Portfolio Update

Independent Stock Analysis continues to be in a state of peaceful happiness with it’s portfolio: 100% invested in PHYS; gold as cash. For the first quarter of 2020:

  • PHYS rose from 12.18 to 13.12, a gain of 7.7%.
  • Compare this to the S&P 500, as represented by SPY (and my be in your investment accounts), which had a loss of 22.4%.

Most men ought to be pleased to mimic the performance of the stock market in their investment accounts. It’s the enterprising fellow who picks his own securities to own, for in doing so he is increasing his risk substantially is multiple ways. The decade of the 2010’s saw individual stock pickers get clobbered by the indexing craze: Me and likely you too. Yet the rewards of selecting one’s own stocks can be spectacular.

Your dear editor did not begin the ISA Portfolio expecting to outperform the stock market by 30% in the first quarter. That’s random noise. But he does believe one must expect significant stock market outperformance over time for the endeavor of constructing one’s own portfolio to be worth the risk.

At this time the ISA Portfolio will continue to be invested 100% in gold. The ISA Portfolio is and will always be representative of my investments. All changes to the ISA Portfolio will always be made real time; readers will know as changes occur.

As readers know the first security of interest to be added to the ISA Portfolio is FNV. We love FNV as a permanent portfolio holding. The share price is, however, rich, though deservedly so. It seems likely the COVID-19 crisis will lead to the temporary closure of many mining operations around the world, particularly in the gold complex. I am waiting for these temporary closures to significantly depress the shares of the mining and royalty company’s. Perhaps an excellent opportunity to acquire shares will be presented. Said another way, a favorable PHYS:FNV ratio may be in the offing for us to take advantage. We are watching.

Sidenote: “Hey JJ, with your uber bullishness on gold, why not examine and invest in the gold stocks?” Excellent question. The gold stocks are where most investors who are persuaded to enter the precious metal complex turn. The problem is gold stocks are terrible investments most of the time: They are exposed to ever increasing costs, governmental confiscation, and operating risk (mine walls collapse). Further, the largest problem with economic gold mining is that the deposits are not large enough to be long lived, as opposed to a large copper mine. The gold stocks certainly can move explosively and create fortunes, but ISA‘s value and competitive advantage approach to investing largely excludes them. If an investor feels the need to leverage to the gold price, consider in-the-money call options on GLD.

Next as readers know the second security in which we are interested remains COG. The current economic collapse may slightly delay the bottom for the industry, yet make the recovery ever more significant. The delay, the decline in demand for economic reasons, may surprise the many bulls also aware of our thesis and wash them out. Yet the natural gas production industry still ought to be among the first to recover because of high decline rates to alleviate overproduction. Perhaps in the second or third quarter we will purchase shares of COG.

ISA is also watching the oil industry closely. The collapse in the share prices of the securities was not enough in light of the economic decline we are seeing, for most of the industry is bankrupt. The oil industry will take much longer to recover. But the recovery will be a career maker. Our old favorite is CNQ. But it’s too early for oil.

ISA likes the producers of industrial producers when purchased at distressed valuations. Unless mankind is going to live as paupers, then copper, zinc, steel and the like are needed. We like it that the investment cycle for these metals is measured in decades. Our favorite is TECK. The valuation and low cost long lived production is especially appealing to ISA. The warts depress the price but don’t bother me. TECK is an old favorite. The gloomy ISA macro outlook is the reason TECK is not already in the portfolio.

CF is a nitrogen fertilizer manufacture and distributor with a long term competitive advantage and how ISA plans to invest in the agricultural sector. The recent share price decline made the valuation interesting, however, agriculture prices have been weak.

The shares of these companies – FNV & COG, CF, TECK and CNQ are company’s which are all at the top of my watchlist. Note they are commodity plays. We’ll, yes, commodities relative to paper assets are priced inexpensively. Many other outstanding company’s exist. And in time those ticker symbols will move toward the top of our watch list. But not yet. Stock market valuation remains outrageously high despite of the the recent fall. Never mind the even more gloomy ISA economic outlook brought out by Covid-19.

Covid-19 Recession Will Be Deeper Than the Great Financial Crisis says Mish.

“While consensus bulls might think it’s “different this time” (they’re right, USA had the most Corporate Leverage in human history, pre-virus), I’m thinking those of us who have been accurately bearish should re-consider if we’re Bearish Enough.Keith McCullough. A corporate debt reckoning is coming. 13D Research.

“You may or may not feel there’s still time to increase defensiveness ahead of potentially negative developments. But the most important thing is to be ready to respond to and take advantage of declines.” Oak Tree Capital

“The risks on both sides is not moving quickly enough and overdoing it. If there is too little money made available, the prices of assets used as collateral backing loans will spiral downward. If there is too much, inflation will spiral out of control.” Guggenheim

Why the World Has a Dollar Shortage, Despite Massive Fed Action in a think tank piece Daniel Lacalle.

A primer for gold newbies. Read the whole thing.  Alasdair Macleod

Rick Rule: “So gold and gold stocks will move first.” Got Gold? asks Jesse Felder.

When The Atlantic writes We Need to Start Tossing Money Out of Helicopters: It’s the best option in such extreme circumstances” one must ask how is gold not a cornerstone.

Silver is interesting. Poor mans gold. Why mess with the gold stocks or silver? Just stick with gold? Silver’s industrial component is why it does not hold up like gold in downdrafts, as the demand decline drives the response. Unlike gold, silver is consumed. And it moves late, though dramatically. Remember those mine closures? “The shutdown of silver mines throughout the world is taking place when investors are buying a record amount of physical silver bullion.  This has now become a PERFECT STORM for the silver price going forward.” SRSrocco Report. Add silver to the top of the ISA Portfolio watchlist for purchase.

Global: Once we are out of this mess, the USD could be hammered by Andreas Steno Larsen

“…the pandemic was not the fundamental cause of the recent turmoil. Rather, it laid bare the fragility of today’s financial markets.” Darn straight; this must be understood to invest properly. Jim Grant