How to Speculate on Precious Metals Without Gambler’s Ruin
SOURCE: [The Gold Report] – Rodney Stevens, portfolio manager at Wolverton Securities, believes investors speculating in precious metals must be disciplined to avoid gambler’s ruin. While “disciplined speculation” may seem like a contradiction, it is key to Stevens’ approach. Through both technical analysis and fundamental analysis, and a careful read of intermediate trends, Stevens has developed a concentrated portfolio of precious metal companies held both long and short. In this Gold Report interview, he shares where the sweet spot in the mining space is and advises how to limit portfolio risk.
The Gold Report: Rodney, in July 2007, StarMine rated you a top analyst for the metals and mining space based on stock recommendations and market analysis that generated a return of about 8% over the industry benchmark. The metals and mining space has changed a lot since 2007. What are some key ways your approach has changed in the five years since that rating?
Rodney Stevens: Since being an analyst at Salman Partners, my strategy has developed into a more disciplined approach to speculating, which now includes the use of technical analysis in security analysis overall and short selling. The disciplined approach involves having a concentrated portfolio of securities both long and short in conjunction with progressive stop-losses.
“Dow Theory is saying that we are still in a bull market but with the caveat that it might be turning.” The concentrated portfolio, while adhering to progressive stop-losses, helps control company-specific risks. Being both long and short provides a natural hedge to protect the gains from extraordinary market risk such as a market collapse—collapses when stop-losses are breached. This disciplined approach allows us not to fall into gambler’s ruin even though we still are looking for stocks with great potential.
TGR: What do you look for in stocks to short?
RS: We look primarily for ideally topping formations, so we can benefit from the downward trend when it begins. The ideal shorting scenario is picking a company that goes bankrupt. That may be rare, but we also look for certain catalysts that may be divergent from what management is saying.
TGR: What would a chart look like on a stock that you would consider shorting?
RS: There’ s a classic head-and-shoulders formation that looks like a head with two shoulders on the top of a chart, which breaks through a neckline. In general, you’re looking at topping formations, downward trends and even some consolidation formations. A right angle triangle of the descending formation could lead to a continued drop in share price. We look for cues for timing, but then also look for the fundamentals to get an idea of how much downside there might be and for catalysts.
TGR: What’s your typical weighting of shorts to longs?
RS: It depends on the degree of bullishness. We could be 50/50, 80/20, 20/80, depending on where we think we are in the intermediate trend. Right now we’re about 80% bullish on gold and silver stocks.
Post from: Gold News from Gold Editor
How to Speculate on Precious Metals Without Gambler’s Ruin
2012-11-14 17:12:58
Source: http://www.goldeditor.com/how-to-speculate-on-precious-metals-without-gamblers-ruin/
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