Robert Sinn: How to Build a Mining Stock Portfolio and When to Sell

More complex than chess

Sinn drew from his experience as a teen chess master to make a point, saying that in six years of studying chess, he achieved something he's never accomplished in 21 years of studying markets — mastery.

He explained that while the combinations and variables in chess may seem infinite, they are not; however, when it comes to investing, especially in the resource sector, they are. From finding a resource, to mapping it, getting financing and ultimately building a mine, each step comes with challenges that could change the direction to success or to failure.

How can investors know? Sinn said it’s all about finding the signal through the massive amount of noise.

“In 2024, one of my key assertions is that we’re being flooded with noise, constantly. Just a deluge of noise, possibly your phones, or news or media, even companies are putting out noise. The stuff they’re telling us isn’t really that important all the time, right? We need to figure out what’s the difference between the noise and the signal,” he said.

For Sinn, one such signal came in October 2023, when Hercules Silver (TSXV:BIG,OTCQB:BADEF) announced strong drill results from its property in Western Idaho. Though he had never heard of the company, he recognized that the discovery was strong and the signal was strong. He bought in at C$0.29 and six weeks later shares were up 440 percent.

Sinn also pointed to Awale Resources' (TSXV:ARIC) February 29 news. While the company was simply reporting the completion of a drill program, he noted the excitement that came through in the news release.

“Not every company does this, a lot of companies will finish their program, but they won’t announce to the market. … But this news release was really explanatory. It was like they were really happy. They didn’t tell us what the assays were going to be, but if you read the words, they’re pretty excited,” Sinn explained to the audience.

On March 25, Awale announced results from the drill program, reporting an intersection of 45.7 grams per metric ton gold over 32 meters. While shares didn’t move after the company's February release, anyone who bought in then would have spent C$0.13 per share; when the results were announced in March, shares skyrocketed to C$0.98.

For Sinn, this wasn’t about creating magic, it was about understanding patterns in the industry and recognizing excitement from company executives who may not have had results, but had been on site, talked to people who knew the resource and had a good feeling they were on to something big.

Risk management

Sinn noted that in addition to finding the signal in the resource sector, investors need to understand their risk and where it's coming from. From there, it’s important to be aware of possible pitfalls and find the edge.

According to Sinn, one way to define that edge is to talk to people. “Find smart people, get ideas from them, talk to them, bounce ideas off each other, figure out the difference between noise and signal,” he said.

The resource market is no stranger to returns of 10 times, but for every big win, there are even more major losses. Investors need to recognize the volatility in the sector and be prepared to lose half their money.

Sinn suggested that investors need to make their own luck and ensure that when they build their portfolios, they keep volatility in mind. “You should size your bets accordingly; if something can drop 50 or 60 percent in a month, you probably don’t want to have all your money in it, right? You want to have like 3 or 4 percent,“ he said.

Sinn also likes to keep 10 to 30 percent cash available so he can have the flexibility to take advantage of new opportunities. He is a proponent of diversification, and recommended not holding more than 10 percent of any single stock — he only holds a position that large if he has a high enough conviction.

To reduce risk further, he also suggested never trading on margin.

“Sometimes you might have a big winner, or you might have like 5 percent in something that does a four times gain. (If) you’re really lucky, then it's 20 percent of your portfolio, which is fantastic. But then you’re overweight into that one stock, so it's usually prudent to take some off the table, maybe even sell half so it's back down to 10 percent,” Sinn said.

Don’t be afraid to sell

Among the most important elements of Sinn’s take on managing risk is understanding when to sell.

At the end of the day, the point of being an investor is to make money. Sinn said investors should have discipline, and part of that is never falling in love with a stock. He added that every stock has a price at which it becomes a sell, whether it’s due to its valuation becoming very high, or that the sector is no longer viable.

“You don’t have a profit until you take it,” Sinn emphasized.

However, he also noted that selling isn’t just about taking profits. It’s also about understanding why an investor might choose a stock — if the reasons for that choice change over time, it could be a good time to exit.

Likewise, investors sometimes hold stocks hoping a losing position will turn into a winning position. “In terms of cutting losses, (if) it’s not working out ... sometimes it’s just not going to work out. We just have to accept that,” Sinn said.

When it comes time to take a profit, Sinn also suggested investors should not feel the need to fully exit positions in stocks they feel strongly about. “You’ll have plenty of losing trades as part of the game — sell and move on to the next one when it's not working. Take profits on big winners and try to hold onto your position. You don’t have to sell it all. Never stop learning, reading and listening to smart people,” Sinn concluded.