gold Bottom? How to Play it.
\nThe following is from an interview done of David Smith by Jim Goddard for Howe Street (HoweStreet.com).
\nJim:\tToday\u2019s show is A Major Silver-Gold Bottom? How to Play it.
\nDavid:\tI pose that as a question – is this a major silver\/gold bottom? I think there\u2019s a high degree of likelihood that it is. Nothing is certain, but if you go by the odds, and if we assume that this could be the case, then how do we play it?
\nJim:\tIf so, what would your first steps be?
\nDavid:\tThe first step I would take would be to clean out the dead wood, stocks that you think are on life support and may never rise again \u2013ones about which it is apparent nothing much is likely to happen on the good side. I\u2019d get rid of them, take out the little bit of money you get from offsetting them and put move into some dogs that barks. It\u2019s fairly easy now because we\u2019re seeing some of the really good stocks that are quickly moving upstream. Some of them have risen 50 percent from their lows, and they\u2019re holding those moves, so we know that those are some of the better ones out there. The best ones start rising first, as the old saying goes, that \u201cthe cream rises to the top.\u201d So, if you have favorites that are moving in the right direction, you might want to redeploy funds into those stocks or add more to ones that you already have.
\nJim:\tIs this the time again, to dig into your research and find out who has the best chance to stay healthy and profitable?
\nDavid:\tIt really is. But just because a stock is moving up this week doesn\u2019t mean it\u2019s going to be one of your better ones or even one that\u2019s automatically going to make it. It\u2019s just an indication – you go back, do the research \u2013 and of course, I\u2019m prejudiced about this because I work with David Morgan and The Morgan Report – but we have a tremendous listing of companies who have stood the test of time. All of the stocks in our listings\u2013 as is the sector in general – are down from where they were a couple of years ago, but we have a lot of good survivors. Some of the stocks I have noticed in the last week or two are ones that have been very strong on the upside.
\nJim, I have access to a lot of different market letters. And I think ours is one of the very, very best for people trying to put together a quality portfolio, because it gives them a lot of good suggestions for their own research, so if there\u2019s someone listening who\u2019s not a subscriber to The Morgan Report, I think that they should seriously consider taking a test ride subscription, and see for themselves if they think it\u2019s as good as I believe it to be.
\nJim:\tAn investment house in Las Vegas told me that for the last three months their phones have been quiet. Then all of a sudden, during the past few weeks, people are again interested in getting into the gold and silver market. Is that a good sign?
\nDavid:\tIt is. I think the mood is changing, the psychological mood, because the metals themselves have been very strong in terms of physical purchase, even though the price has been soft. But, now people are looking at those mining stocks and they\u2019re seeing this massive disconnect, which in some respects is greater than it has been during the last ten years of this bull market. They\u2019re saying, \u201cYou know what, this is a rubber band that\u2019s being stretched so far out of shape that it\u2019s either going to snap, or come back into some kind of equilibrium.\u201d The good stocks on that continuum are going come back, I think in 6 months, 12 months, 18 months from now. During each of those timeframes, people are going to go, \u201cMan, I can\u2019t believe where these prices were compared to where they are today.\u201d There\u2019s always risk above a zero price, but if you wait for prices to go where you think they\u2019re going, now you\u2019ve got a new set of risks.
\nJim:\tDavid, I know we\u2019re looking at how to take advantage of what looks like the bottom of the gold and silver market, but let\u2019s put our eyes overseas. You were one of the first to mention great concern about Zimbabwe nationalizing precious metal\u2019s projects, and other areas of concern as well. Has Zimbabwe had the big impact you feared it would?
\nDavid:\tThis is just one more nail in the supply coffin. Zimbabwe is not going be an overnight mover on any of these markets, but it is one more effect at the margin, which brings up the question of how much supply is going to be there down the line? South Africa, big time, has been on people\u2019s radar screens, and the latest from Zimbwabe is just one more indication. We have problems in South America with things coming out of the woodwork about whether or not the governments are going to charge more fees, pull mining permits or whatever. All of this is getting to the point where people are more concerned about what supply is going to be, whether it\u2019s the PGMs, gold, or silver. I think as you look at your portfolio \u2013 and by the way, what I am suggesting are things I\u2019m doing in my own portfolio as well, so this is not just theoretical – these are things that people might want to consider.
\nIf you have a core position in a particular company or a series of them that are down sharply, and you\u2019ve kept that core, you\u2019ve ridden it all the way down for whatever reason, and you still have tremendous confidence in that company \u2013 if you\u2019ve got a company that was selling for $13.00 two years ago and it\u2019s selling for $3.50 now, and you have the money, it might not be a bad idea to add some more to the position, so that you can get back to breakeven a little quicker on the upswing.
\nJim:\tAlso you know that everybody is looking at prices now. They\u2019re incredibly low, but can you be overly tempted to say, \u201cWell, obviously, it\u2019s at its lowest point. I\u2019m just going to throw everything in at it\u201d?
\nDavid:\tYes, it\u2019s just part of human nature. I feel that going all in is always a risky proposition. This is the sort of thing I used to do years ago, but I don\u2019t do it anymore. There\u2019s a saying that when prices are going your way, your position is always too small, but when they\u2019re going against you, it\u2019s always too large. I do think a certain amount of being conservative and keeping some dry powder is important, but you can reconfigure your portfolio and you can make selected good buys when the prices go where you want.
\nFor example \u2013 some of the ones I\u2019m plowing funds into have gone up 50 percent in the last 2 weeks from their lows. You could try to buy those if they move back down against the 50-day moving average, because that\u2019s where technical traders look to add their own positions. For example, consider some of these leveraged ETFs, which I think is another good intermediate trading tool, as opposed to a core holding, but leveraged ETFs, which give you two or three times the move of the underlying stock or the metal, can really juice up your portfolio. You could put a stop below the lows if you\u2019re wrong. So you might be able to construct a risk\/reward of four or five to one if you did something like that.
\nJim:\tOne of the business channels I was watching today only had one recommendation for gold, and that was one of the very largest companies. They said a lot of the juniors are in trouble, and if they have a major write-down, you might be left holding the bag. Is that a big concern?
\nDavid:\tIt\u2019s always possible, but here\u2019s the thing. If you\u2019re an uninformed investor and are just throwing darts, you\u2019re going to come out about the same way as these people who are talking heads about gold stocks \u2013 but they\u2019re not gold bulls anyway. It\u2019s easy to say buy one of the two or three largest gold companies in the world and maybe you\u2019ll make some money, but you have to make some effort to dig beneath the surface. Find quality miners that have held up well, that have cash in the bank that are producing. Even if they\u2019re not making money right now, they\u2019re producing. A couple I follow are not producing at all now, but they can start up quickly when metals\u2019 prices recover. They\u2019ve cut their burn rate way down, and continue to add resource and reserves, so they\u2019re not sitting on their hands.
\nYou need to get acquainted with the better stocks, and then, if you like them, take a position. If you\u2019re going to just depend upon the people who talk about every investment under the sun and they\u2019re masters of none, then you will probably be disappointed when looking for outsized gains.
\nJim:\tIs the management style of some of the companies you\u2019re looking at important? Some are pretty loose with their money, while others have always been tight.
\nDavid:\tMoney management in these companies is absolutely critical. For some that I\u2019ve held positions in for four or five years, every time something comes up, they have handled things the right way, the best way. They have a track record, and I have no doubt that they\u2019re going to continue behaving the same way in the future. If they don\u2019t, well, then I might sell the company. But, for now, they\u2019re continuing to do what they\u2019ve always done. That helps me feel comfortable in adding to my position. If people decide to look at some of these ETFs like NUGT, AGQ, USLV, or GDXJ, for example – just mentioning the few I remember \u2013 and if you had a 25 or a 50 percent profit, what\u2019s wrong with selling a third or a half. If we enter into a chop before we get to a big breakout later, you\u2019ll be taking some profit. And if things go lower than you expect, you\u2019ll have extra money to buy back at a better price \u2013 and maybe even do the same thing again if prices continue into an extended sideways trading range.
\nSo, hold onto the core positions, then consider lightly offsetting on some of these additions with a portion of the gains you\u2019re making on the leveraged ETFs, and I think you may have established the potential to do very well.
\nJim:\tIs your message don\u2019t panic if some of these things go down, it\u2019s because when they do write-downs, perhaps they\u2019re doing the right thing, acknowledging losses so that they can move ahead?
\nDavid:\tThat can be a consideration \u2013 as long as after you\u2019ve done the research, you still come up with the answers you seek. No matter how sure you are of a company\u2019s current price, don\u2019t go all in with that position at a given price point. Buy tranches into weakness. The companies I have just alluded to that are trading up 50 percent over the last few weeks. Try to buy when they drop 25 percent or so. You may not get filled, but there\u2019s a better chance than you might expect that you will. If you buy a big position all at once, chances are you\u2019re going to shortly regret having done so. Maybe you\u2019ll have the courage to hold on and be right over the longer term, but in the interim, it\u2019s quite possible that you\u2019ll give up and sell out at a loss.
\nThis is all about preserving your psychological and financial capital, being patient once you\u2019ve taken your position, setting your stop loss – things like that. I feel strongly that regardless of when this move gets underway, it is nevertheless now in the process of forming a powerful base. I think we\u2019re going to see massive, unpredictable, explosive moves in both directions going out over the next 6, 12 and 18 months. Here in the United States we say, \u201cIt\u2019s cast in stone. The Canadians would say, \u201cIt\u2019s written in the rocks.\u201d Both ways of saying it are valid, in my view.
\n–End–
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David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.
\nAs publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time!<\/strong> Where will you be when this happens?<\/p><\/blockquote>\n
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