2005 Year in review

This closes up the first year of the blog. I think it was a worthwhile experiment, although right now I will admit that I have hit a blank spot. I don't have a lot of ideas for sectors / investments in 2006 and I have very little conviction about where to put the money. I also currently fear committing the capital, which puts me in a horrible position to make an objective decision. Given this shakiness I am going to sit in money market with the 3% nominal return (probably losing against inflation) until my thoughts clear a bit more and I have had more time to think out a plan. I don't know when I will be ready - if it will be in first weeks of January or closer to middle of the year. I will continue to comment on what I think are interesting developments, but to invest in something now I think would be too foolish even for me. I will review 2005 though now as a history of successes and failures:
2005 investing/trading successes:

1) I am back in the black over past five years in my account. After taking the initial hit of 4K that I invested in 2000 when the company I picked went bankrupt - I have (at least momentarily) recovered the lost capital. Still compound return over those five years is dissapointing (2.4%).

2) Gain on investment in 2005 was close to 50%. I began the year with approximately $5K in capital (100 shares of NEM ($42), 36 shares SFL ($20)) and after 1 contribution of $2K, bringing total capital of around $7K - I finished the year with about $10,500. That is a healthy return - except when you consider the substantial risk that I took on in order to earn it.

3) Good calls on specific stocks/sectors: NEM, SNDK, precious metals, homebuilders (PHM)
2005 investing/trading failures:

1) Although many ideas existed about potential stock price movements or developments, I never created any type of technical system for entry/exit. I did not have a set rule for loss taking and likewise for gains I did not have a set exit percentage or target price I was looking for typically. I was trading more on emotion - which created problems for me when I became too excited in the fall.

2) This is basically a repeat of #1 - most of my actual entry or exit points were completely emotion determined - with me just acting with my best "judgment." This is not a method but of a recipe for disaster.

3) Bad calls on stocks/sectors: NCTY, XLF (financials), Gold/precious metals

Final portfolio snapshot:


So with that I appreciate all readers comments and input this year. Feedback was very positive overall. I wish everyone a Happy New Year and great 2006!

I hope to return sometime soon with more constructive analysis and a system for executing on it.

Best regards,

BG

Closed Out Newmont Positions

I closed out the entire Newmont position this week and am now in 100% cash. I expect the precious metals to continue to perform well in 2006, Newmont included, but given the quickly approaching options expiration in 3 weeks, I decided not to risk a big move down in the gold price or the stock in the short term and instead to lock in the gain.

Here is the entry/exit chart:



Here is the profit/loss summary:


I am fairly satisfied with this trade - it did not meet my entire expectations as I thought that Newmont could trade as high as $60 before the end of the year. It very well might in 2006, but that is another story.

-BG

Newmont Follow Up

Past few days have really flown by. Much of my extended family has been visiting from the East Coast and we have shared in some monster feasts. As far as the portfolio goes there is only one remaining position left - that is the 10 contracts of Newmont Mines call options expiring on January 20, 2006 with a $50 strike price.

As of Friday the contracts last traded at about $2.83, with the underlying stock trading closing at about $51.94. We have previously discussed the two main components of option value - 1) intrinsic value and 2) time premium. As options approach their expiration date the time premium quickly decreases in value as it becomes less and less likely that the underlying security will make a large move from the current price. Currently it looks like these options have about $1.90 of intrinsic value in them and about $0.95 of time premium. I do not expect the time premium to fall below $.20 prior to expiration, just because the underlying security being somewhat correlated with the gold price has been very volatile.

Right now I am trying to figure out the exit strategy or perhaps the maintaining strategy? I continue to be bullish on Gold out over the coming months and years as I think that our government needs to maintain a healthy rate of inflation in order to meet many of our obligations in if not real, then at least nominal terms - re: pension, social security, medicare, etc. In that type of environment I think gold can perform very well. Still I have to balance those longer term prospects against a possible further correction in the mid-term and the fight to maintain the few nickels of profit that I have left in the position.

The stock pattern is apparently bullish as it looks like Newmont has broken out of a long-term (multi-year) basing pattern on decent volume/accumulation and may be heading higher:

Gold and the mining stocks often give false moves though and are very tricky to follow. The metal's price movement is largely driven by speculators. Here is the recent gold price chart which has corrected quite a bit from the high of $530s that was hit several weeks ago:

It looks like the metal has found some support in the $490-500 range and may begin to consolidate and build another base before trading significantly higher or lower. The prices of the miners did not make as large of a move relative to the metal on the recent rally, but they have not corrected as much either during the recent drop in the metal.

I think that is a good summary of what has been happening in this market, but I still don't know how to play the final hand. I will keep the blog updated as I liquidate the position or roll it over. I think maybe the biggest challenge is my own previous high hopes for the position as I thought that Newmont Mines could run into the $60 area. Instead it has been a fight to hold $50 - and probably is a good indication that I am in over my head.

I hope everyone has one last great day to finish up the holiday weekend and I will check back later this week/ next weekend with some updates on the position and also some ideas for 2006.

Best Regards,

BG

Checking In

Wow it has been an almost 1 month break since the last post. Clearly too long of a gap, but I was able to finish up my final exam period on Tuesday and a little bit of spare time is freeing up. :)

There have been some amazing developments during the past three weeks, many of which I have only a superficial understanding:

1) Gold market - it has weakened recently but touched a high of $540 an ounce. I do not think this is just a flash in the plan. Still it boggles my mind that the price can be so strong right into the face of a fed tightening plan that does not seem close to an end.

2) Interest rates - the Fed funds is now at 4.25% and 10 year bond yields (treasuries) at only 4.42%. What does this tell us about expectations regarding both inflation and economic growth? I don't know.

3) Financials - still one of the strongest sectors in the market - where are we in the cycle?

4) Portfolio - my Newmont options are back in the money (slightly) but are coming due for expiration in a few weeks. I am faced with a tough choice of whether to liquidate or roll over. And if I do decide to sell - is it worth my time to wait as the current time premium of $1.00 in the contracts will quickly decline over the coming three weeks as we approach options expiration.

I will address the gold issue re: Newmont in more depth this weekend. I also am beginning to think about what sectors I like for 2006 and how I plan to position the portfolio. It has been a great four or five months with the blog so far.

I wish everyone happy holidays and there will be more posts this weekend. :)

Best regards,

Ben