Unconventional St. Louis money manager invests only in mining companies

By Greg Edwards
St. Louis Business Journal
Friday, February 2, 2007

http://stlouis.bizjournals.com/stlouis/stories/2007/02/05/focus1.html?b=...

Money manager Wistar Holt, who invests exclusively in companies that mine gold, shakes his head when he talks about his lonely outpost in the St. Louis investment community.

"Gold has been the top-performing sector five of the last six years, yet I don't know anyone else in St. Louis who is even recommending it," he said. "Could you imagine the commotion Wall Street would make if any other sector -- particularly the tech sector -- had that same performance?"

Holt, founder and portfolio manager at Holt & Shapard Capital Management in the Central West End, has been putting his clients in gold stocks since January 2001. He has about 275 clients with $73 million in assets under management.

"Too few people follow gold, too few people recommend it, and too few people own it," he said.

"A lot of people have some gold or inflation protector in their portfolios for the mere fact of diversification," said Jim Moore, a broker at Smith Barney in Clayton. "But Holt probably is the only money manager in St. Louis, and one of the few in the country, who invests only in gold. He's willing to bet it all on one asset class."

A bear and deep-value investor, even during his 21 years with Wall Street firms, Holt, 52, exited traditional investments at the end of 2000 because he feared declines in the market, the dollar and the economy.

"In 1999 and early 2000, when valuations in the market rose to ridiculous levels -- the Nasdaq index was trading at 400 times earnings, 10 times the historical average -- I felt the market was very vulnerable," he said. "I looked for the one asset class that would hedge or protect against a declining market, dollar and economy. The one thing I came up with was gold."

His timing couldn't have been better. Gold, which peaked at $850 an ounce in 1980, was trading at $255 an ounce when he began investing in it in January 2001. "The great irony was that gold had gone through a 20-year bear market; it fit right into my deep-value style," Holt said. "Gold has climbed every year since then." It trades at about $650 an ounce today.

The investment results at Holt & Shapard, which has only three employees, are impressive. Its accounts, which are fee-based and fully discretionary, were up 30 percent in 2001, up 155 percent in 2002, up 20 percent in 2003, down 17 percent in 2004, up 12 percent in 2005 and up 48 percent in 2006. All results are after fees. Since January 2001, the firm's results are up almost 33 percent, compared with 1.3 percent for the S&P 500.

Pete Rothschild, owner of Rothschild Development in St. Louis, has been investing with Holt & Shapard for several years. "Everybody laughs at the gold bugs -- they're supposed to be the guys with the bomb shelters," he said. "But the more you look into the people who are doing it and the reasons they're doing it, the more sense it makes. I've made a lot of money."

Obviously, Holt is passionate about gold: "It has intrinsic value. It's rare, it's limited, and it has existed as a currency for over 5,000 years. It requires a tremendous amount of energy, time, and effort to manufacture or bring to the surface from a mine -- and it's unlike paper money, which is printed daily and endlessly by central banks all over the world."

But, he emphasized, "I'm not a gold bug. We have built these portfolios, which now consist of 100 percent gold and silver mining companies, because that's where the best opportunity is. But when it's time to get out, we will. In time, we may move back entirely into the traditional market."

Holt & Shapard (that's Charles Shapard, who does the firm's marketing) is currently invested in nine Canadian and U.S. mining stocks. More than 40 percent of its investments are in one stock, ECU Silver Inc., a midsize company based in Toronto. Holt bought the stock at 40 cents a share a year ago; it currently is trading at $2.70 a share.

Besides gold and silver, ECU mines copper and zinc, which also are seeing price increases.

Still, doesn't a 40 percent stake make Holt nervous?

"I've put a tremendous amount of research into it," he said. "I've been to the mine in Mexico, and the amount of gold, silver, copper, and zinc in the mine is significant."

And he sees gold skies ahead. "Gold prices will continue to climb, especially as the U.S. continues to run massive budget, trade, and current account deficits," he said. "Nobody knows where it will peak, but I wouldn't be surprised to see the price double from here, triple perhaps, before the bull market ends."

Although gold is not bought aggressively by investors in the United States, it is in many other parts of the world. "India, where they worship gold, consumes 25 percent of the world's annual production," Holt said. "And there is a growing demand for gold in the Middle East and in China, where a little over a year ago residents couldn't even own gold. The same is true in Korea, Turkey, Argentina and Russia. That's what has taken the price up."

As for his lonely outpost, he said there's a reason for that.

"Gold is, by definition, a hedge against the types of assets that Wall Street promotes. Remember, gold is a proxy, it's a fear factor, it's a thermostat," Holt said. "Most brokers, especially retail brokers, follow a cookie-cutter approach. They'd rather sell their traditional assets of stocks and bonds. To sink your feet into this asset class as an adviser, you have to run counter to all the traditional direction that Wall Street has given you."

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