Many of you in the business for many years can either pass on this – or share with some of your followers/subscribers.
The idea for this came from this tweet to me the other day.
Concept – buy and sell in tranches.
One of the first mistakes I’d make with investing in miners was having a number in my trading account of cash, x, and then deciding I want to invest all of x that day. Ouch. I was so terrified something was going to moonshot if I didn’t buy right at 9:30, and I’d miss the train. Rookie mistake.
Now, I look like a genius for my 100% portfolio gain during the run up and pull back, as I had exited out a lot of my positions prior to the pullback for an unrelated reason. That was LUCK. I avoided a lot of the band aid rip off that got a ton of you. I went the other way of death, by buying call options on fake breakouts and then getting decimated like the next day and then holding those options with my cold, dead hands.
When listening to a lot of people, it became clear to me buying a little at a time and selling a little at a time seemed to make sense. I started doing it about 5 months ago and have been making trading profits WHILE the sector has gone down.
Here, I’d like to show you HOW I was able to make money WHILE the metals were going down.
I subscribe to Dave Kranzler’s Mining Stock Journal (best value, great content if you are looking for drill stories and some developers). He talks about getting a “full position” or “undersized” or “overweight”. This was new to me as an investor. I had no real strategy on sizing something, I just liked something and bought what I wanted of it.
Let’s look at an example here. If I had $100,000 in my trade account and wanted to invest in 10 miners, you’d think each miner would have $10k. 20 miners, each would have $5,000 etc. However, maybe one of them you REALLY loved. You probably wouldn’t allocate 50% of your $100,000 to them, as miners are risky. But maybe you wanted to “overweight” that position. Maybe you invest $15,000 in that one. Maybe one of them is uber high risk and you want to reduce your risk, so you go “underweight” on one. You reduce that to $5,000.
For me, I have a “typical” position size of $2,000. Maybe someone like Aya I had as a major overweight at $5,000. Maybe I had a flyer on Kore at $1,000. I would ask myself why I would want a FULL position on someone.
But what you might want to consider is the risk level of these. Maybe you have 10% of your portfolio into a speculative mining class. If you have a $100,000 portfolio, that is 10 miners. Maybe you have a full position on each for 5 total, or a half position on 10, etc. The more speculative your portfolio, either the larger position size or miners you can have.
What I’m NOT advocating here is you having 100% in high risk explorers and just have 50 speculative picks at $2,000 each. No. Talk with your financial advisors on risk. Miners are a risky business, even for some of the boring majors like Newmont.
Buying and selling
I had miners where I saw some unrealized gains go super high, only to watch them disappear a day later. If ONLY I would have sold? Maybe you don’t need to sell ALL of it?
One thing you can see with explorers is sometimes they just explode in value. I was in Labrador and got a 3x with them and got out. At first, I sold 1/3rd of my position to get my “full position” money back. As the price went from $1.08 to $.90, I decided to cash out. I may get back in someday, but my $2,000 netted me somewhere about $6,000 back.
With these things, you might also sell half when you have a double. These are easy things. I had a problem with my AG options were a 5x during silver squeeze and I held through and watched them go down to a 3x then a 2x. Kicking myself.
Anyone can buy a mining stock. Are you buying at the right time? Decent RSI? Bounce off of 200 dma? Quality? Assume you checked all of the boxes, the skill then comes in how to sell, when to sell. It’s steep learning curve – and there’s NO right time. It’s still a work in progress for me – but the secret to me seems to buy tranches of stocks I like when I find relatively good value, and when these tranches are hitting 20-30% on the way up, selling into the price rises. When prices rise high enough, it also means you could be out of everything. Maybe you hold your last tranche up up, and away and only have stop losses set?
This is far different than my call options. I’m mostly talking here about a lot of my miners I was buying at lows in tranches and selling into price rises.
One thing of interest is all of the guys last summer were saying to get out. Part of me was like, “to the moon!!” These guys had a ton of experience. I did not. Luckily, as I mentioned, I had sold out of about half of my stuff – accidentally, for another reason.
When you see gold’s RSI at 80? You might want to think about selling miners or a little of your gold. Up and down my spreadsheet at the time, my miners were all in the 75-90 RSI zone. Sell sell sell!!
So maybe when RSI is stupid high, it’s a good time to sell. But if you just bought Newmont last summer for $60 and held it, you’d be at a loss today. In that time, Newmont had gotten to $70 and down to like $52. What if you bought a quarter position at $60. When you had a 20% gain or so up to $72 sold. At $60 buy again. At $57 buy more. At $54 buy more. At $52, buy another quarter position. You have then dollar costed average down.
So when the price starts to rise, you can then sell each tranche for perhaps a 20-30% gain.
Take a look at how I evaluated some of my positions below.
Re-add full position USAU.
This is one of Kranzler’s favorites and on the charts it’s just above the 20 day and below the others. You could see a price at $17.50 last summer, so this is muddling down around it’s low end, and nowhere near a 52-wk high. I sold my last bit of this around $11 a few weeks ago and wanted to get back in now that I see a run up in the books. I can see the low over the last 52 weeks has been around $9, so buying at $10 might have a 10% down risk to the low side with perhaps a 75% gain if all time highs are hit again. I would probably sell a quarter tranche at a time on the way up. Maybe the stock hits $13 and I sold half of my position, and price slides to $12. I buy another quarter. Down to $10. Buy another quarter.
Could I be out at $17 and it runs to $25? Yes. But my last quarter position (or third, however you do this), perhaps runs past $17 and I put a 5% trailing stop loss? It runs and runs and runs to $25, then falls back to $24 or so and triggers a sell. I might be out at $24, but then if the RSI falls and falls and price gets to $17, and RSI is 30, maybe I buy another quarter tranche here. Price falls more, buy another quarter tranche. In a gold bull market, take a look at all of the saw tooths that happen. For a lot of these, you can’t just buy and hold.
But take a look at the gold RSI in this 3 year run. Never really under 50. Meaning, if you want to wait until an RSI of 30 to get back in, you might be waiting forever. You have to buy on pull backs and potentially sell small tranches on the way up into price rises. Could USAU go down more? Yes, but I have been following this range for 16 months and it’s at the very low end of that price range, so I wanted a full position here. Lots of value in getting it, to me.
Add to Reyna
Love Reyna – same people that brought you MAG from the same area and geo structures. Price is beaten up. This is a dollar cost average opportunity as this has every possibility of being another MAG and 30-40x. If we have a new leg up coming, these guys are going to catch fire. I’ll sell the tranche I just bought for 30% or so when price rises. I already had a large position with them for over a year, but my price point was like $.75. I bought more in here to dollar cost average down. If they hit $1.50, maybe I’m out 100%? This is one that I will be in and out of for years to come, if this indeed is a MAG situation, perhaps I sit on my tranche that was $2000 to start and never touch it, but play with buying and selling tranches on the way up and down? This allows for like 2700 shares to go from $.75 to $20 while still being able to trade this a little.
What I might do like I did now was buy a tranche for like $1,000 at $.50, and when Reyna hits $1, sell that tranche for 2x. Don’t touch my initial tranche, ever. With explorers, these can be violent and go way up, or go to zero. So one other strategy with this, is – what if my initial tranche of $.75 goes to $1.50? Sell half to get your initial investment back and never touch what remains. This ensures you never would lose money on that and you can let that sit for years. I have this with Reyna, Silver One, and GR Silver at the moment.
Pass on Discovery
I LOVE Discovery. Why pass on it?
Discovery has a high RSI. I’m slightly underweight on them after selling a lot off months ago for stupid profits. Got back in last week on this run up, but the RSI for this is pretty high. That’s a vertical move. Still below 200dma but not a buyer here. Want to wait for RSI to maybe cool off to 50 before adding another tranche. If this continues to run hotter, I may sell out at a 30-40% gain in a few weeks and buy back in on pull backs. Note – I think the week of Nov 1 I can look to add, as Friday was a down day and a few more days of beatings may look nice to add.
Add to Integra
With Integra, I’m already at an investment of $2700 or so. For this, I might just add $500. Done.
When I look at the chart and see how beaten down this stock is, and how it’s not overbought, I think I’m going to go overweight here and add $1000 with the idea of selling some of these lower cost tranches into the strength. I’m not looking to double this $1,000. I’m looking to maybe make 30% on it. So if the stock goes from $2.50 to $3.25, I can sell this tranche for 30%.
So I added to Integra, and look how my dollar cost average went down. From $3.05 to $2.88
Impact silver? Pass
Because I’m already about $3800 into this and way over my normal allocation for this. I was buying this on the way down. What I would LIKE to do is get Impact down to about $3,000 from $3,800. This would take me from stupid overweight to overweight (these are approximate folks, you don’t have to nail the dollar). How do I do this?
The current price is $.519. My next tranche is $.61. Do I sell at $.61 and break even? That could free up $600. Or, do I perhaps wait until Impact gets to about $.78 and sell that tranche for $.78 thus banking 33% profit, and thus clearing $800 for me. So what I could do is put a sell order out for that tranche at $.78 good forever. So if silver explodes one week when I’m in a coma, this tranche can sell and bank my 33%. I’ve held a lot of these tranches for over a year, so I may only see a 10% capital gains on these tranches. Interesting.
Now – the horror….
If I told you that next month, silver would go to $50, how would you play it? Well, one way I started playing it was SILJ at end of February. My poison was SILJ $17 strike price for 1/17/2022. It was February. What could go wrong? Everything. Take a look at the one glaring problem in my entire portfolio. THIS bet was a bet on silver hitting $50 by jan 21, 2022. My guess is we are falling short of that bet, thanks to the banksters. You can’t say I didn’t put my money where my mouth was. What you see here is devastation in long calls.
Did I go overweight? Yeah. A tad. This hurts, a lot. I’m down 87% on this. Luckily I stopped buying the damn things about 4.5 months ago, but take a look where I bought. And, the inverse head and shoulders might save me?
What did I do wrong with this? Just about everything, but to start, when I buy REALLY long options out I expect volatility. Sometimes you wake up to $2.00 silver smashes and before you can even sign in to your trading account you are down 30% or so on something. So with these, I held and white knuckled. I got killed on GDX options for Sept in somewhat the same way, but I made up a lot of that stuff in monthly trades that worked out. With metals going the way of the Titanic the last 16 months, I treaded water ok. My trading account is getting baptized this year with call options getting killed – but all of that can be erased with a strong run up that statistically, should start any month now. Great!!
Now, what to do? You can see all of my tranches I bought. Some of these I may never see the payback. Some, I may actually make 20-30% profit on. What do I want to do from here, given I screwed up by not selling much earlier?
I am going to the options chain and taking a look.
Right now, the SILJ RSI is kind of high. Price is sitting at $13.63, and premiums for Jan 17 2022 are listed above. Let’s go with ask price for now to keep things rounded. My $17 strike price are worth about $.35 if I sold today.
I did a ton of math which would make your eyes bleed, but I think for the sake of argument, I’m breaking even on the $.84 tranche around $27-$27.50 silver. IF I’m able to see $30 silver by early January, I might have a shot at making some money.
In the end, this also is a warning of letting options downside get you caught offsides. Sometimes with options, it’s better to sell for a 10% loss rather than hold on for dear life until the end. With 11 months to go, I had a dream. Buying with 6 months left for that kind of premium now looks silly in retrospect.
Tax loss selling
I hate taxes and all talk about taxes. Talk to your CPA about this stuff. I’m going to go high level here, as this is something I’m still wrapping my head around.
Earlier this year, I had something like $24,000 in realized gains after selling a lot stuff in early January and Silver Squeeze in early February. Did good. The next 5 months was painful, with a nice score of 2-3x on a ton of AG options. As summer arrived, I had something like $24,000 in realized gains, but $40,000 in unrealized losses. Concept here is those realized gains, I may owe 25% taxes on in 2022. So I would have to come up with $6,000 cash – despite my account getting killed since?
I have been making a killing then on my monthly options beat down play, but as you can see – my SILJ options never got the memo. Eventually, my “wins” will be offset by these SILJ losses. Been a tough year for PMs. Ouch. So some of my profits I may be taking with my tranche selling can be offset by my SILJ losses I kind of already see, but haven’t registered as official losses yet until I sell, or next year. Meaning, I may hold these through the new year intentionally to take those losses then. Wins I have in a major move up the first half of next year will be offset by losses I saw in 2021 but realized in 2022.
So concept here was to sell things that had unrealized losses and hold cash. Stop the bleeding and get out of the spiral down. I sold stuff to then negate my realized gains. Since end of August I’ve been in a ton of cash, so just recently I started nibbling and buying tranches, which got me thinking more about writing this article. So I may also then TRY to sell the $.84 tranches to break even, no tax consequences, to then use that $1,000 on an explorer that might 4x in a few months.
From what I understand, many do these tax sale things in December, but many of my newsletter writers were taking these losses over the summer, so tax loss selling in December may not be nearly as bad as the last few years. If you had a massive tax liability of banked gains, but have some real dogs with unrealized losses, sell them to then reduce your tax liability.
I still have more to learn with that. Also – the capital gains on things you hold for less than a year may be taxed at a rate like 25% where if you held them for a year they may be taxed at a rate of 10%. So with these tranches, you might be holding for a long time, or a small time.
When you sell and what you sell is a customized solution no one can do for you.
Buying is easy. Buying at the right price and right time is hard.
Selling is easy. But again – selling at the right time or price is the hard part.
Every day, try and learn more and get better. Happy trading!