Take physic, pomp

Capstone Mining recovering well. Any fool looks good in a bull (with the emphasis on ‘fool’)

Right now, Capstone Mining up 15.5% at $1.34. Here’s what I wrote on December 31st:

There are plenty of beneficiaries from this base metals move, but one that’s caught my eye is Capstone (CS.to), up 8.75% at $0.87. According to company literature, today’s copper spot is around the point that CS.to has its cash cost.

And here’s what I wrote on January 1st:

Last but not least, Capstone Mining (CS.to) up 10% today, the base metals play that was mentioned earlier this week. It’s the right size and with the right costs make-up to get good leverage from any BM upmove. Here’s the five day chart that might not be as spectacular as BWR.to but it’s still very cool; a win is a win.

Since then, the chart has done this. That’s a nice gain for sure….. $0.75 to $1.34 in five trading days works for me anytime.
So what’s the point here, apart from pointing out that I nailed a good trade in the “Trading Post” series and then preening and crowing like the arrogant git that I am in front of my audience? Here are a few bullet points:

  • Any fool looks good in a bull market. Those with short memories will at this time be sharpening their pencils to write their own versions of “hey look at me” for online consumption.
  • BUT THIS IS NOT A BULL MARKET! To follow the example above, it’s great to point at the 20% rebound in copper but that doesn’t suddenly make copper exposure a sure-fire winner. So very cool to point to a stock that gains 50% but let’s not worry about where the stock was this time last year. We’re currently enjoying a relief rally in a bear market. It’s very welcome all the same, but that’s all it is and anyone telling you otherwise is just plain wrong. Copper at $1.50/lb isn’t going to get a single financier thinking about throwing a billion at an unbuilt mine, I promise you.
  • In my opinion, the rebound so far has been for monetary reasons and not based on true supply/demand factors. For sure supply is being restricted (see the post earlier this morning about Volcan for a topical example) but there’s not much sign of demand pick-up as yet. We need to see a change in direction of macrofundamentals before we’re allowed to change our minds again.
  • You should expect pullbacks to happen in the current atmosphere because that’s what happens during a bear market. Period. So the logical conclusion to that is to say loudly and clearly, “DO NOT BE AFRAID TO TAKE PROFITS.” If you make good coin in a bear market trade, take it. Cash it in. Bank it. Keep a chunky position on the sidelines for the next opportunity. Be nimble. I could come out with a dozen other clichés, but you should have the message by now.
  • Selling well is, of course, even more difficult than buying well. On a personal level, very occasionally I get a call just right (e.g. this recent one on GORO.ob), but more often than not calling “take profits” at the very top of the price curve is either luck based or impossible. As a recent example, I said that taking profits on GRZ would be wise with the stock at $0.95, and since then it has motored on to stand at $1.21 right now. So be it, but the main thing here is that you take YOUR profit. Not his, or hers, or watch the thing keep on moving and shout “D’OH!” all week, cos that’s silly. Baruch was one of the most successful stock market players of all time and he said, “I made a fortune by selling too early.” Think about that one.
The bottom line here is that it’s not some kind of ego-based “you-vs-them” game here. This is not a drill (as Gary Biiwii likes to say). Be clear that the tactics used by successful investors in bear markets are wholly different to those needed during a bull. Bear markets are rarer than bulls and this one is a nasty example, too. That means there are a lot of things you’re used to doing that should be ignored right now. In my case, when I see a great, undervalued mining company such as Capstone my temptation is to stay inside my value investor’s shell and say “yeah, it’s up 50% but the numbers say that if copper keeps moving like it’s moving I’m holding a potential 5 bagger” or variations thereof. So I buy and hold, then buy again and hold some more and then buy another value stock and hold that and suddenly my cash reserve has gone and I’m trading on margin. Trading on margin in a bear market is NUTSO.

Moral of the story is be conservative, take a chunky profit and thank the market gods when you do. Don’t look back in anger and PRESERVE YOUR CAPITAL. The time to buy and hold will come eventually, as day follows night.

DYODD, dude.

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