I have told my 2008 tale of being trampled over by the bull to a person here and there, but with the bull once again making so many investors feel like road kill I suppose this is as good a time as any to write this post and forever offer hope to all who can benefit from my experience.
In short, gold is in a huge bull market and that means that timing mistakes, even colossal timing mistakes like the one I made in the late spring of 2008, will get corrected in the investor's favor. But as I will remind you repeatedly, one has to be patient.
Other than patience, the other *qualifier* to my optimistic promise is that one's investment does not include options, which expire, nor futures contracts which are subject to margin requirements and liquidation, nor thinly traded grey market securities that come and go with the wind, nor mining securities with make-believe balance sheets (no assets, lots of debt and lots of hype).
I'm talking about the financially sound mining companies and ETFs that fall precipitously in price due to the sometimes vicious market conditions that gold's bull calls its turf.
And now to my story.
In the late spring of 2008 I took a shine to a silver mining company - U.S. Silver Co. (USA.TO). The fundamentals for the company were appealing to me. It traded on the Toronto Exchange but was really an American miner operating exclusively in the State of Idaho and possessed great assets, management and lots of potential . The political risk of owning USA.TO was nil, something I was beginning to understand was a valid consideration when investing in a miner, and the company had no debt but lots of asset value.
U.S. Silver had done a remarkable job of not only attaining an impressively strong balance sheet in a short number of years following its start-up, but also appeared very close to achieving break even or positive earnings. I surmised that silver would appreciate strongly in the future and this miner should do really really well. And add to all this the fact that U.S. Silver was a small miner flying under the radar *undiscovered* and well, what else could a guy ask for?
My good friend and mentor Gary Savage advised me that this was the wrong time to buy a small cap miner - and probably a bad time to buy any miner, for that matter. Looking back now I absolutely appreciate what he understood at the time (the 2008 C-wave had topped just a couple of months earlier and the D-wave of an 8 year cycle low to follow would likely be vicious).
But did I listen? Well, yes. Of course!
I listened just well enough to remember to this day that I did not take his advice, unfortunately.
So I bought U.S. Silver for right around $2.40 a share and just held on. As you can see from the chart below, silver rallied for a couple of months after my stock purchase but my miner just kept slipping. Near the end of these first two months the stock made a bolt northward - nearing my purchase price. Hey, I wasn't down too much at that point - so I stuck with my optimistic investment thesis and continued to hold.
Then from mid-August through early September 2008 all hell broke loose. Silver plummeted and so did my stock. A brief relief rally in late September gave me a draft of hope, but that teaser was immediately followed by another sky dive in share price that occurred with incredible velocity.
By mid-November the share price on my *under the radar* *value worthy* investment had lost 93% of its value.
|Click on any chart to ENLARGE|
Incredibly (for me at the time), I managed to sit still for another 6 months and continued to hold. By May of 2009 the price of U.S. Silver was starting to zoom higher and I took that as my signal to finally exit at around $1.20 per share. I realized a staggering loss of 50% on the year-long position while consoling myself that I could have done worse - much worse. And as you will see on the following chart that exit was pretty good timing as the stock thereafter went back to sleep for another 15 months.
The lesson I had not yet learned - and that is now forever burned into my conscience - is that gold's secular bull will entirely correct one's timing mistakes - no matter how poorly timed - if one is patient. I settled for a 50% loss not believing this truth. The next chart will reveal that I could have instead received a nearly 100% gain - if I had been patient.
From the disheartening low of 15 cents in November 2008 U.S. Silver screamed 2766% higher - reaching $4.15 by November 2010.
My investment thesis that U.S. Silver was a sound company fundamentally, flying under the analysts radar and therefore temporarily undervalued by the market was proven true, just not on my timetable.
The lesson I learned from the bull was to be patient. It's great when I am on top of my trading game and executing in sync with the bull's timetable. That is my ideal situation. I absolutely love the challenges of trading in real-time and like to think that, for the most part, I am pretty good at it.
But for times like now, when my positions are all entirely under water and I have obviously not stayed in sync with the bull, the best thing I can do is be patient.
Honestly, I do not consider selling any position I have now at a loss. I just will not do it. The bull has taught me the lesson about its promise to correct my timing mistakes if I am patient, and I'd like to think I finally learned the lesson very very well.
I hope my thoughts will help you make good trading decisions that, with patience, will always be profitable!