“Price is what you pay, value is what you get” – the investment legend that is Warren Buffet never spoke more of a truism. The problem is that the period of time it can take for the value to ‘out’ can be quite extended…
After experiencing a relatively deep drawdown in the last quarter of 2013, we went into the New Year positioned heavily long gold and related stocks, selected other deep value miners like Kazakhmys (which illustrated perfectly how re-ratings can occur in dramatic fashion literally overnight) and also short the U.S stock market to the maximum level permitted by our mandate. As the chart above reveals, this positioning was very prescient with the US stock market declining by over 5% peak to trough as January got underway, and the entire gold mining spectrum veritably racing off the blocks.
We were nimble enough to cover our shorts as the equity market declined and this added quite a few percentage points of outperformance to our returns, particularly against our benchmark the MSCI World Index. Of course, the storming performance of the gold miners, with some of the juniors more than doubling in the space of several weeks (a situation typically evident at the bottom of bear markets), was a particularly positive contributor to our client returns. >
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