A review of the performance so far for the Mexico Mike Portfolio
While it is important to monitor investment holdings on a regular basis, the end of a calendar year is a great time to review the performance of a portfolio. The markets usually coast into the end of the year, with the effects of the holiday season creating lower trading volumes so it is unusual to see significant moves in any stock during that period. It represents a natural time to pause and evaluate all of the investment choices, with the objective to plan for the future. Some assessment is also necessary in the choices that have been made. Did the allocations achieve the desired results? Even more important, were those choices appropriate for the individual, in full consideration of the risk tolerance of that person and the consequences of exposure to risk, regardless of how successful any investments may have been.
Before considering the portfolio itself, lets
review the entire market sector to gauge the investment climate affecting these
companies. Junior mining stocks tend to be volatile, but they usually
trade as a group, and market values for the stocks are driven by the prices of
the metals. Since the portfolio was established roughly halfway through
the year, I will only consider the second half of 2006 in my overview.
The spot market for gold fluctuated in a range, trading from $620 at the
start of July and at the time this article is written, gold closed at $628,
just $8 higher (all prices quoted in US dollars), so for all intents and
purposes it has been flat. Silver has performed much stronger, starting
the period at $11.70 and rising to $13.75 for a gain of about 18 percent.
The stocks of junior mining companies leveraged to the precious metals
have gone through a sideways correction for the second half of 2006. The best
proxy for performance comparisons to the juniors would the HUI index. Not
surprisingly, the HUI mirrored the weak performance of the metals, rising from
340 to 348 for a net gain of just over one percent. None of the juniors I have
presented for the portfolio are components of the HUI index however, so a more
apt comparison is with a few of the Canadian mutual funds that routinely invest
in many of the same peer group of companies. Collectively, the 19 largest
Canadian mutual funds that focus on precious metals have posted an average gain
of 15.67 percent during the second half of 2006. So that is our yardstick for
performance within the sector.
The Mexico Mike Portfolio was created as an illustration of the gains
that can be realized from investing in a carefully selected group of junior
mining companies that are active in that country, with the focus on growth, but
also a consideration to maintain a risk profile lower than the sector as a
whole. The emphasis on research to discover just the best companies in that
group has paid off so far for the portfolio. Though most of the picks were
selected during a time when the entire sector was correcting, and overall they
have been holdings for less than the 6 months of our benchmark performance
measures, the portfolio has returned solid gains, and all of the individual
stocks that were chosen have risen from our original entry price. The portfolio
has returned a gain of 45.2 percent in just the few months since it was
created, soundly outperforming the sector as a whole.
V.UC 14/7/06 $0.38 $0.50
V.BGL 4/8/06 $0.99 $1.45
V.ECU 18/8/06 $2.44 $3.43
V.MAG 15/9/06 $3.00 $6.47
T.SEG 20/10/06 $1.04 $1.25
V.VGM 3/11/06 $0.25 $.0.32
T.CS 17/11/06 $1.68 $1.74
T.SPM 1/12/06 $1.45 $1.60
V.IPT 15/12/06 $1.44 $1.64
Totals: 45.2% gain
Portfolio value:
$145,225.00
Looking ahead, the next three to four months are traditionally very
strong for the junior mining sector. In fact, in each of the last 4 years, the
biggest gains for the sector have come during that interval. The fundamentals
for the sector also remain favorable, and the long term secular bull market for
gold, silver, and most base metals is intact. So I remain very bullish.
The companies selected for the Mexico Mike Portfolio have been chosen on
the assumption that they were long term holdings and minimal trading activity
would be called for. I do not attempt to profit from intraday volatility or
swing trades. The performance of the portfolio is thus dependant on proven
management delivering on a sound business plan that builds value throughout the
cycle. So I am pleased with the gains that have accrued during the short time
since these companies were presented and consider it a good start, but I expect
much stronger performance in the months ahead.
I will continue to present new selections suitable for the portfolio in
this new year. My estimation is that we are still very
early in the cycle, and that the best junior mining stocks active in