Saturday, February 14, 2009

KGC - An example of value

I bought some shares of gold miner Kinross Gold (ticker: KGC) in December, 2007. I decided I wasn't going to trade these shares but would rather hold them through to the end of this secular gold and gold stock bull market as a test of my trading abilities. Trust me, it wasn't a big investment, but looking at a chart of KGC today reminded me to check how my "baseline yardstick" was doing relative to my attempts at trading the wild-ass barbarous relic bull market. By the way, I only began my speculative trading quest once I had accumulated a strong portfolio base of physical gold coins and bars.

Gold is strongly recommended as a "cash equivalent" to help 10-50% of your money/capital sit this bear market out in non-speculative funds/cash, depending on risk tolerance, gold bug paranoia, etc. You don't (not on a regular basis, I hope) speculate with rent money and that's why gold is important. Bling bling ain't a speculation, it's a lock! Having said that, wait for the next dip in the gold price before buying [more], as blind enthusiasm without regard to price or chart patterns is a poor use of precious capital. And a dip is sorely overdue, no?

My cost basis for Kinross was $17.83/share roughly 13 months ago. Today, the closing price for KGC was $18.91/share. How many stocks do you know that are up 6% compared with 13 months ago? Want some blue chip comparisons?

Assuming purchase on 12/3/07 (the day I bought KGC) and sale today, rough returns for the following stocks [ignoring dividends] are:

Kinross Gold (KSS): +6%
Royal Gold (RGLD): +51%
General Electric (GE): -65%
Berkshire Hathaway (BRK.B): -68%
Microsoft (MSFT): -40%
Caterpillar (CAT): -54%
JP Morgan (JPM): -41%
Wal-Mart (WMT): 0%
S&P 500: -43%
Residential Real Estate/The Value of My House: - ?$#%&*^(!%

So, up 6% in a world where even Wal-Mart has to lower profit estimates. Based on the above, think how many more small pieces of Buffett, the S&P 500, or non-trash-out foreclosure dream homes I can buy with my 6% gain. And actually, I have made a dung-load higher rate of return trading than the 6% I have made holding Kinross stock, so I'm even happier after checking out the KGC chart today. It's all about perspective, really...

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