Portfolio Adjustments: Scaling Back MSFT, Buying Gold Miners

Some adjustments were made to the portfolio today. One minor, the others major.

First, I scaled back on my Microsoft (MSFT) position, selling shares at $30.37. The stock is up 65% (not counting dividends) since I bought it earlier this year. I think it will be a fine core holding, with Windows 7 sales incorporated in future results. The stock has grown to an over-size holding, so I cut it back to a normal 4%-5% portfolio weighting.

Second, I have decided to expand my exposure to gold-related investments substantially. You know I established a roughly 10% portfolio position in the SPDR Gold Shares ETF (GLD) last summer. That remains intact.

Today I devoted approximately 20% of the portfolio (which had been sitting in cash) to equal positions in four gold mining plays:

• Newmont Mining (NEM) -- bought at $49.45 per share
• Goldcorp (GG) -- bought at $41.86 per share
• Agnico-Eagle Mines (AEM) -- bought at $57.84 a share
• Market Vectors ETF Gold Miners Trust (GDX) -- bought at $49.28

I have conviction we ARE in a gold bull market, but NOT a gold bubble. The recent healthy correction we've experienced in gold cements that view. Gold prices are being driven by factors like central banks buying the metal (especially in Asia), a trend just starting, and individuals distrusting paper currencies being printed out of thin air by the trillions.

That's gold -- but why did I buy gold mining stocks? Because gold miners have underperformed the price of gold bullion badly. And before gold bull markets end, the miners typically go for double or more the price of the metal itself. This also confirms in my mind that we're not seeing a gold bubble here.

I'll post more about this as time permits. But I'll add one last thing: I'm buying major gold producers. I know some say it is the juniors that really go gangbusters before gold bull markets end. Yet I'll just stick with the major gold miners with proven reserves, for now at least.

Comments

[Philbert]

Sooo.... I really enjoy your blog. In my mind it is one of the best independent, no BS, personal investment sites. I like a lot of your stock picks: Fairfax, Microsoft, Capital Southwest. But i'm having a hard time understanding your new gold direction.

"Investors...should try to be fearful when others are greedy and greedy when others are fearful". Warren Buffet

[Zach]

Have you thought about maybe going for Implats? It seems to me that it has a great balance sheet compared to many other miners. The catalysts are most likely still offering greater value than gold. Just a thought. I know you've been trending towards more attention to gold for a bit now.

[John]

@Philbert: Thanks for your praise for this blog, I truly appreciate it. For gold, if one believes we're in a gold bull (and not a bubble), gold miners offer potentially excellent outperformance by the time the gold bull ends. We'll see.

@Zach: It didn't show up on my radar, but I'll check it out.