I am a value investor and I like to buy stocks when they are on sale. In order to be able to get cheap prices, it is often necessary to go after stocks that are out of favor. Today, the gold mining sector that is one of the most hated sectors is the mining industry. It doesn’t matter whether these companies generate earnings, pay dividends or put more mines into production. They get hammered no matter what. And, when they do report something negative, you’d better run because you are going to get hit by a truck.
The biggest reason why I was down in 2011 was because I own a few of them. December was really hard because they kept on dropping. However, since then, they recovered so much that I was up almost 40 percent on the entire portfolio and approximately 30 percent for the year 2012 up until March. Now, we are in mid-April and since March, I went from being up 30 percent for the year to being up 3 percent. This all happened within several weeks. I can tolerate a certain amount of volatility, but this is more than crazy. This is psychotic behavior on the part of the investors who own these stocks.
Over the last few days, I have been talking to several investors who were involved with the miners and I am hearing similar sentiments:
“I hate these miners.”
“They will never go up.”
“I am selling them and moving on.”
“I will never touch another miner in my life.”
While I am totally exhausted by the miners, these kinds of comments are music to my ears because they tell me that even the bargain-hunting value investors are totally burned out. If they are gone, who is left to sell?
I don’t really use technical analysis, but a friend showed me an indicator called Gold Miners Bullish Percent index. From time to time, I look at it just to see how crazy mining investors get. The following chart is from StockCharts.com and shows the Gold Miners Bullish Percent Index.
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As you can see, the index is at 10.71. This pretty much means that only 10 percent of investors are bullish and 90 percent of them are bearish on the mining sector. I don’t know about you but whenever I see 90 percent of investors being sellers or wanting to be sellers while these stocks are massively undervalued, I want to be a buyer, not a seller. The last time the index was at such low levels was in December and my portfolio took off 40 percent a few weeks later.
Even though I am exhausted, the pain feels like it will never end, and my fingers are shaking from the thought of buying, the only prudent thing is to buy, buy, buy.