Here in Chapter 9 the authors discuss exit strategies from paper positions. Strategy 1 is for pussies, Strategy 2 is conservative. Strategy 3-7 are pretty much 'feel it' and gauge market sentiment. Strategy 8-9 are technical analysis. Strategy 10 is philosophical. I find strategy 10 least convincing. The obvious reason we're doing all this work and research is to make a fuck-ton of money to buy real shit before the system implodes.
Chapter 9: Leave the Wave: Part I Why and How
And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang. JK Galbraith
A long, corrosive wait of many years -decades- for the next gold and silver bull market to get underway.
Exit Strategy 1: The Sandwich Trader
intention of holding on for a portion of the ride and taking a good sized chunk from the center. The decision is made after consulting charts to identify a bottoming formation, such as a spike low, a higher low/higher high pattern, or what appears to be a double or even triple bottom. Across the board, junior producers have seen share price decline by this magnitude, even as they have increased production, cut costs, and in many cases significantly added to their resource base. ST trader is primarily interested in taking a big bite out of the middle of a perceived intermediate or long-term move, while mitigating risk. The risk of a major give-back of the ST's profits is almost 0. A Canadian ST, for example, took at very large $11 position on silver in the 1970s, sold several hundred thousand ounces at $18 and made millions.
Exit Strategy 2: Laddering Out
After chosen price targets, place GTC sell stops around those points or set them mentally.
As long as primary trend remains up, and prices are falling in a reaction, your goal is to buy one or more tranches at progressively lower levels.
Jim Sinclair: early and late in the market, the juniors perform well; in the middle it's bow wow. Right now one might look into the future and assume that these stocks -in a best-case scenario- rise only somewhat above their 2006/2011 high. And one might be wrong. Don't limit potential to history. The 1980s experience, the mining sector top may take place months after the metals themselves print their top mark, but the authors can only guess about that ahead of time. A factor influencing that outcome will have to do with the availability of physical gold and silver in relation to demand.
Exit Strategy 3: Listen to your gut
Exit Strategy 4: "Enough" (for your own good)
Especially after a move of many years in one direction, the price not only reverts to the mean, it overshoots in the opposite direction... just about always.
When silver and gold are talked about every day in the mainstream financial press and the Wall Street Journal recommends it, then please KNOW the time has come to lighten up, if not get out completely.
Exit Strategy 5: When a significant other says "Honey, maybe you should sell"
Exit Strategy 6: Doug the Barber
Exit Strategy 7: Gimme some o' that Yahoo
Technical Analysis can help one say 'Goodbye' -- successfully
Money Flow Indicator
Two Especially Significant TA indicators to watch when expecting long-term top
(Strategy 8?) The Key Reversal: day/week/month wherein the price of a stock or commodity trades higher AND lower than the preceding d/w/m. Key reversals have more validity when they occur after a lengthy move.
(Strategy 9?) The Island Reversal: One or two day price range that trades beyond the price action on either side, leaving price gaps. In a top area, prices gap up, trade for 1-3 days, then gap back down. On a weekly/monthly chart, offers a strong signal of a long-term top or bottom. Accuracy added if accompanied by very high trading volume. Accuracy is further added if accompanied by an exhaustion gap.
Professionals pay more attention to horizontal lines of support and resistance lines (HSRs) than to angled trend lines, which are often falsely penetrated. Why trade out of metal for paper? This chapter primarily deals with gold and silver claims, so the authors are talking about trading one type of paper for another.
Exit Strategy 10: "The Rule of the Book"
Why am I still doing this? Is this all there is? -- i.e. walking away when it becomes too much
The third last chapter discusses a sample portfolio. The penultimate chapter discusses the author's picks from 2-3 years ago and the final chapter talks about how we're all fucked and how millenials will have to save the day (which I personally found amusing). Maybe millenials will create a new social media app to eliminate social injustice in-between sips of their favourite local organic beer. I'm imagining some skinny-fat bearded 30-something who has known no adversity in his life and the hilarity of expecting him to rise to the occasion and pick up a rifle.
Chapter 10: Leave the Wave, Part II: The Sacrifice Throw Portfolio
Public emotion. Discussed in financial media. The banks are collapsing becomes common discourse. During the last innings of the bull run, big price drops will continue to be seen as buying opportunities. Price gaps will become more common. First common gaps emerge, then breakaway gaps, followed by continuation gaps. Late in the primary move, exhaustion gaps -- points where new buying is barely sufficient to power prices higher -- start appearing.
Finally at the end -- either the key reversal -- or the island reversal -- the deadliest of all gaps to be found in TA emerge. First the junior producers start powering upwards, then the majors, and third, the smaller issues and the exploration stocks. When the last rally (rallies) fizzle out, the entire sector could go into a steep, lasting downtrend. If gold is used to mitigate the financial crisis as precious metals soar (i.e. currency backing), this could give miners some long-term support.
Sacrifice Throw Portfolio
Over time, sell core portfolio holdings (one's primary and secondary stage rocket launch) in tranches, into vertical price movement. Allow the STP to continue upward flying into "deep price space" in an effort to catch some or all of the "last eighth". Consider buying inverse ETFs into great strength.
What a STP might look like. Might decide to keep it simple and include only individual mining stocks. The STP trader who employs this strategy is willing to 'sacrifice' pre-selected holdings in exchange for possibility at getting a 'clean throw' of profits at considerably higher prices. STP protocol envisions that by that time, the majority of the investor's profits and initial stake from his core holdings will have been removed. At that point, the STP will represent the entire PM/resource sector holdings (excluding physical metals?) for that investor.
30% junior gold and silver producers
10-15% royalty/streaming companies
20% ETF miners (1:1 or leveraged)
10% ETF metals (1:1, leveraged, or inverse)
ETPs should have a bid-ask of less than 5bps and ideally 1-3bps
1:1 tracking mining share ETPs: GDX, GDXJ, SIL, SGDM
1:1 tracking metals ETPs: SLV, GLD, PALL, SIVR, PSLV
2-3 leveraged metals: AGQ, USLV
Inverse 2-3x tracking mining shares: DUST, JDST, JNUG
Inverse 2-3x tracking metals: ZSL, GLL(thin vol)
Other top identifiers
Dow:Gold ratio: last two secular lows came in around 2:1 and 1:1 respectively.
Real inflation rates and previous tops
Google trends for "gold investing" -- interest near 100
Large series of SLV or GLD withdrawals
Silver:Gold ratio (less than 25)
Dow:Silver ratio (refer to Steve St. Angelo)
Gold declining in other currencies in relation to the USD
Downside penetration of major HSR
Narrow extended Bollinger Band
50% or larger Fib retracement
A wave of physical selling by the public
One or series of island reversals
400 day and exponential moving averages
Mining chart mirror images
Silver trades below its 20 month moving average
STP will keep you in the game as long as you can stand the heat after one has safely 'recused' the majority of one's campaign profits.
Chapter 11: Six miners we like for precious metals investors and a possible game changer
Chapter 12: The Final Turn: Where Precious Metals, Millenials and Boomers Intersect
Strauss and Howe's the 4th Turning
First Turning is High: old values are replaced by a new civic order, with strong social institutions
Second Turning is Awakening: idealistic and spiritual awakening, with the civic order under attack
Third Turning is Unraveling: institutions weaken as trust is lost, and individualism strengthens
Fourth Turning is CRISIS: one or more unexpected, seminal events shock the nation into action
Of current retirees, 60% have less than $25,000 in total savings and investments of those, 36% have less than $10,000.
Silver Spec out
Great stuff. Your book reviews are books in themselves. Thanks for putting in the hard graft there. A lot of condensed wisdom. I have read through once and now need to go back and reread and make notes.
Have you looked at / come across Don Durrett's website Goldstockdata.com I recently became a member? Don's a subscriber here at TFM and if you PM him and ask for a free trial of his site I am sure he will oblige.
I do like to dodge bulls
100% — a starting point.
the next step for me is more research on covered calls, evaluating mining companies, and technicals (key/island reversal) research
at a glance, most of this seems like it is on youtube. Most options and ETFs strategies seem like more work/risk than I can commit to, but the idea is to be holding high quality paper silver when the bull starts running — and know what prices you’ll exit positions.
if you take inflation-adjusted highs from silver (1980/2011) you get some pretty trippy numbers to start thinking about, especially if one goes down the shadow-stats rabbit hole: anywhere from $55 (2011 CPI) to over $600 (1980 shadow stats). Starting to think about when I’ll exit parts of my position along that continuum.
I took Rick Rule up on his kind offer. I’ll double back in a week with his ratings and my own evaluations of various companies using Morgan’s methods
In case you are interested. Here are the ratings Rick gave (30th April was the date of his ratings) to the list of companies I submitted. Rick's comments & ratings are in italics below
These rankings are numerical, 1-10, with 1 being best. Comments accompany rankings, where appropriate. Both comments and rankings are subject to rapid change.
EQUINOX GOLD 5 fully priced, but great team, and access to capital
CANASIL RESOURCES 6
SILVERCORP METALS 6 opaque
ALTIUS MINERALS 4 very strong
ANACONDA MINING 6
AVINO SILVER & GOLD MINES 6 toy mine
FIRST MINING GOLD 6 mission drift, big spenders
SILVER MINES 5
WESTGOLD RESOURCES 6
EXORE RESOURCES 6
I also hold SII but unfair to ask you to rate Sprott Inc ;-) 5 recent run up, good balance sheet, and franchise.
Was super impressed by the Sprott Team's Professionalism. Would definitely recommend to anyone with a decent amount of money being managed. Here is the silver from my portfolio with Mr. Rule's comments. I followed up asking if there were any silver producers or developers with a score of 3 or higher, and the response was that at current prices, 4 was as high as it got. Again, I wish I was rich enough to benefit from their services. Crushing Rick Rule videos is a favourite passtime of mine.
Alexco Resource Corp (AXU) 6,
Bear Creek Mining Corp (BCM) 6, Huge, marginal deposits, political and social challenges
Endeavour Silver Corp (EDR) 6, leverage, small unprofitable mines
First Majestic Silver Corp (FR) 5, silver leverage, marginal assets at current prices, cult stock
Hecla Mining Company (HL) 7
MAG Silver Corp (MAS) 4, Superb deposit
Pan American Silver Corp (PAAS) 4, Core silver name, huge upside, political risk
Wheaton Precious Metals Corp Com (WPM) 4
They negged me for holding Hecla, but I like that its USA and believe that they will end the work stoppage as soon as it makes economic sense.
The gist of the article is that nobody knows, but that they move in tandem with gold/silver prices. Again, because their bread and butter are byproduct mines, they have less leverage (lower betas) to the underlying metal, so one could expect outsized returns on individual stocks, however, there is less political risk and royalties/streamers would be more likely to bid-up as a safe-haven move.