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Currently 5% of my portfolio is in mining sector. I've watch this decline in the last few years. One could argue that 5% isn't too bad and i should hold on and not sell at the bottom of the cycle.

However it's hard to say that this is the bottom i'm pondering maybe reducing this to 2.5% and putting towards high conviction ideas. Perhaps re-enter after a month or 2 of growth.

I'm sure many of you have shares in this sector ( as well as energy ). How are you playing this?

  • I can't comment on this one as I'm long $JOY and it HURTS right now ;) – Ross Dec 3 '15 at 18:13
  • You should never stay in a falling stock. In fact before you even buy a stock you should know where your get out price is. This is called risk management. – user9722 Dec 3 '15 at 20:10
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At this particular time, I would strongly suggest holding on and not bailing. I've been following this sector pretty closely for 10+ years now. It has taken an absolute beating since 2011 (up to 90% down in many areas), and has been in a slow downward grind all year. Given the cyclical nature of the markets, you're far far closer to a long term bottom, and have a much better risk/reward outlook now vs say, four, or even two years ago. Personally, I'm planning on jumping into the sector heavily as soon as I see signs of a wash-out, desperation low, where people like yourself start selling in panic and frustration. I may very likely start cost-averaging into it even now, although I personally feel we may get one more major bottom around the spring 2016 time-frame, coupled with a general market deflation scare, which might surprise many by its severity. But at the same time, the sector might turn up from here and not look back, since I think many share my view and are just patiently waiting, and with so many buyers waiting in support, it may never crash hard.

In any case, I personally feel that we're approaching the cheap buying opportunity of a lifetime in this sector within the next year (precious metals miners that is, base metals may still falter if the economy is still iffy, and just look at the baltic dry index as an indicator of world trade and productivity... not looking so hot). If you've suffered this long already, and it is just a small portfolio portion, just keep hanging in there. And by next summer, if we get a confirmed panic low, and a subsequent strong, high-volume, consistent bounce pattern up past summer 2015 levels, then I'd start adding even more on dips and enjoy the ride.

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  • Buy commodity producers when fear is rampant, bankruptcies abound, and things look dark. Maybe we are getting close. To the point...don't sell now, perhaps start nibbling. Precious metals are different, and I've no thoughts worth expressing. – michael Dec 3 '15 at 22:54
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I'll take a stab at this question and offer a disclosure: I recently got in RING (5.1), NEM (16.4), ASX:RIO (46.3), and FCX (8.2). While I won't add to my positions at current prices, I may add other positions, or more to them if they fall further. This is called catching a falling dagger and it's a high risk move.

Cons (let's scare everyone away)

  • The commodity beating probably hasn't ended and these could fall another 50+%.
  • With central banks tightening, most expect that commodities will suffer more (hold this thought, though).
  • It looks like 2016 will be a recession for many countries, possibly the US. This will continue to negatively impact mining.
  • For most people, you should stick to index funds, as mining assessment usually involves some blue collar understanding of what assets become valuable in what times.
  • There was too much debt in mining in the past, and it's getting flushed out. This isn't a short process.

Pros

The ECB didn't engage in as much QE as the market hoped and look at how it reacted, especially commodities. Consider that the ECB's actions were "tighter" than expected and the Fed plans to raise rates, or claims so. Commodities should be falling off a cliff on that news.

While most American/Western attention is on the latest news or entertainment, China has been seizing commodities around the globe like crazy, and the media have failed to mention that even with its market failing, China is still seizing commodities. If China was truly panicked about its market, it would stop investing in other countries and commodities and just bail out its own country. Yet, it's not doing that. The whole "China crisis" is completely oversold in the West; China is saying one thing ("oh no"), but doing another (using its money to snap up cheap commodities).

Capitalism works because hard times strengthen good companies. You know how many bailouts ExxonMobil has received compared to Goldman Sachs? You know who owns more real wealth? Oil doesn't get bailed out, banks do, and banks can't innovate to save their lives, while oil innovates. Hard times strengthen good companies. This means that this harsh bust in commodities will separate the winners from the losers and history shows the winners do very well in the long run.

Related to the above point: how many bailouts from tax payers do you think mining companies will get? Zero. At least you're investing in companies that don't steal your money through government confiscation.

If you're like me, you can probably find at least 9 people out of 10 who think "investing in miners is a VERY BAD idea." What do they think is a good idea? "Duh, Snapchat and Twitter, bruh!" Then there's the old saying, "Be greedy when everyone's fearful and fearful when everyone's greedy."

Finally, miners own hard assets. Benjamin Graham used to point this out with the "dead company" strategy like finding a used cigarette with one more smoke. You're getting assets cheap, while other investors are overpaying for stocks, hoping that the Fed unleashes moar QE! Think strategy here: seize cheap assets, begin limiting the supply of these assets (if you're the saver and not borrowing), then watch as the price begins to rise for them because of low supply. Remember, investors are part owners in companies - take more control to limit the supply. Using Graham's analogy, stock pile those one-puff cigarettes for a day when there's a low supply of cigarettes.

Many miners are in trouble now because they've borrowed too much and must sell at a low profit, or in some cases, must lose. When you own assets debt free, you can cut the supply. This will also help the Federal Reserve, who's been desperately trying to figure out how to raise inflation. The new patriotic thing to do is stimulate the economy by sending inflation up, and limiting the supply here is key.

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  • banks can't innovate to save their lives - not even remotely true – Ross Dec 4 '15 at 17:26
  • K bruh. It's not just me who thinks this: blogs.wsj.com/marketbeat/2009/12/08/…. Bitcoin, love it or hate it, has innovated more in six years than the entire US financial industry in a century. – user541852587 Dec 4 '15 at 18:17
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    First off, that's a blog post - not news or even a well written article. Secondly "bruh", it doesn't even mention in the article that banks don't innovate. Volker just ask about evidence linking financial innovation with a benefit to the economy. The blog post itself is more about reform - and doesn't even do a good job at mentioning that. If you think the banks have not innovated any in the past 30 years you have been living under a rock. – Ross Dec 4 '15 at 19:16

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