gold stocks - too diversified?, page-19

Good post rowingboat

So what it all means for me is careful share selection based on clear criteria with a willingness to cull non-performers and to move funds to more prospective companies. This is actually hard work.

My first goldies were recommended by my broker (Ord Minnett) through whom I still buy/sell shares. They were BDG and LVR/PSV and both of them tanked and I lost money. I failed to apply a common sense approach of selling out in a downtrend. I bought NAV in the low 20s (saw it in a newspaper and did a little research) and watched it go up to over $1 and back to its initial point where I sold out. Bought VRE and DIO and made some money on them only because I learned from my BDG/LVR experience to sell out in a downtrend.

Experience is the best teacher and constant research is essential. One has to have some sort of expectations about the shares and see if they are meeting them or will meet them. If they are not then just get out.

I recommend diversification if one is buying the small/micro caps goldies because the risks (eg single mine, changing grade, operational problems, country risk, profit margin based on changing AUD POG, mismanagement etc) are just too great to put all ones dough on just a few. I worry a lot about my NGF shares because it represents a high portion of my invested funds and it is currently a marginal producer.

Basically the same sort of care and analysis should be undertaken for any type of investment in the mineral sector and I would not restrict my investments to just the gold sector. Goldies got really boring for 3 months from early June to early September this year and I was worrying excessively as I watched the whole market progress while my portfolio value actually fell back. Then we had a couple of marvellous weeks and I felt my disregard for ctindale's and Tony999 posts had been justified (but they did play on my mind and to some extent the issues they raised are still there). So what I suggest is that it is great to diversify into other commodities which can run when gold goes quiet. That is why I am also into the energy sector (without much luck, except for CVN) and still have a little in base metals.

I still find it hard to do the right thing and cull my dead beat investments eg CIG and PRE. My biggest error (besides staying 33% invested last year) was to sell 50% of my portfolio (which had halved in value) in December. I ended up selling almost all the good ones and only three of those I kept have since recovered (NGF, AAM, and MCO after a long wait). Had I held on my portfolio would have been fully recovered by early April. So this takes us back to the idea of using early stop losses and very careful share culling at all times. I have gotten a bit lucky since early 2009 with some additional gold investments (eg MCOOB, SLR and MML), and now 6 of my 7 goldies are in the black (but not PRE).

My current portfolio includes 7 goldies and represents about 66% of funds invested. I am still 45% in cash through my SMSF (my super went into cash back in Sept 07!) because I lost confidence in my investment judgement and that affected my sleep pattern at times and the rate at which I added more money in the market. So the sleep test is another consideration. I think that if I lost all my invested money through another crash I could recover the loses through new investments with the funds I now have (assuming I still had the stomach to invest). Therefore some sort of market survival strategy needs to also be in place at all times.

loki