Friday, January 20, 2012

A Good Parking Place

Single women have a joke they like to share about men. "They're like parking spaces," they laugh, "the good ones are all taken, and the ones that are left over are all handicapped." While I'm not here today to bash on men, perhaps the distaff side has a point worth considering. What is a good parking space within one's portfolio? I'd like to explore the thesis that you might consider forgetting cash. There are better ways to park your assets that will put you closer to your destination.

What might that destination be? Why, what else than increasing the worth of your portfolio? And how might you go about that? By successfully obeying and performing the mantra of buy low, sell high. But when you sell, where do you go? Do you leave it in cash, waiting for the next opportunity in equities that catches your eye as a value buy? I'd like to suggest an alternative, that might have the potential for steadier, incremental growth, rather than waiting for a chance at larger gains that may not appear.

One problem with selling in an upward-trending market is that the equities you dispose of, taking profits in cash, may continue their uptrend, robbing you of further potential gains. As well, anything that you might hope to invest those profits in could, as well, become commensurately more expensive. That said, there is sage wisdom in the saying trader's like to bandy about, "pigs get fat, but hogs get slaughtered." Another one is "no one ever went broke taking a profit."

So is there a happy medium? Should you be satisfied with "settling" for a fairly hefty percentage gain, and not hoping to capture every point of the move? One of the greatest trader's in history, Jesse Livermore, did exactly that. He didn't try to time every market bottom, or top, with exactitude, but stated "I'm happy if I can capture eighty percent of the move. If I miss the bottom or the top by ten percent, that's okay."

This tells me it's prudent to take some profits off the table occasionally, and indeed, those times when I got gluttonous for more gains, and started "counting the paper profits" were those same instances when the market reverted to means and stole those gains back. So, I have learned it's better to hit for multiple singles, repeatedly, rather than hope for a home run. Today I put that tactic in to practice, and let me describe the results.

In another column, Triple Dip, Double Run, I explained my rationale for attempting to optimize my portfolio's performance using leveraged ETF's. As my many columns suggest, I am a confirmed hard money, silver and gold, advocate, and I am convicted that we are presently witnessing what will become one of the biggest all-time bull markets in history. When the precious metals run is done, values will be at many multiples of their present levels. And this race is a marathon, barely begun. We have not yet reached midpoint, and the sprint to the finish will be something incredible to view.

Alright, let's get to the point. Last week, five trading days ago to be precise, I purchased more of the triple-leveraged Velocity Shares Silver ETF USLV. But I decided to try something different this time. In the past month or so, I had successfully liquidated shares of ProShares double-leveraged Silver ETF AGQ, to provide cash for further shares of USLV, each time that there appeared to be a manipulated sell-off in silver that resulted in a quick, dramatic plunge in price.

My thinking was that, in this upward-trending market, the price would quickly revert to it's prior levels, and that from it's purchase price, USLV would outperform AGQ. This theory, so far in practice, has proven valid. In the past, when I would sell AGQ to purchase USLV, and then subsequently sell USLV to repurchase AGQ, each time I would have more AGQ shares than I had started with. This would "reload the gun" so to speak, for further iterations of the strategy.

This time, rather than sell more AGQ, I decided to sell some of my mining equities instead. My thinking was that the miner's, as a rule, are not so volatile as silver bullion, sometimes lagging by days any sizable gains or losses, and that very stability might represent an unexamined potential for further gains. I decided to explore that option. Within two accounts, on January 13, 2012, I sold shares of First Majestic, Alexco Resources, Hecla Mining, Silvercorp, Mag Silver Corp, Silver Wheaton, Endeavor Silver Corp, Great Panther Silver Limited, and Global X Silver Miners ETF.

I was able to utilize those funds, as well as those obtained by selling a further small block of AGQ, to purchase 2946 shares of USLV at an average cost of $33.09. So how did that little experiment perform? These trades are performed within two self-directed 401K accounts, and require three days to settle, or else you can be in danger of committing a "good faith" violation by selling equities that have not yet settled. Those trades all cleared on January 19, 2012.

I honestly expected the markets to plunge today, the 20th, as it is the option's expiry date for silver and gold futures, and usually da boyz will come in with a heavy hand and kill any attempt at a rally. I watched perhaps thirty minutes of them attempting to cap any rally beyond a spot price of $31.00, before they finally threw in the towel. And then the spot price was off to the races. USLV quickly climbed past $39.50, triggering my sell order before I could rescind it. As I write this, the high print for the day so far has been $41.63.

So, in hindsight, I could have captured a larger gain, but I am disinclined to get slaughtered for being a hog. Had I reset my sell orders to $40.50 as was my intention, then the price might have reached $40.49 and then sank back well below $39.50. In my book, a $6.41 per share gain in one week is good enough. I took those gains and repurchased the mining equities I had sold a week earlier. I bought in the same proportion as I had sold. And what were the results?

When I started, I had 890 shares of AG, I ended up with 1077. I sold 123 shares of AGQ and repurchased 130. I had 1628 shares of EXK, and wound up with 1924. I started with 1188 shares of HL and ended with 1369. I began with 688 shares of MVG and finished with 866. Originally I held 643 shares of SLW, I now hold 752. I had 1601 shares of SVM, I now have 1857. I started with 866 shares of AXU, I now have 1039. Began GPL with 2014, now have 2254. And finally, SIL. Began with 338, now 386.

I gave away some topside potential by selling early, still a profit in excess of $18,000 isn't bad for one week. I now have considerably more shares of each of the miners than when I began, and I believe they hold greater potential to show further gains than I could have realized by sitting in cash and hoping for a pullback. In any event, I believe an investment in currently undervalued mining share equities affords a much better parking space than does cash. I'm now positioned to repeat the maneuver, given that, sooner or later, da boyz will provide another opportunity.

I believe that "churning" one's account, in this fashion, provides the potential, with close monitoring, to optimize one's profits, certainly to a greater extent than merely employing a buy and hold philosophy, or by taking a more active role and selling high, becoming sidelined in cash, then praying for a pullback to re-enter your positions. Once silver gathers a head of steam this time, there's no telling how far the train could surge up the tracks, leaving those parked in cash stranded at the station. If you've already got physical, Elmo, it's time to buy the miners. Forget cash, unless you prefer parking in a handicapped spot.

Buy Silver. Buy Gold. Save Copper. Start Now.

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