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Tax Loss Selling Opportunities, A Basket Approach, And Liberty Gold

Tax Loss Selling Opportunities, A Basket Approach, And Liberty Gold

With the month of December upon us now, I want to draw your attention to tax loss selling opportunities in junior mining stocks.  From mid-November to the end of December, the TSX and TSX Venture exchanges will often allow you the opportunity to buy yourself nice junior mining companies on sale.  It’s period of time when holders of junior mining stocks that are down for the year sell their losers to book capital losses.  This is often done to offset tax obligations from capital gains from other companies during the same year.  With stocks requiring 2 days to settle, the last trading day for settlement in 2018 is Thursday, December 27th.  In other words, the sale ends on December 27th.

To be clear, just because a stock is down in price doesn’t mean it’s on sale.  A dog is a dog regardless of the purchase price.

To my way of thinking, I’ve identified Liberty Gold (TSX – LGD) with its Great Basin gold projects as a company on sale and as such, I’ve started to accumulate a small position.  I don’t hold the size of position I want yet, so I will only include it in my holdings once I have a more meaningful position.  If you want to know why I like Liberty Gold, I draw your attention to my blog post from November 21st where I discuss my meeting with the company at the 121 Mining Investment Conference in London – please see the link below.

Day 2 At The 121 Mining Investment Conference London

I think it’s also appropriate to discuss my approach to buying junior mining stocks.  I never take a position in a company to make 10-15%.  I’m greedy – unless I think I can make at least a double on a speculation, I don’t even bother taking a position.  But beyond being greedy, I’m also realistic, the fact is, they won’t all double so that’s why I take a basket approach.  For the purposes of my blog, I’ve only included the positions I’ve taken since I started writing my missives but I certainly own more than the 2 companies I currently have identified on my holdings page.

Here’s an example of the type of returns I can expect to get – in relatively decent markets – from a basket of 10 stocks:

  • Stock 1: lose 30-50%
  • Stock 2: lose 20-30%
  • Stock 3-4: lose 5-10%
  • Stock 5: make 30%
  • Stock 6-8: make 50-80%
  • Stock 9: make 150%
  • Stock 10: make 300%

 

They’re not all winners but if you understand simple math, you can see how taking a basket approach can yield some nice gains.

Another reason to take a basket approach is that you can never know for sure which companies will be your winners and which ones will be your losers.  Surprises abound in the world of micro-cap junior resource stocks – a perfect example from my current blog holdings is Pan Orient Energy (TSXV – POE).  I’m already sitting on a +50% gain from a part of the story that played absolutely no role in my purchase rationale.  I bought POE strictly for the East Jabung speculation in Indonesia and I’m currently up +50% because of a surprise Thai oil discovery – that’s what we call a pleasant surprise but to be sure, there are often negative surprises in this game too.

Back in the day, Doug Casey would often use this quote when discussing his top stock market winners: “my 3 biggest wins were an accident, a fraud, and a mental break.”  That’s why Doug always took so many positions in junior mining stocks – he never knew which ones would be the ultimate big winners, so he owned a bunch of them (in my opinion, Doug’s basket was too big – he often didn’t know what he owned…..nice problem to have!).  But going back to his quote, the accident was Robert Friedland’s Voisey’s Bay nickel discovery in the not so aptly named Diamond Fields, the fraud was Bre-X’s gold “salting” fiasco in Indonesia, and for the mental break, I believe Doug was referring to William DeJong’s Cartaway Resources affair.

Here’s to not being opposed to making money for the wrong reasons!

Philip O'Neill
Philip O'Neill
poneill@mp1capital.com