Gold, Oil, Banks And Miners... How One Fool Is Playing The Crisis

Published in Investing on 9 September 2011

Lloyds and BHP are among the cut-price buys.

Never waste a good crisis, they say, and I've been doing my best not to squander this one. I said this this is the buying opportunity I've been waiting for, and I have dutifully done a bit of shopping.

Buying shares right now is a bit like setting off for Oxford Street in the Christmas sales -- you need sharp elbows and iron nerves. In my weaker moments, I have been tempted to sit quietly at home instead, and hang onto my pennies. Still, I boldly did battle, and returned home laden with cut-price goodies. Only time will tell whether they were worth the money. So what did I buy?


I suspected I was buying Lloyds Banking (LSE: LLOY) too soon when I topped up my existing holdings at 35.39p on 5 August, and cursed my impatience when it quickly dropped to around 28p.

I'm a little happier now, with the big UK banks staging a minor recovery. Barclays (LSE: BARC), Lloyds and Royal Bank of Scotland (LSE: RBS) have developed the habit of rebounding sharply on the slightest uptick in sentiment, which suggests that investors still covet them. We might see another rebound if the regulators end up going soft on the sector, which is more than likely.

It could take some years for banks to recover, and they will be barren, dividend-free years. Indeed, the next leg of the eurozone crisis could knock their shares even lower. But I've got twenty years until I retire, to see if my bet pays off.

Would you bet against the banks?

Dig deep for miners

It's nerve-wracking throwing money into this market. The only way I can do so is to remind myself that I am investing for the very long term. It also helps to pick up shares that have already fallen a long, long way.

Such as mining giant BHP Billiton (LSE: BLT), which was down 25% on its twelve-month high when I bought on 23 August at 1,940p. This share could slump further, especially if China suffers a hard landing, and I may have bought at the wrong point in the commodities cycle. But at least I haven't bought at the very top.

Again, time is on my side. The good thing about taking a gamble on shares is that you can wait years for your bet to come off.

Going for gold

I really have taken a gamble on my next stock, Vatukoula Gold Mines (LSE: VGM). I missed out on the gold boom, after wrongly deciding the price looked toppy at $1,300. With gold touching $1,900, my ability to time the market is as bad as Gordon Brown's.

I thought I could make amends by investing in a junior gold-mining stock instead, especially since prices have trailed down in recent months. When I bought Vatukoula on 23 August at 120p, it was down nearly 50% on its twelve-month high of 227p.

If UBS is right, and gold really is set to hit $2,075 in 2012, and if we get another bout of 'QE', the cash will keep flowing into gold-company coffers, and that has to be good for their share prices.

I'm speculating a little on Vatukoula, but I'm hoping that both fear and greed will work in my favour. Fear, as investors dread more turbulence, and greed, as they try to cash in on gold's recent gains.

Always bet on black

If I was a brave investor, I would have bought oil explorer Tullow Oil (LSE: TLW) a few weeks ago, and I'd be celebrating this morning, as it is up 11% on encouraging news from its joint venture with Royal Dutch Shell (LSE: RDSB).

Instead, I spread my risk with Junior Oils Trust, drilling into this unit trust on 27 July and again on 10 August. Fund manager Angelos Damaskos has been taking advantage of recent market weakness to invest in oil stocks with good reserves in politically stable areas. During the next decade or two, oil can surely go only one way -- out of the ground, and into the atmosphere. This means there will be less of it than before, and it will fetch an ever higher price.

I'm 11% in the red so far, but in due course, I expect to end up nicely in the black stuff.

Sale of the century

It is far too early to say whether my strategy is working, so I'll let you know in a few years. In the meantime, I'm expecting plenty more volatility, and have kept a bit of cash in reserve. The sales aren't over yet.

Happy crisis investing!

More on the markets and shares:

> Harvey owns shares in BHP Billiton, Lloyds Banking and Vatukoula Gold Mines, and holds units in Junior Oils Trust.

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mackeson29 09 Sep 2011 , 12:44pm

Just sneaked in underneath you Harvey. Picked up Lloyds at 34p. Was suitably gutted like yourself when it fell below 30p.

equitybore 09 Sep 2011 , 1:49pm

"Too many banks and not enough bankers" Does anyone know - even the banks themselves what ordure is lurking in their balance sheets? On the other hand, oil prices are holding up and most hard commodities too, so I know where I would put my money. And have.

goodlifer 09 Sep 2011 , 3:50pm

FWIW - not a lot - I've gone for STAN, DGE, PSON and ANTO, all newcomers to my portfolio.

ANuvver 09 Sep 2011 , 4:50pm

Wish you all the best Harv, but personally I'm still stalking BLT... Commodity supercycle anyone?

vinchainsaw 10 Sep 2011 , 12:13am

I like banks generally but the current MTM (mark to myth) rules leave me feeling uneasy.
I also read a research article earlier this week that inferred that if the European banks were forced to mark their sovereign debt they would be insolvent, not to mention other fail-safe levels and Basel requirements.

WillXster 11 Sep 2011 , 9:01am

I can't see any upside to banks at the moment, maybe history will reward those brave enough to dive in now, but with no profits, no dividends and unknown quantities of bad debt I'll be holding off for a least a year or two before looking at this sector.

ANuvver 11 Sep 2011 , 9:40pm

Good luck all - it's going to be an ugly day...

LeeJG 12 Sep 2011 , 1:38pm

Your unlikely to buy on the bottom and sell at the top, just do the best you can.

compound200 12 Sep 2011 , 1:42pm

doesnt the 2019 new banking rules throw a spanner in

7 years of muddle

donovan5 12 Sep 2011 , 5:11pm

Not sure of the sense in buying a gold miner that has manged to plummet while gold has rocketed

snoekie 12 Sep 2011 , 5:14pm

Fret not Harvey, I bought in on 2 Aug, @40p.

Now I am lurking, waiting for a decentish drop again, 25p or below.

Patience is a virtue.......!

Spode101 12 Sep 2011 , 8:02pm

Armageddon is.. Greek default followed by the rest of the PIIGS. Banks go bust and second Credit Crunch, West mired in double dip recession even depression. Governments unable or unwilling to take necessary steps. Proposition - sell everthing - stock market, property etc and keep cash or gold.

But if you believe a route out will be found (some) Banks offer unbelievable value. Barclays trading at P/E of less than 5.. and that's based on last period earnings - hardly stella in the economic and interest rate environment.

I prefer Barc to Lloyds or TSB simply because they are more diversified. Banco Santandar is just a ridiculous buy. But its all depends on your risk and reward attitude fellow fools.

Any rational assessment stillmakes Banks a screaming buy.

Chongq 12 Sep 2011 , 10:28pm

BHP yes please Banks forget it

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