April was a good month for my portfolio, the first really good one in a while. The portfolio was up 6.47% in April, bringing the year-to-date performance to +5.49%. Being only one-third of the way through 2010, this is a very good start. Below are figures that illustrate my portfolio's performance during the last month, the current year and since 1-1-00. For simplicity, I have assigned a value of 100 to my portfolio on 1-1-00, hence the title Jay’s PF Index. Later dates show what $100 invested in my portfolio has grown to. In addition, for comparison purposes, you will see my portfolio compared to gold and the DJIA compared to gold for all of these periods of time.

V A L U E S Date Silver Price in USD Jay PF Index in USD Gold Price in USD Oz. of Gold / 1 USD JPF Index /Gold DJIA Dow/Gold 01-01-2000 5.00 100.00 282 0.003546 0.3546 11,650 41.3121 01-01-2010 16.92 396.85 1,097 0.000912 0.3618 10,600 9.6627 03-31-2010 17.48 393.20 1,113 0.000898 0.3533 10,857 9.7547 04-30-2010 18.64 414.78 1,179 0.000848 .3518 11,009 9.3376   P E R F O R M A N C E Period Jay PF % Chg in USD Gold % Chg in USD USD/Gold % Change JPF Index /Gold % Change DJIA % Chg Dow/Gold % Chg 04-01-2010 to 04-30-2010 (Apr 2010) +6.47% +5.93% +5.60% -0.42% +1.40% -4.28% 01-01-2010 to 04-30-2010 (YTD 2010) +5.49% +7.47% -6.96% -2.75% +3.86% -3.36% 01-01-2000 to 04-30-2010 (124 mos.) +314.78% +318.09% -76.08% -0.79% -5.50% -77.40%   Notes: (1) "USD/Gold % Change" is simply the reciprocal of the gold price in dollars. You cannot precisely compare the dollar with gold without adjusting for interest. The dollar earns interest. Gold does not. With interest rates near zero, this seems insignificant, but over time it is not. Interest rates must eventually rise. On the other hand, GATA and other experts on gold claim that the price of gold has been artificially manipulated downwards for many years by concentrated short selling on the futures markets. Some experts also believe that a significant percentage of physical gold supposedly held by futures exchanges does not exist. Furthermore, central bankers regularly talk down gold. After all, it competes with their fiat currencies and threatens their job security. (2) The Dow Jones Industrial Average (DJIA) does not include dividends given to shareholders. These are typically reinvested, but nowadays the dividends are usually quite small. It also does not include the brokerage fees and capital gains taxes that usually accompany investments in the stock market.

I made one transaction during April. It is listed under Jay’s Recent Transactions. Here is my portfolio as of April 30, 2010:

CASH	26.3%	(MINIMUM 30%)  (US Treasury Bills 7.0%, HAGRF 6.3%, Bank deposits & Money Market 13.0%)
GOLD & SILVER	44.2%	(MINIMUM 30%) Gold – 15.7% (Swiss 1-oz bars 5.4%, 1-oz Kruggerands 10.2%)                          Silver – 28.5% (90% coins 19.1%, 1-oz eagles 2.7%,                                                  1000-oz bars 2.6%, SVRZF 4.1%;                                                  note: silver was up 6.6% in April)
MINING SHARES	18.2%	SSRI 6.1%; GDX 4.5%; SLW 4.2%; SA 1.4%; VGZ 1.2%; AUY 0.8%
NON-GOLD & SILVER PHYSICALS	9.5%	Oil & Gas W/I – 9.5% (Non-publicly traded investment)
PUTS & CALLS	1.8%	SSRI Jan. 21, 2012 Call, strike 30, SLW Jan. 21, 2012 Calls, strike 25
TOTAL	100.0%

Comments

Through March, my portfolio was still down slightly for the year. Now it’s up about 5.5%. This is typical of the way secular bull markets act. Following a good move up lasting months or a year or more, they tend to enter a counter trend correction which can also last several months, or even one to three years. During this correction period, more and more investors (especially the late-comers who bought near the high) become convinced that the bull market is over, or they fear they made a mistake in buying, or they fear losing their money, so they sell. It takes a while for them to migrate out of the bull market which can extend the correction, or consolidation phase, for almost any length of time. The great investors (i.e. the experts I follow) know this, and they wait patiently for the market to fall far enough to provide a good buying opportunity. Then if they are under allocated, they add to their positions. This can often cause a quick reversal upward and kick off the next intermediate move up in the secular bull market. April may have been such an event. Gold rose 5.9% in April. Silver rose 6.6%. Even more interesting to me, my mining shares (which were only about 15% of the portfolio at cost, limiting the risk) rose 19% in April. And my portfolio of long term calls on SSRI and SLW (which cost only 1.5% of the portfolio) rose 38% in April. Please note the following very important points on this discussion:

1. I know of no way to time or forecast these periods of correction or consolidation in a secular bull market of an asset class. My experts repeatedly point out that they make no attempt to trade them. They spend most of their time waiting patiently, with plenty of dry powder (cash) and firm control over their risk profile, waiting for entry at bargain prices. They buy only assets which are hated and shunned by the crowd. As Jim Rogers puts it, “I wait till I see money lying in the corner, then walk over and pick it up.” Having made the investment, they then hold through all the wiggles and waves in the price chart, waiting for the crowd to come in and create a bubble, then sell out during the bubble phase.
    

2. Please re-read point number 1 again. Think about it, then ask yourself if that is what you are doing, or have done, with your portfolio. I mention that because the readers of these reports are all different in their objectives, their risk profiles, etc. Some are just beginning to build a portfolio. Others have followed my portfolio since the commodity secular bull market started in 1999. It is absolutely impossible for me to write something which would fit everyone. As I’ve struggled with this problem these past few years, I’ve attempted “climbing a few walls”, and as you know climbing a bare wall is a futile undertaking. An example may help. Jim Rogers has been fully invested in the commodity market (about forty different commodities) since 1999. He hasn’t sold any of them yet. But according to his recent interviews, there are only two commodities he is currently buying, silver and natural gas. That’s because they are at bargain basement values today. I bought the majority of my gold years ago at much lower prices. Like Rogers, I have no interest in buying any gold now. Nor do I intend to sell it until it becomes a bubble, probably several years from now. I also bought some of my silver years ago, but I have added to it several times since, because it is still at a bargain price. The market value of my silver is about twice the market value of my gold. That makes sense to me, because gold is near its all time high and silver is still down about 65% below its all time high. I believe the market will someday correct the gold/silver ratio from its current 63 to 1 to a level much closer to its historic ratio of about 16 to1. If that happens, I will likely reallocate and capture the big one-time gain.
    

3. The other commodity Rogers is buying now is natural gas. Currently at about 4.00 per Mcf (1000 cubic feet), it is down 75% from its high. But it has been below 3.00 recently and could go back to that level or lower before this correction is over. I would be surprised if Rogers has bought anywhere near all he intends to buy, but that’s just a guess. Since I have a 9.5% position in oil and gas producing properties, I don’t need to buy more. But if I had little or no investment in natural gas, I would begin nibbling on San Juan Royalty Trust (SJT) at 23 or lower. I see no reason to get in a hurry, or pay more than that for it now. At that price it pays about a 10% yearly cash distribution.
    

4. But what if you are just now beginning a portfolio, or you have not yet completed building your portfolio? This is the really difficult question to answer. Here we are, ten years into the secular commodity bull market. There’s no way you can buy in at 1999 prices. Yet, according to my experts we are probably only half way through the bull market, and the last half will contain the really big moves in the bubble phase…definitely worth participating in. Here are some options for you to consider.
   
   (A) Other than adding to silver or natural gas, do nothing except hold a good cash position and wait for the next bargain price opportunity.
   (B) If you wish to own some of the other assets in my portfolio, e.g. gold, or the mining shares, begin slowly accumulating them in small bites following the dollar cost averaging plan described in preceding articles. (See A Strategy for Accumulating Gold and Silver).
   (C) Some may wish to “bite the bullet” and bring the entire portfolio allocation into conformity with your desired allocations in one step, letting the past be in the past.
   (D) Whatever option(s) you choose I recommend you re-read Letter 2 on the Permanent Portfolio strategy and risk control. You may decide you should have a larger percentage in PRPFX. It has performed amazingly well through the financial turbulence of the past 3 years, substantially outperforming the Dow on both the down move and up move, and is today at an all time high. But note, even adding PRPFX to your portfolio carries some risk, because it is at an all time high. If I were going to take this action I would follow the dollar cost averaging approach in doing so.
    

5. Of the four options suggested in paragraph 4 above, I presently lean toward option (A), but there’s no way to know whether it will turn out to have been the best in the period ahead. It’s just that fifty years investing experience has convinced me that it is the most difficult of all investing strategies, but it has been the most richly rewarding one for me. Warren Buffet says it this way, “Wait for the fat pitch! You can let as many balls go by as you wish. You’re not limited to three strikes or four balls. Wait for the fat pitch.” Like the subways in New York City, if you miss one there will be another along in 90 seconds. I assure you there will be many more buying opportunities in the future. I’ll do my best to pass them along to you as I learn them from my experts.
    

6. THE BOTTOM LINE: By all means, act on option (A) if you need to. Be slow and cautious in acting on any of the other options. Make sure you keep a good cash reserve and have zero debt.
    

7. I realize everyone is in a different position, with different objectives and risk profiles. If you have a specific question, email me. I’ll do my best to answer. Perhaps some would be good to include in future reports. I suggest dealing in terms of percentages rather than dollar amounts. I won’t disclose anyone’s name. We’ll see how it goes.

Final Thoughts for the Month

To everything there is a season, 
A time for every purpose under heaven: 
... A time to plant,
And a time to pluck what is planted;
... A time to cast away stones,
And a time to gather stones;
... A time to gain,
And a time to lose;
A time to keep,
And a time to throw away.

(Ecclesiastes 3:1-6 NKJV)

Come now, you who say, “Today or tomorrow we will go to such and such a city,
spend a year there, buy and sell, and make a profit”;
whereas you do not know what will happen tomorrow.
For what is your life? It is even a vapor that appears for a little time
and then vanishes away. Instead you ought to say, 
“If the Lord wills, we shall live and do this or that.” 

(James 4:13-15 NKJV)