How to cut your risk when investing in junior miners

One of the received wisdoms of investing is that you should diversify. Have some equities, some bonds, some gold, some commodities, some real estate, some cash and so on. Then if one sector takes a hit, you're not too badly hurt. The problem with this strategy is that you don't make that much money either. It's rare, even in this era of crazy asset price inflation, that every market will rise together. The way to make serious money is not to diversify, but to intensify. Find the sector that's in a bull market – such as tech stocks in the '90s, or metals now – and then 'get all over it'. But that's also the way to lose everything. If you're not out by the time the party's over, you give back all your gains and wake up with a nasty headache. So what should you do? I have a solution – or a compromise at least. It's called the 'prospect generator' model.