Victoria Gold Incident: An Important Reminder About Position Sizing
This week, gold and silver prices continued to be elevated yet choppy, and the precious metals producers continued to slide lower. In my opinion, there’s nothing to do except wait, have some cash, and deploy capital when a quality company on your buy list is being sold excessively.
However, one event that happened this week caught my attention, as well as that of every other gold and silver equities investor: the incident at Victoria Gold’s Eagle mine in the Yukon and the stock’s subsequent 80% decline in one day.
Fortunately, there were no injuries to the company's personnel, but the company said in a press release, “At this early stage, it can be confirmed that there has been some damage to infrastructure and a portion of the failure has left containment.”
This incident shows that even in a country like Canada, which has very stringent rules and regulations for building a mine, and where companies typically conduct mining operations well, these incidents can still happen. They are one of the myriad risks associated with mining and can be an unfortunate side effect of the important process of extracting metals from the ground for their end applications.
For investors, this is a reminder about the importance of position sizing when investing in small and mid-cap miners. We, of course, want to do our absolute best to pick companies that are good operators and build and operate good mines. But there are, unfortunately, many things that can go wrong with these companies’ operations, even when everything is being done by the book.
Therefore, I believe it’s important to:
Only invest in small and mid-cap mining companies if you can manage the risk well.
Keep the overall allocation of a portfolio to these companies low.
Keep the position in each company low.
I know, these are very basic ideas, but sometimes we can get greedy and over-allocate to certain companies. This is just an important reminder not to get too arrogant and greedy in our position sizing because these can literally go down 80% in a day.
Imagine allocating a large portion of your portfolio to a company like Victoria Gold and then seeing the stock go down 80% in a day. That could be a devastating loss that would be incredibly hard to recover from. However, if this is a small percentage of your portfolio, you are much likelier to make it up quickly from other wins.
Investors are typically attracted to this asset class because of the incredible returns that can be available, but it’s important to remain constantly vigilant about the risks involved and to position size accordingly.
Thanks for reading and have a nice weekend!
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Disclaimer: This article is for informational purposes only and does not constitute investing advice. Please consult with a qualified financial advisor before making any investment decisions.
