Gold Investing for Cowards
Source: Forbes (1/29/09)
"USAA Precious Metals fund shines by ignoring price swings in its core product."
This is Mark Johnson's reasoning. Then again, Johnson, who is manager of the USAA Precious Metals and Minerals (USAGX) fund, knows he could be wrong. Yet even if he is, it won't matter much to his investors: Johnson has gone to pains to build his $830 million (assets) portfolio into one that is largely agnostic about swings in metals prices.
Since Johnson took over the fund 15 years ago, it has returned an annual average of 8.6% vs. 6.5% for the S&P 500. He has also soundly outperformed the precious metals sector in four of the past five years, including 2008, when Johnson's fund fell a relatively modest 24.9%, according to Morningstar.
The key to posting such impressive long-term results, says Johnson, is ignoring speculative short-term price moves, like the one that sent gold prices above $1,000 per ounce last March (recent price: $854) .
Instead, Johnson and co-manager J. Dan Denbow try to dissect mining companies the same way they would manufacturers - on the basis of how well they're run and how profitable they're likely to be in the future.
Johnson analyzes 80 companies assuming all types of markets, and he buys only those he figures can survive bad ones. Since mining is capital intensive, these days that means digging up companies that can pay for operations largely without external financing.
It's also important to Johnson that a company is poised to cash in on the inevitable economic rebound. These days Johnson is moving into smaller companies.