On this edition of the Junior Report I will be writing about how to create a "more perfect portfolio"
I am sure that all of you know by now that investing in junior mining stocks is a gut wrenching experience. If you can control your emotions, and intelligently hedge your portfolio you will be making money faster than you can spend it. So let me break it down for you guys, firstly you do not want to put all your money in one material or metal, this is directed to all you gold bugs specifically, the mining industry is very cyclical. Once gold prices skyrocket exploration activities increase until reserves are increased, once reserves hit a certain level the price begins to drop. Secondly you don't want to be invested only in explorers you want a good mix between exploration, advanced exploration and producers.
These are your big guys, usually they are TSX listed, they offer great liquidity and they hold up well during crashes. During a correction you can liquidate these and buy the cheaper and more riskier plays.
Advanced exploration projects in my vocabulary are projects that will be in production in the near future, or they are fully financed and constructing there projects. These companies usually get hit harder than producers; they are usually the best buys in uncertain times. Risk in these companies is usually very minimal and they usually consist of delays in production or mining issues that are usually resolved within a few months of production.
These are your gambles, the high risk and high reward plays. I find most Junior Resource investors tend to go heavy on the exploration companies, in good times these investors are the happiest on the block and in bad times they usually are the ones that are depressed.
Exploration stocks are a key staple to every portfolio. I usually like to put in my big wins into these companies and "let it ride" research is key. Invest in the right people and don't get fooled by the smoke and mirrors. The expertise in Vancouver is smoke and mirrors companies raise money on false promises and big dreams, stick with good management and success should follow. For investors that are investing in Exploration stocks I encourage the use of a full service broker based out of Vancouver, the brokers always get "tips" and specialize in the sector. Send me a email at email@example.com if you want suggestions on what broker to choose, I know a few great ones that have made me money over the years.
What is "the perfect mix?":
The perfect mix usually depends on your age, and your risk adversity.
30% Advanced exploration
10% Put options
How options can be a great "insurance policy":
Options can be a great insurance policy. I would recommend putting puts on GLD, QQQ, and SPX. If the market decides to crash these options go "in the money" and they will make you loads of cash, which you can use to re-invest in the market.
Timing is key when putting puts, I would only recommend putting puts when you feel the market has reached a peak.
Another golden rule in investing is knowing when is the right time to sell, pay attention to the world of economics and technical trends. The buy and hold days are long gone, hedge funds, high frequency traders and day traders have changed the landscape and somewhat ruined the principals of the market. So if you can't beat them join them sell your stock when you make a 35% gain and buy back lower do this to gradually increase your position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.