Thursday, February 23, 2012

Patience is a Virtue

A little over a month ago, I detailed my strategy for utilizing double and triple leveraged silver ETF's to take advantage of silver's notable bi-directional volatility. Specifically, in the piece entitled A Good Parking Place, I related my tactics for selling silver mining equities to raise cash in order to purchase Velocity Share's triple-leveraged silver ETF USLV. Kind of similar to switching allegiance from the tortoise to the hare, whenever the race course suddenly dips and enters a steep decline.

My reasoning is that the silver miner's are stolid, and lag physical silver's price moves, sometimes by days, and seldom to the same magnitude of gains or losses when compared to triple leveraged physical silver prices. So, on those occasions when the market offers you a buying opportunity, those otherwise disastrous days when you're getting hammered, watching your retirement dreams bleed into cyberspace, if fortune does indeed favor the bold, then gather up your courage and strike.

I would suppose you could call such a strategy derivative of Freiherr von Rothschild, Nathan Mayer Rothschild. Prior to The Battle of Waterloo the London financier is accredited with having said, "The time to buy is when blood runs in the streets, even if that blood is your own." Today, Warren Buffet epitomizes the virtues of patience as an investor, his own maxim being to "buy when everyone else is selling, then hold, finally to sell when everyone else is buying."

My contention is that silver prices will ultimately rise dramatically from their present levels, as so many others have dutifully noted with their rationale. Eric Sprott, one of the BMOC on the Silver Campus has been one who has heralded silver as "the greatest investment opportunity of the decade, perhaps of a lifetime" and the link provided encapsulates his reasoning. Thus, in my thinking, there is little danger in aggresively capitalizing on short term dips, other than the necessity, at times, to subsequently employ patience prior to selling.

After analyzing silver's volatility and the concomitant performance of USLV, I have settled upon 15% as a goal to aim for as my "fair profit" target. Many times, often intraday, the price will drop and surge 5 and even sometimes 10 percent, but as I do these trades within 401k's that require a three day settlement of trades, I can't take advantage of such lightning moves with foudroyant reflexive responses. I often give away topside profit, but no sense in being greedy. So 15% it is. Thus, were I to purchase USLV shares at $49, my sell limit order would be $56.35.

You'd be surprised by how rapidly the hare can cover that ground. Actually, I don't feel penalized by the constraints placed by having to abide by a three day wait period to avoid committing a good faith violation by selling equities that hadn't been "paid for" yet. Let me tell you about the latest episode of selling the tortoise and backing the hare. On Monday, January 30th silver underwent its most recent haircut, and the following day was more of the same. USLV, which had closed at $49.12 the previous Friday, dropped to $47.24 that first day, dipping even more to $46.01 on the 31st.

It was time to step into the fray and take advantage of the (presumed) temporary carnage. On both days I sold numerous positions and converted them to USLV. I liquidated positions in First Majestic Silver, Alexco Resources, Endeavour Silver Corp, Fortuna Silver, Great Panther, Market Vectors Junior Gold Mines GDXJ, Hecla, Mag Silver Corp, North American Palladium Ltd, Silvercorp, Silver Wheaton, Tahoe Resources, and the Global X Silver Miners ETF, SIL.

It was frustrating at times, but I was forced to wait until today, more than three weeks later, to sell many of the USLV positions I had entered on those previous trade dates. How did I do? Well, in some cases I hit my 15% target, and on others I exceeded it by a bit by adjusting my sell orders as I monitored the day's pricing activity. I converted back into the tortoise positions, in the same proportion as I had sold out of them, with the results as follow.

AG sold 1026 shares, was able to repurchase 1180. AXU sold 1039 shares, was able to buy back 1139. EXK sold 1842, was able to reacquire 2140. FSM 308 to 336. GPL 2254 to 2643. GDXJ 255 to 300. HL 1369 to 1511. MVG 866 to 875. PAL 275 to 326. SVM 1799 to 2198. SLW 664 to 697. THOEF 114 to 137, and SIL 723 to 813. Overall, I was pleased by the gain in share numbers as opposed to a buy and hold strategy which would have left me with the starting positions.

Of interest was the performance of each stock, during the interim period, before being rebought. Some of them, such as Hecla, had rebounded dramatically. That stock, on improved guidance, was up as much as 13.55% this last Monday, before finishing up the day a bit over 9 percent. Mag Silver ran up quite nicely in the interim period, as did Silver Wheaton. Those stocks that improved in pricing while I was away show commensurately lower percentage share gains. With 15% being the standard, here are the results.

SVM share count up 22.18%
THOEF share count up 20.18%
PAL share count up 18.55%
GDXJ share count up 17.65%
GPL share count up 17.26%
EXK share count up 16.18%
AG share count up 15.01%
SIL share count up 12.45%
HL share count up 10.37%
AXU share count up 9.62%
FSM share count up 9.09%
SLW share count up 4.97%
MVG share count up 1.04%

Having sold into the rally on this ascent, I am now configured to "wash, rinse, and repeat." Bring on another dip, JPMorgan, I have the chips to play. I am not worried about "missing profits" by not remaining in USLV, as I am still playing a healthy percentage of my portfolio with double-leveraged AGQ. But I also am now the proud papa of significantly more little tortoises which, as slow as they might be, in the long run may turn out to win the race after all. You just have to be patient.

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

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