A friend of ours who is also an investor called us up to tell us that he had just purchased another dozen or so gold stocks and then proceeded to pepper us with questions about each one. Well we knew a little about some of them but what became apparent was that our friend also knew very little about his purchases which caused us some concern.
As the conversation developed our colleague revealed that he owns approximately 150 stocks which amazed us as we just cannot keep track of that many stocks. Our watch list is huge but its a giant leap from that list to actually putting our hard earned cash into a stock and even then we can still get it wrong. As the debate developed we defined three categories or strategies for investment as follows:
Strategy one is his approach of using a scatter gun and buying stocks with little knowledge of them in the hope that they will all be successful and some of them may turn out to be hugely successful by becoming ten baggers. A ten bagger is great dinner party topic where one can wax eloquently about the stroke of genius that brought about this success. However, it will also prompt the question of just how many of the stocks in your portfolio actually underperformed.
Strategy two is to be selective about what you purchase and try to learn everything there is to know about your stable of gold explorers and producers and keep a track of them. Watch for changes in management, the political situation in which they operate, any acquisitions that they make, changes to the incentives scheme for management etc.
Strategy three is to take the snipers approach to investment and dedicate yourself to just one stock. This stock you will learn to understand inside out, its history, how it reacts in any given situation, etc. You will still need to understand the precious metals market sector and the economic and political influences that affect your chosen star performer.
This latter strategy will be put down by many as having all your eggs in one basket and therefore carries with it an enormous downside risk but it does have a certain appeal for investors who do not have the time to spread their energies over a wide range of stocks.
We could also mix and match some of the above with the precious metals element of a portfolio being 40% spread over half a dozen companies, 40% in your star performer and 20% in cash for future opportunities.
So the question we have is what is your investment strategy and why does it work for you? Please drop us a line with a brief explanation of just how you play it as we are sure that our diverse readership are as keen as we are to think outside of the box now and again.
Have a sparkling day.
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For those of you following our options trade on Randgold Resources Limited (GOLD) the PUT Contracts closed yesterday with a bid of $9.90 and a asking price of $10.20 which is a paper profit of 100% in less then a month. You could now sell half of your holdings in this trade and take your money off the table leaving the remaining 50% in place in the hope of greater profits should Randgold continue heading south. Alternatively you could sell this position completely and treat yourself to a bottle of bubbly. We have not made a decision as yet, however, taking profits now is a sensible move.
A big thank you to those of you who took the time to email us regarding this trade your responses are very much appreciated. We also apologies for not having the time to answer every email we get and thank you for your patience. We would suggest however that your questions and comments can always be placed on our site where it would get a lot of exposure to better brains than ours and attract alternative views to our own.