Answering Readers Questions on Gold, Penn West Energy

First, Jeff asks:

Really enjoyed your take on Ensco, and your general investment assumptions. Very curious as to your view on the appropriate amount,%, of your portfolio that is in gold/ silver. Also, when would you increase that position, and how... mining stocks, bullion, ETFs?

It's uncommon that I agree with the mainstream viewpoint but in cases of asset allocation, I have to go with the herd on this. I think every individual investor has to take into account their particular situation, including objectives, available resources and risk tolerance. Gold is especially volatile so individual risk tolerance is a huge factor. After you get a grasp on this, then you can decide the ideal percentage to allocate to precious metals and how you want to divvy that up amongst the different vehicles available. So it would be completely inappropriate for me to suggest an allocation, other than to say it'd be a good idea to have some gold/silver.

Personally, the percentage that I'm invested in is pretty fluid, depending on the market scenario and my resources. Generally it's around 20-30%. I know some people like David Morgan and Jim Puplava recommend dollar-cost averaging into precious metals which is probably a good idea but as I've learned investing from a value standpoint, I just can't bring myself to dollar-cost average. I'll add to positions when there's opportunity and if I can pull the trigger fast enough. For instance, a week ago, you could have bought Minefinders (MFN) under $10 even with gold above $800. I wanted to take the weekend to dig into the company and before I could blink, it was at 10% and now 20%.

But I expect the volatility of this segment will give you chances to get a good deal if you're patient.

Finally, I tend to steer toward mining stocks as opportunities to find value are more available than the ETFs as those are based directly on commodity prices. But I need to reiterate that may not be appropriate for your situation. I don't own any bullion because ultimately, if things get so bad that you need the actual metal, then the most valuable metal in that situation would probably be lead, preferably teflon-coated.

Lisa asked:

Happened on your site/blog this morning via searching for info about Penn West Energy (PWE) - I owned CanRoys prior to 10/31/06, lost a bunch and have stayed away.

But, I am impressed with PWE's recent credit arrangement and am thinking of getting in again. Do you think it's on its way up now? The stock is acting bizarre
considering div date is Monday.

Lisa, I have no idea when PWE will move up again but clearly I think it will or else I'd sell it. The Canroys seem to be in investors' doghouse at the moment but it wouldn't surprise me if PWE's recent depressed levels were due to tax-loss selling and perhaps some merger arbitrage related to the Canetic buyout (arbitrageurs will short the acquirer's stock to lock in the stock's price at time of deal announcement if stock is involved in the transaction). The transaction is scheduled to close this month so PWE may see a lift after that.

Comments

[len811]

I bought ERFin Feb 2002 and again in April 2004. Has done well for me!
Question is: is it appropriate to buy now. Also, for PWE. When did Davy buy PWE (i.e., what was the price?)

[ErnieMontague]

I have held PWE for years, and though it has taken quite a hit, I have no desire to sell. Energy holdings I keep around 20% of my portfolio. I suspect that PWE will be a good holding for years to come. I could be wrong. I also just opened a position in PVX, which I consider the most attractively prices and least volatile of the Canroys. None of the other interest me.