Saturday, January 5, 2013

Knowing when to hold 'em

Are you old enough to recall the lyrics to the Kenny Rogers hit, The Gambler? Rogers sang:

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
Know when to run
You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done

Now every gambler knows the secret to survivin'
Is knowin' what to throw away
And knowin' what to keep

Sound advice for those playing the stock market, I'd say.

My wife and I live on the income from our investments. It is not a big portfolio and it has to work hard to deliver adequate income. Recently, as you know if you have followed this blog, I invested in Labrador Iron Mines (LIM). It attracted my attention while still selling for the now lofty price of about two bucks. Then it dropped to a buck and a half. When it got down almost to a dollar, I bought some shares. It continued to drop, finally bottoming out at about four bits.

This was the time for adding to my holdings. I didn't. I simply held my hand.

If you've followed LIM, you know that tens of thousands of new shares were sold recently at a dollar. And if you've been following resource news, you know that China is interested in gaining control of resources in many areas around the globe. If you've kept yourself informed, it should have come as no surprise that China was showing interest in Canada's iron-ore-rich Labrador Trough.

LIM is almost back to the buck and a half value. I'm up about 27 percent. I held 'em. I didn't fold 'em. But, if I'd have followed my convictions, I'd have bought a few thousand shares when the stock was selling in the 60-cent range. If I'd have been a better gambler, if I'd done my research properly, I could have all my seed money back and still have a tidy sum sitting in the game risk-free.

I'm also up on my Cathedral Energy (CET) investment that I wrote about some months back. And like LIM it has had some down days. I could have played this stock better, too. Now, about that money sitting in Penn West (PWT), should I have been averaging down?

I factored a dividend cut into my PWT calculations for the coming year. Recently, I've been reading reports suggesting PWT may not cut the dividend in 2013. Will I buy more? I don't know. I feel financially singed by this stock. Will I sell? Not at these prices. I'll hold 'em and enjoy the dividend while I wait.

[Add from Jan. 10/2013] PWT has had its target price lowered from $17 to $13.50 a share by a well respected analyst. With an estimated effective payout for 2013 of 152% (peers at 143%), I would not be surprised to see a dividend cut. I may have to hold on to PWT for some time.]

One last note on the hold 'em move. As the market dipped in December, it was hard watching my portfolio leaking value daily. I admit to feelings of unease during such pullbacks. But, there did not seem to be a reason to fear that a large correction was in the offing --- and there wasn't. Just days into the new year and my portfolio is up almost six percent from its recent lows. Since a correction is a pullback of ten percent or more, I am building up a nice financial cushion to protect my bottom line.

But the very best time to have invested has past for many of the stocks in which I have an interest. A new year's resolution, a bit late but worth making --- try and get a handle on those feelings of unease during periods of market softness. Don't let them stop one from making good, bold, financial moves.

I must force myself to recall that I bought ScotiaBank in early 2009, bucking the market trend. Today BNS is up more than 100 percent and still delivering a yield of four percent.


  1. a few thoughts on LIM's latest offering?

    greta blog..BTW

  2. Thank you for drawing my attention to this: LIM Announces C$25.2 Million Underwritten Equity Financing [] I believe this is what you are referring to.

    LIM stock rose sharply after it was learned that Taiwan's China Steel and South Korea's Posco had led a group of investors who agreed to buy 15% of ArcelorMittal Mines Canada. Since that spurt, the stock has pulled back substantially.

    This latest announcement, I feel (and remember I am just a small investor managing his retirement portfolio), reveals what big investors are willing to pay for LIM today. It is a big drop from what LIM was valued at just a few months ago. Yet, it is almost double what LIM was going for a few weeks back. It also says that there is some guarded confidence in LIM to be found in the market.

    I have some LIM exposure. If it dropped back to the 60-cent area, I might average down but I am more likely to just hold and wait for the stock (and the price of iron ore) to recover.

    LIM is not an investment for the faint of heart. As I said, I see LIM as a hold today.