I have invested in uranium, gold, silver, tin, oil, RRE, and copper. With several of the sectors seeing new highs, people (with or without credibility) calling for a top will increase. Conviction to hold on to a trade when people come with differing opinions can not be given, it has to be earned. Mentally and financially there is a limited number of sectors I can follow at once.
What has worked out for me has been to focus more on a select few sectors and let a lot of the other ones go by the wayside. By being very focused I have missed trades in coal and lithium where companies have gone up several times their value the last year. In both of these sectors I was told in advance, and could have deployed some funds, but I decided not to spread myself too thin. Maybe some people are able to jump from the best performing sector every six months and catch all the trains, but I do not. I stay in a select few and wait until I have that big opportunity. There are just too many opportunities for me to take advantage of all of them.
Learning from previous mistakes
When I was younger I was well diversified with my investments. Among others, I was invested in the fish farming sector, which is very important in Norway. I was in this trade from early 2014 to mid 2016. Here I was invested into one of the most quality names in the sector (Salmar) who was executing on their strategy without fail. Salmon was a growing industry, and had been a great sector for several years already, when I started investing. I had an OK entry at NOK 76 (about $10-11 at the time), but I had nothing but random newspaper headlines and maybe some price charts to guide me. My investment in the fish farming business was just one among several different positions. Being invested in a lot of different companies and sectors had left me with too little time for in depth research. (If you seek diversification it is easier to have a broad index fund do that for you and focus on select areas for yourself).
There were a thousand reasons to sell. The most prevalent was, according to the financial newspapers, that the price of farmed salmon was unsustainable. People would not go on with paying an increasing amount for salmon. After a certain price point, people would switch to other protein alternatives. All this together with the fear of giving back the returns caused me to sell. I got out at a price of NOK 236 (about $28 at the time) mid 2016 for a 3x return in my home currency. With hindsight I do not look at the chart that continued on to a 9.5x return (excluding very generous dividends on the way) with regret. I do however take some lessons from it.
By knowing the sector more thoroughly, by knowing the dynamics and having a knowledge of the different milestones one should look for, you take out a lot of the guesswork in the trade. There are people who are experts in the fish farming sector and who have harvested a lot more gains from this trade than me.
For my part, I find several of the commodity sectors to be a lot less complex than the fish farming business. There is no good substitute for tin when it comes to solder, if you are a nuclear plant you can’t switch from uranium to oil to fuel the plant etc. The commodities are also more cyclical than most other sectors where you go from a market that is oversupplied to undersupplied. Supply also takes a very long time to reach the market. For speculators this cyclicality is a feature, not a bug. The less developed a market is the more potential there is for outsized gains.