No. of Recommendations: 7
Hi,

Just a followup to previous posts about miners.

2-3 months ago, I bought extra shares in BRCI, BLT, and RIO after initial investments which were at prices around 60/66p, 800/900p, and 2100/2200p. The purchases were between 600-650p (BLT), 1600-1650p (RIO), and 45.5-48p (BRCI).

On Friday last week (4/3/16) I sold off my mining shares (BLT, RIO) at a modest profit into the rally. Sadly, didn't catch the last part of the rally.

BRCI and a brief, small investment in Potashcorp (POT) were offloaded a month earlier at breakeven on the whole positions.

All of these companies (BRCI, POT, BLT, RIO) have greatly reduced their dividends (or discussed it happening in the next 6-12 months). Earnings have been woeful, and the industry situation is being described by CEOs etc as incredibly hideous in recent results - much more hideous than they claimed e.g. in October-December.

The greatly reduced dividend and industry woe is only half the story though.

With BRCI, the other half of the story is that the share price seems to have no correspondence with price action in mining/oil, making me distrustful of the trust, so to speak. I can't figure out how it can hold underlying shares that are broadly up 8-15% some days, and yet the price of the trust goes down that same day. I thought there might be some way of arbitraging the gap, but the spread was so huge (7-8%) that it was pretty risky. To anyone else who wants to try, be my guest.

With RIO, POT and BLT, all the executives talked about a sacrosanct dividend repeatedly for many years, including in the months leading up to the results; then they've gone and changed their minds at the last minute and wrecked the dividend (and divi policy). That makes me distrust these managements greatly, and I don't like to hold shares where I distrust the management greatly.

I also don't like the way they all seemingly thought that life would be OK in comments leading up to late 2015, then in the first 2 months of 2016, it's apparently so awful they have to make permanent changes to their divi policy.

The straws that broke the camel's back were the news that China was laying off 1.8 million steel/coalworkers in a single instant, combined with this rather nice rally out of nowhere, available to sell into at profit. So, for the sake of portfolio tracking, I'm out of the mining game now.

I also chased the price of RDSB/BP down too, and have just cleared those positions out as well into the current rally for a small profit + divis. I expect Iran and the (rapidly improving in efficiency) US shale industry will be a millstone around the oil markets neck for much longer than people expect, and I am hopeful that I may get to buy in at cheaper prices.

Some other thoughts:

- Averaging down is a scary thing, I kept having horrible flashbacks of RBS and HSBC. Thankfully that kept me from buying more than a sliver until the price had dropped really quite far from my initial price.

- I have a strong suspicion that this commodity rally is a suckers rally. I don't see where the change in the fundamentals for oil/ore is coming from in terms of supply and demand. I can only imagine that after the Chinese new year holidays were over, lots of Chinese companies simultaneously placed orders for their factories and it's been mistaken for a fundamental change in future demand. And for oil, Saudi/Russia's agreement to change nothing seems to have been read as political progress. But really, who knows?

- The price of miners fell a lot lower than I expected. Particularly RIO & BLT. I had hoped for a revisit of the 2008/09 crash, maybe a little more, and that certainly didn't happen! As a dividend-motivated investor, I consider myself extremely lucky to have got out with a net profit after the hideous BLT results and the POT/BLT/RIO/BRCI dividend announcements. I don't like relying on luck for my profits.

- Demully and another poster whose name I do not recall, commented previously that the best profits are made by buying the worst miner at the bottom of the market, since it will have the strongest recovery in a rally. This seems to be true, looking at e.g. AAL. Did anyone pick up AAL in the 220-250s and hold it to the current price (600?) - or Glencore, or similar? If so, please stand up and make yourself known for my applause! :)

- The volatility in mining shares was frequently so bad that I couldn't execute trades at my regular discount brokers, we were getting errors that the helpdesk claimed to have never seen before. This was quite unpleasant. Tied us up for 30 minutes trying to trade and not knowing if the trade went through or not. I never expected to see the online trading systems falling apart so badly for companies as big and liquid as RIO and BRCI.

- The bid-offer spread on BRCI was totally crazy at some points, around 7-8%? Seems like it's not a good choice if you are ever thinking of becoming a swing trader... I had hoped to use it as a way to pick up a basket of stocks near the bottom, but it wasn't useful for that.

- Given the revised dividend strategies (and distrustful behaviour of CEOs, imho), I do not think I will be considering miners again as a direct investment. Fool me once, etc.

- I was quite annoyed with the round trip costs of investing in Potashcorp. The tiny net 4% profit had more than 80% of it eaten up by forex charges from my discount broker, hence, effectively breakeven. Ouch.

I would be interested to hear how others are faring presently. Did anyone else use the Thursday/Friday rally to bail out? Any plans for the week?

comp


p.s. For those that are curious, my portfolio is now 75% cash (including the profit from oil/miners), 4-5% HFEL (from 270p), and 20% BRK (from £85/B-share). And I find myself pining for ETFs again. But those are matters for some other board...
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