From Conversations with Casey:

The ideal speculator’s portfolio would be divided into ten areas, each totally different and not correlated with each other. Each of these areas should have, in your subjective opinion, the ability to move 1,000% in price.

Why is that? Because most of the time, we’re wrong when we pick areas to speculate in, certainly in areas where you can’t apply Graham-Dodd-type logic. But if you’re wrong on nine out of ten of them – and it would be hard to do that badly – then you at least break even on the one ten-bagger (1,000% winner). What’s more likely is that a couple will blow up and go to zero, a couple will go down 30%, 40%, 50%, but you’ll also have a couple doubles or triples, and maybe, on one or two of them, you’ll get a ten-to-one or better win.

So, it looks very risky (and falling in love with any single stock is very risky), but it’s actually an intelligent way to diversify your risk and stack the odds of profiting on volatility in your favor.

Note that I don’t mean that these “areas” should be ten different stocks in the junior mining sector – that wouldn’t be diversification. As I say, ideally, I’d have ten such areas with potential for 1,000% gains, but it’s usually impossible to find that many at once. If you can find only two or three, what do you do with the rest of your money? Well, at this point, I would put a lot of it into gold, in one form or another, while keeping your powder dry as you look for the next idea opportunity.

And ideally, I’d look at every market in every country in the world. People who look only in the U.S., or only in stocks, or only in real estate – they just don’t get to see enough balls to swing at.

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