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Chairman of the Board, Eric Sprott, speaks during the Sprott Inc. annual general meeting in Toronto on Wednesday May 23, 2012. (Aaron Vincent Elkaim/THE CANADIAN PRESS)
Chairman of the Board, Eric Sprott, speaks during the Sprott Inc. annual general meeting in Toronto on Wednesday May 23, 2012. (Aaron Vincent Elkaim/THE CANADIAN PRESS)

SCHIZAS’ MAILBAG

Too soon to hit the exit on Sprott? Add to ...

Hi, I have been holding SII now for over a year. I have seen my value decline by 50 per cent. Do you see short term recovery or should I consider selling at this point?

Thank you, appreciate your evaluation of the stock’s prospects, Ed.

Hey Ed, thanks for the assignment. This will be the second time that I have commented on the shares of Sprott Inc.

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The first time was on May 28, 2010 when the shares were trading for $3.61. Robbie wanted to know my assessment and it was observed that the shares were not yet ready to move higher. On July 30, 2010 the stock hit a rock bottom at $3.23 where a trend reversal took the shares to $9 by late December of 2010. Unfortunately that’s as good as it got. Despite numerous attempts SII could not break above $9 and then began giving up ground in August of 2011. The selling pressure has been brutal and relentless since then driving the stock to a series of lower lows. I am not sure what got you interested in this stock initially but now that you have paid the tuition its time to at least get the learning that comes from experience.

An examination of the charts will provide some of the patterns and signals that will help you decide on how best to manage this asset.

The three-year chart depicts a vicious downtrend which for the informed investor also provided a number of trading opportunities along the way. If your entry point was at any time after August of 2011 you would have been well served to make note of the death cross that surfaced, which signalled that it was time to get off of this ride not buy an express ticket to near the historic lows.

All along the downtrend there were opportunities to take a loss and preserve capital. As I have said many times before your first loss is often your best loss so take the pain early. You should also make note of stubborn resistance along the 50 and 200-day moving averages. Finally the steep decline that started in mid November of 2012 when the stock could not hold support at $4.25 has set the stage for a retest of the August 2010 lows.

The six-month chart provides a close-up of the aggressive selling that started in mid November despite a better than expected Q3 report. The early December announcement that the company would be taking a charge on its acquisition of Flatiron Capital Management was just another in a long series of disappointment for investors. Currently there are no indications that the selling pressure has abated.

What you should consider is taking the tax loss and if the shares start to reverse the downtrend with conviction get back on. I don’t want you to feel bad about this outcome. All investors take a bad haircut at some point and the salvageable asset from these situations is the education you earned by paying your tuition to the school of hard knocks.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

 
Security Price Change
SII-T Sprott Inc. 3.00 0.02
0.671 %
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