While we have stayed away from the materials space and recently been more negative on oil, we did not expect the carnage in the commodity space we saw Monday. With our bottom-up approach, we tend to shy away from capital-intensive price-taking businesses and the market movements Monday put on display what can happen to a stock when the number one determining factor for its value is out of the company's control -- in this situation, the commodity price.
I have spoken to many people in the industry to get an idea why this is happening now, but there is no clear answer. What is clear is that it is difficult to value non-industrial commodities because they earn nothing. While we are taking advantage of the overall declines in the market to add to some names we have been waiting for (equipment, transportation, natural gas), we are not stepping into the gold/silver space.
This probably is some sort of near-term bottom and we will likely see a bounce from here (if we did own, we probably wouldn't be selling), but we would just be speculating on a trade if we put money to work. The toughest thing about investing like this is you have to be right twice in a row: on the buy and on the sell! We aren't that smart, so we will continue to focus on fundamentally driven stories in companies where we can get great comfort in the downside risk we assume.