Back from the west and scampering to catch up (always it seems).
I have been speaking on panels with portfolio managers from Sprott Inc. for the past 5 years at different conferences, including one yesterday afternoon in Vancouver on the topic of investment strategies. Yesterday I was rather taken aback as the Sprott manager espoused a focus on capital preservation, income and low volatility that included presently holding a large weight of cash. This was a philosophy and assessment of world conditions that largely aligns with my own and struck me as a marked departure from the much more aggressive recommendations I had heard from Sprott and co in the past.
In particular I could recall the remarkably different views we had each espoused on panels in 2007 and early 2008 when I was also very defensive and the Sprott managers were recommending allocations to Canadian equities, precious metals and commodities. As it turned out, at that time, they were also gearing up for an initial public offering of Sprott Inc. which came to market in May 2008 at $10 a share. Naturally the issue was heavily sold to the investing public and various funds who gobbled it up through brokers and dealers across the country. I had noted back in 2008 that their funds went on to lose (in my view predictably) massive amounts in the downturn, but I hadn’t paid must attention to the firm or their results since.
On the plane back, I happened to read an article in the Globe that brought me up to speed. It is entitled: “Eric Sprott takes a new path toward less volatility”. To wit:
“Investors want more than the extremely volatile, precious-metals-focused funds that Mr. Sprott runs…his current narrow focus on gold and silver made it a painful ride for investors in 2008 and again last year. Sprott Canadian Equity fell almost 30% in 2011. Sprott Hedge fund fell 24%. With that performance from its flagship funds, Sprott Inc.’s stock is down 36% from its 2011 peak and well below its initial public offering price.”
Here is a chart of the Sprott stock price since the IPO in 2008:
The IPO made Mr. Sprott and company fabulously wealthy no doubt. Brilliant marketing served them well. But from $10 to $3 to $6 is an incredible ride for those who bought into their story. Nearly 3 years after the celebrated IPO, Sprott investors have faced heart-stopping volatility. Even those who did manage to hang on through the first 70% drop and bounce back via QE2 in 2010, are still missing some 40% of their initial capital today.
No wonder, Sprott managers are sounding a little more cautious. The performance of their funds and share price is apparently starting to hurt their own fee income. Time for a change of philosophy indeed…
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Aye aye. I can attest to the fact that Sprott Funds need to be avoided. PSLV is a real dog. Silver? SILVER?
Get a life Mr. Sprott. Better yet, put on a suit and go look for a real job, like the rest of us.
Danielle – thank you for your postings.
You again tend to skirt around the topic of Gold and Silver. ie. Owning the physical metal. Over the past decade, you, your clients and all investors would have done better owning Gold and Silver than any other asset class. It has outperformed the DOW and everything. What is the reason that you and other investment advisors avoid this obviously superior investment? You can decry the recent downturn but you must also be aware that this will turn as governments worldwide continue to print money. I suggest you see this:
http://youtu.be/-HaqwFJj4ZY
Thank you,
Gary
I used to have a lot of my capital with Sprott. They did very well for me while I was there, my timing was pretty good. Before the collapse I pulled out to manage my own money. My timing was pretty good again.
In fairness Sprott has always claimed their holdings were safer than the broad market but that they were geared to high risk investors who could handle the volatility. They have always said to take a long term approach when you invest with them. Notwithstanding the last five years their performance over the long term I think is pretty clear.
They have been moving toward a more central model of asset management for some time now and that in part is why I recently bought SII (I’m in at $5.99 I also hold SCP)
Another reason is that of the 150 million shares outstanding management owns 130 million and to my knowledge Eric has not sold any shares.
Love him or not, I am indifferent, Eric Sprott is a winner and aligning yourself with a winner is generally a pretty good idea.
PS. I believe you are a winner as well
Three words: timing is everything. We should never look to the product sellers to tell us our timing is all. Barring perfect blind luck, we always need a method of our own to determine when to buy and when to sell funds in any sector or company.
not skirting Gary. We have bought and sold gold companies over the years in accordance with our own rules. I suggest you do the same.
Not to pick on Sprott, and I’m sure he is a very smart man, but I wouldn’t touch Sprott with a ten foot bar of gold. Keep up the great work, Danielle. You are rather unique in the advisory world. We need more like you. Did I tell you how much I loved your book?
Yes, yes and yes…..i agree…..sold financials on Friday…added to Energy and Gold….now to hit the sell point….timing is everything!
I remember the touts on BNN … it was hot alright, and “investors” got burned.
I don’t understand the point of your posting. You want a nice pat on your back or something? Care to post your fills? 🙂
I’m interested in Danielle’s take on the Feds ZIRP-to-infinity (bye-bye seniors) and the gold markets reaction to QE rumblings. Short covering?
Thanks in advance.
Ah yes….gold and silver. Yes they are only metals! Yes they pay nothing for holding them. However in a world run by financial terrorists leveraging the system to kingdom come, there is precious little to trust! Personally I’m not smart enough to figure out which asset class is the “new hot potato”. Just look at MF global, our banking system here in Canada and good old Wall Street/Bay Street. Criminals run wild, accountable to none. Jesse Livermore said it best…..
“Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes.”
So for the the last eleven years I’ve been sitting in Gold and Silver. Yes one day it will reach a full blown mania at which point Governments will throw in the towel and stop the printing presses. When the mania comes I will be selling…..not before!
One last thing………
http://www.infowars.com/india-to-pay-gold-instead-of-dollars-for-iranian-oil/
Gold is now taking its place as money…..the re-monetization begins, get ready for the shit storm! These events are nothing new, all predictable including 2008. Financial history is the guide 1640,1720,1770,1825,1873,1929,2000……nothing new here, move along. Bubbles are part of history and have been happening since the days of Rome, empire is financed through currency depreciation, built on the backs of the working class. Get back to work slaves!
https://www.historyshots.com/FinancialCrisis/index.cfm
Your critique about the Sprott Machine is timely, and yes,timing IS everything. As well, I like the plain talk.
Would that these sort of comments were heard once in a while on BNN.
HEAR HEAR!!
Curious why a manager like Tardiff would leave Sprott. When the best pilot jumps ship, time to put on a parachute!
Hey Doug…..maybe you should get out in the sun….go for a walk….breath deep….think positive….
I follow your blog, been doing so since 2009-10 (remember the sandalwood gift from India!). I am with you about the financial services industry and media serving its own interests rather than that of the public at large. However, I am not with you on gold and silver. I am long precious metals. I find it puzzling that an investment that has returned 17 odd percent annualized every year for the last 11 years has not found convincing favor with you, at any time, during all these years. I guess, to each his (and her) own!
Danielle, I’ve seen you speak a number of times – Cambridge confereneces Toronto etc. and I come out after with a friend after and its ‘…another great analysis – but she never mentioned Gold… again’. It’s like the mainstream media on Ron Paul… does saying the word get you guys in trouble?
When doomsday comes, you need lead and gun powder, not gold.
I have explained my thoughts on gold many, many times. I did actually talk about current prices in my second presentation on Monday at the conference. Perhaps you missed that one. For my thoughts see here:
http://jugglingdynamite.com/2011/12/09/a-word-to-the-gold-bugs/
Yes, still have the sandalwood box, thanks. Please see here:
http://jugglingdynamite.com/2011/12/09/a-word-to-the-gold-bugs/
Regarding gold–look at the GLD chart. Yesterday’s strong up-move is just that. A strong up-move. It is the first day of a rally attempt. Look for follow-thru buying to develop. We don’t know if the move is sustainable, now do we?
Technically, yesterdays GLD move was a Pocket Pivot coming out of a consolidation base. Now is not a time to let your emotions rule your trading.
Danielle,
Now you’ve got me confused. On the one hand you say “We have bought and sold gold and gold companies over the years in accordance with our own rules.” and yet on your earlier lengthy blog post on gold you said “…as an analyst I have no way of assessing its fair value”. When I juxtapose those two statements I start to suffer from cognitive dissonance. Or are you implying that your trades involve “momentum chasing”?
Nothing wrong with Spott’s approach of spreading his capital over several hundred
mineral exploration stocks. They have option-like characteristics with non-linear, exponential growth potential. Most will go to zero like OTM options, while the few that explode will deliver tremendous risk-adjusted returns, provided you only hold 5-10% in his Fund. He holds 70% or so in these type of stocks, so he can “blow up”, but not the individual investor who invests 5-10% in his Fund, and 90-95% in cash.
sorry Dazzo, to clarify: we have bought and sold gold companies in the past in accordance with our rules– not bullion. Bullion is the one I said I have no way to value as an investment analyst, but if others feel better or safer holding some bars or coins in thier own safe–that is their personal perrogative and not something I would argue against.
“Gold makes no sense to me as an investment. It pays nothing, it is not essential for anything in our economy, and as an analyst I have no way of assessing its fair value.”
Gold isn’t an investment and it isn’t going up in value. Gold is money and the US Dollar, what modern people think of as money, is going down in value. If someone openly admits to being unable to assess the value of gold, then why should anyone care what their opinion on it is? I don’t understand why someone would try to convince Danielle of their own analysis of gold. She doesn’t understand it and is an analyst that won’t make any attempt to do so.
“As in all things, if you are taking your buy advice from those who are paid to sell you the investment products, you are putting yourself and your capital in harm’s way.” This applies to her blog post about Eric Sprott and the admittedly tough luck timed IPO of his firm. By disparaging Mr. Sprott’s performance and investing philosophy, Danielle implies the superiority of her investing acumen and wealth management firm.
Physical gold held in one’s possession is a monetary asset outside of political control. It is indestructible, divisible and scarce. Supply is not easily increased and this money cannot be instantaneously created and doled out digitally in a free-market distorting, and too often corrupt, manner.
Bullion isn’t a consumption or investment good. It is a store of value that can be exchanged for goods and services at a later date — much as a savings account should be. Because we as a society allow the government the control of our money, interest rates aren’t set by a free market. They are set by the Fed and they will insure savers get a negative return on their money for as far as the eye can see. The policy of the Fed and the Treasury is the cheapen the dollar as a way in which to bring down the real value of the total US debt. The debt is nominal and it will be paid off in nominal, albeit valueless, dollars. This is called financial repression.
This is the reason to hold gold instead of US dollar cash. There are other ways to avoid ‘paying’ the price of financial repression. Real estate, fine art, farmland are other sound investments as well and should be part of a balanced portfolio that includes physical precious metals.
If you disagree with what I am saying, ask yourself why the Dallas Fed Governor Dick Fisher owns land, gold(over $1,000,000 in the GLD!), platinum, and uranium. He knows what this game is.
http://www.zerohedge.com/news/goldbug-fed