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Diversification Key As Miners Continue To Climb A Wall Of Worry

Most precious metal miner investors have been terrorized by an epic short seller gala event lasting four years that has convinced most of them to swear off the sector for good. Share dilution in major miners together with a 45% gold decline gave the shorts a perfect scenario for reaping huge gains in this small sector. However, the price action in miners in recent months has been telling us the shorts have moved on. Quality miners continue to bifurcate as any weakness is snapped up quickly.

The few investors that remain, such as myself, need to shift their thinking away from bear market expectations and conceptualize the incredible opportunity still available. If you continue to apply bear market thinking to a new bull market, then you may be left behind as the train readies to leave the station.

During the last three years of this vicious bear, strength was sold leaving investors frustrated as bottoms gave way to lower lows. However, since the epic sector bear trap on January 19th of this year, strength in quality companies has persisted as big institutional money has accumulated value and weakness. Meanwhile, those expecting large corrections and more weakness have been left behind as buying opportunities have come and gone faster than anticipated.

In my previous posts I have given a few of my own personal investment strategies that you may find helpful in choosing which miners to invest:

Opportunity in West Africa: High Grade Deposits at Low Prices

Optionality Plays For The Patient Precious Metals Investor

To minimize risk and maximize profits in this sector, it is imperative to diversify your portfolio, as most juniors are not worth holding until this new bull matures. My focus is accumulating quality mid-tier producers and developers with a smaller weighting in a handful of explorers. I avoid the majors, as I believe there is more upside in the quality juniors and mid-tiers. Because mining is a risky business I try to keep 20-25 positions with never more than 5% in a single position.

By David Erfle Contributor to Kitco News
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David Erfle is a 52 year old self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest into a growing sector of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector he became fascinated with this niche market. So much so that in 2005 he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September, 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full time job. He personally survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times in order to adapt to changing market conditions."

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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