2017 stock portfolio recap

My stock portfolio returned 33% vs 19.42% for SP500

2017 was a very successful year for stocks worldwide, especially European and US ones. The economy seems buoyant and people have jobs. At the same time credit is super cheap due to low interest rates across the board which additionally gives a boost. This is actually a big reason for the economy and jobs good news. Cheap money creates growth. So this was a year where passive investing looks like a winner strategy. Just buy the broad index and reap close to 20% return. Not bad at all.

Although I like passive investing and recommend it to everyone who wants to start investing, I always try to beat the market and so had to go the extra mile again and cherry-pick individual names. I am mostly involved in the Canadian and Australian junior mining sector and consider the metals my specialty. I try to keep my portfolio small with less than 10 names.

My largest holdings. Most of them appreciated nicely.

  • Critical Elements (CRE.V) – lithium explorer in Canada. I am a huge believer in the company and this stock has performed quite well in 2017. I believe that 2018 will be even better as they are marching through financing, mine build, and production. Lithium is very hot right now with the EV revolution and coming supply crunch.
  • Ardea Resources (ARL.AX) – cobalt explorer in Australia. Biggest undeveloped deposit outside Congo (Congo supplies 80% of world cobalt from shady ‘mines’ and currently raised NSRs of mining). These guys have a very nice deposit, good management, and execution. Since the IPO in 2017, this stock returned close to 1000%. Although I didn’t ride it all the way up, I made good gains here as well. Cobalt is hot and will remain hot in 2018. I expect this one to at least double in 2018  – a lot of catalysts lined up.
  • Tinka Resources (TK.V) – one of the emerging zinc producers with a decent size deposit in Peru. Zinc is one of the hype metals atm as we are steadily heading to supply shortage. I am in Tinka for a takeout by a bigger company speculation. I think that is what management wants too and believe that will be taken out for $1.5-2 CAD in the next year (70 cents CAD atm).
  • Excelsior Mining (MIN.TO) – a copper explorer in Arizona. Copper is in a good bull trend and will remain so in the following years as the green revolution needs lots of it and all major deposits are like ‘old ladies waiting to die’. This one has very low CAPEX and will be like an ATM once in production. It is a bit more speculative than the other plays as the mining method is a bit different than how copper is usually mined. They have huge backers (50% of the company) that I respect (Greenstone) a lot so that helped me choose this one also.
  • Alexandria Minerals (AZX.V) – pretty much flat throughout the year but I think the major catalyst here is resource upgrade this year. I think that can bring interest from the majors to take this company out for at least a double as the resource is in Quebec which is a prime location so 1.5-2 million oz of Gold deposit can cost a lot.
  • Cornerstone capital (CGP.V) – copper play in Ecuador. A massive deposit with 1km mineralized holes. That stayed hidden so far as Ecuador was very mining unfriendly but opened up recently. They are being free carried through PFS so it is their partners that spend money exploring the deposit which is good. Cornerstone was able to secure good properties in Ecuador due to first mover advantage.

And to be fair – my bad picks that got cut.

  • Bitterroot resources (BTT.V) – bought at 25 cents and is now 14. Ouch. Didn’t deliver on expectations. Haven’t sold already as I believe in the potential and this is tiny pure speculative position.
  • Resource capital gold (RCG.V) – got burned by management that does not deliver. Sold on the way down with a limited loss.
  • GoldQuest mining (GQC.V) – a company in which I believe. What is more Agnico Eagle believes in them too. However, Dominican has turned to a shitty jurisdiction so I had to sell at a loss again.
  • Aurvista Gold (AVA.V) – a cheap company with bad management IMO. Sold at breakeven as soon as I reevaluated management.
  • Columbus Gold (CGT.TO) – probably a good company but terrible trade by me. Lost money here. Got scared that the mine wont permit in French Guinea (which may be the case).
  • Nevsun Resources (NSU.TO) – a company i bought without too much due diligence (bad bad bad) and sold when i dug deeper and found out some flaws (concentrate recovery rates). May turn out to be a good bet but risk reward is not favorable. Sold at a small loss.
  • Mariana Resources (MARL.L) – bad timing on my side. Got taken out by Sandstorm at a good premium that i missed. Let the winners roll. I didn’t.
  • Silver Bear Resources (SBR.V) – lesson learned, stay away from Russia. Got taken out by some local oligarchs with gruesome financing. Lost money here.
  • Avnel Gold (AVK.TO) – bad timing on my side. Sold too early and it got taken out for more shortly after that. Emotions took hold. Didn’t lose money, only lost opportunity.

As you see I have a decent amount of bad calls but still managed to get 13% over SP500. How come? 2017 was a turning year for my investing mindset as one idea grew really strong with me and namely – Does not matter if you are right. All it matters is to make money. Simple one but takes years to truly embrace. Ego is a very detrimental to performance so we have to cut it. We are here for the money and not to prove that our analysis is superior to everybody else’s. This idea involves many moving parts. Here are some of them in order of importance:

  • Cut losses early. This is an absolute must-have. Only this way you may have 20 losing bets and 1 winning and still be positive. My biggest mistake so far is not being decisive enough when cutting losses.
  • Average up is better than average down. Counter-intuitive but it is better to pay up when your conviction grows than to catch falling knives and be contrarian.
  • Charts matter. I was the first naysayer of technical analyses but chart matter a lot. Trends are very persistent. The trend is your friend no matter what your inner conviction. Nobody can say when a trend will turn so unless having the technical indicators (support break, SMA break etc) ride the trend and forget about your opinion and analysis. If you want to be the contrarian that bets against the crowd, be my guest. Most of the money is made not when you call turning points but when you ride the trend. I ignored charts for the past 2 years with silver and although I believe I will be right at the very end, I am sitting on losses in that position so far.
  • As a follow up on the previous one, let the winners run. Don’t sell when you think something went up a lot and probably overpriced. Wait for the market to tell you that. How? Look at the charts. A lot of money is left on the table by selling too early. This is a huge penalty for performance I can tell you that.

Another idea that grew also very strong is the risk-reward perspective. What is the downside risk and what is the upside potential? If you can lose 20% but make a double, that is a good risk-reward, when you can lose 50% but make 20%, that is bad. I always knew about RR but now is the time when I started applying it to every aspect of my investing. And not only.

Metals outlook for 2018

The buzz words for the next 2-3 years will be green revolution, EVs, clean energy etc. Pollution is a critical issue worldwide (yes Mr. Trump, it is) and some countries are getting desperate to fight that. Look at China, they swallow whatever green metal supply available. Their pockets know no end and they are everywhere. So green revolution will drive lithium, cobalt, nickel, and copper up. Batteries consume huge amounts of these metals and most of the supply is very problematic. I expect supply shocks to start hitting soon.

Zinc is getting to the point of no return where supply crunch will strike sooner rather than later so zinc will be hot too. LME Zinc inventories are less than 10 days worth of demand which is the line in the sand that causes havoc.

I believe that gold and silver will finally start a second leg up from what started as a cautious bull run in 2016. Some insecurity builds upon the economic and political scene and charts look favorable.

No idea for uranium. This a weird market that I don’t quite understand. It has a place in the green energy mix as wind and solar won’t be able to supply the energy for all the Teslas out there but the supply/demand dynamics are not easily graspable with uranium. Also, we have the constant risk of Chernobyl or Fukushima around the world which will depress prices for a few more years.

Where will I be positioned?

I will stick with my holdings and probably add a couple more from the following list. I have a really high conviction with Critical Elements and Tinka but let’s see. Either will be genius or a fool by the end of 2018.

  • NexGen Energy (NXE.TO) – uranium explorer in Canada. Uranium is a very depressed space since Fukushima (just look at uranium price). BUT this deposit is something special. It is so rich that even at today’s price, it is crazy profitable and it is so big that it can provide 20% of world’s uranium. That’s a so-called Tier 1 deposit in a prime jurisdiction with outstanding management and backers (Warren Irwin – an outstanding guy in the space, check him out). Price is a bit high but Tier 1 deposits deserve a premium. Risk reward is very favorable.
  • Barsele Minerals  (BME.V) – a gold explorer in Sweden with Agnico Eagle as a partner. Simply think they will get taken out by Agnico for a double. Simple as that.
  • Australian Mines (AUZ.AX) – cobalt explorer in Australia. Much like Ardea from above but ahead in the process of mine development.
  • Sama Resources (SME.V) – these guys might be on something big in Africa. When you see Robert Friedland (check this guy out) involved somewhere, you know he is not involved for a 100-200 million potential. He is chasing deposits in the billions. Very speculative but only 20 million USD enterprise value so risk reward is very very favorable.

Happy investing!

1 comment

  1. Rumen Mihaylov

    Congratulations, Ivo! Have you thought of making a beta/pairs hedge when in doubt if to exit a winner? If you hedge the winner during downtimes, and exit hedging during momentum, you could avert lost opportunities

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