IN THIS ISSUE:
*********************

• Diversification is an extremely powerful tool in hard economic times…
  
• Don’t let fear get in your way...
  
• How we brought in combined gains of 878.8% from 14 shares in one of the most difficult markets we’ve ever seen...

-------------------------------------------------
From the pen of Karin Iten…

Dear reader,

Every once in a while, it pays to go back to school. Even investors who've been around the block a time or two need a refresher in some time-tested lessons.

That especially goes for our experts here at The South African Investor. We analyse and sift through so much information to get to an investment opportunity that it's hard to let go of that idea when it doesn't pan out. I'm guilty of it myself and am sure you are too.

So this week, I’m going to share three vital lessons we at The South African Investor learnt earlier this month.

********************************

878.8% Gains... in 18 Months from “Boring” Blue-Chips?

It's official!

Leon Kok’s research service The South African Investor generated 878.8% cumulative gains in the last 18 months from just 14 shares. That includes everything - winners and losers. And now he tells me he’s on track to be even bigger gain. Here’s how you can access this intelligence – risk-free for 30 days.

*********************************
Lesson #1: Know when to walk away
Our emotions get the best of us when we let losing stocks ride. Not only are we financially invested, but our ego and pride can sometimes be poured into an investment. But a losing investment is nothing more, nor nothing less, than a losing investment.

Take Group Five for example. Earlier this month, we were forced to cut the share from our Chairman’s Corner Portfolio as it fell through our stop loss level. It was a hard call, after all, the reason we punted it in the first place was that we’d fallen in love with the idea of this investment. We could have let this cloud our judgment, but when our readers money is at stake we can’t let pride get in our way. Yes, readers sold out for a 26% loss, but knowing when to walk away has saved them from a far worse loss in the share price.

The key to knowing when to walk away is to set a strict stop loss when you buy a share AND to stick to it no matter what.

Lesson #2: Diversification is king
If you're talking about solely investing in resources, then an ETF like the Satrix Resi offers pretty good diversification within that specific sector. But in the end, if you’re only investing in one resource share (even if it is a one-stop resource giant like BHP-Billiton), you're not very diversified at all.

We've talked about diversification so often that this idea kind of gets brushed aside. We get caught up in the individual ideas of certain stocks or sectors and miss the big picture.

Even investors who are "diversified" across the stock market aren't as diversified as they need to be in today's financial atmosphere. Stocks are only one portion of what a diversified portfolio looks like.

Take our asset allocation strategy. We suggest four types of investments: This is the breakdown:

*** 25% local and global stocks – would thrive with economic prosperity
*** 25% Long-term unit trusts – would balance deflation
*** 25% Gold (Bullion) – counters inflation
*** 25% Cash (money-market funds) – safety

This strategy returned an average of 9.7% a year between 1970 and 2003.

Lesson #3: Don't be scared of risk
You've heard the phrase, "Nothing risked, nothing gained," right? Well, that's this lesson in a nutshell. Every investment is a risk in some way or another… Even the tried-and-true mattress strategy is at risk to inflation.

But in general, the higher the risk, the higher the potential gain. Let's put this into context, though. This doesn't mean that you go all "wildcatter" on your portfolio and stuff it full of penny stocks in hopes to see a 10-bagger.

It means that you have to take calculated risks in order to increase your chances of growing your wealth faster.

Here at The South African Investor we believe 90% of your portfolio should consist of core investments (long-term blue-chip shares), while the remaining 10% was reserved for those riskier chances (such as penny shares).

There's a place for those "wildcatter" long shots, and knowing how much risk you're willing to take on can leave room for those opportunities, particularly when you adhere to Lessons 1 and 2.

Here’s to your financial freedom,

Karin Iten

PS: To discover what other strategies The South African Investor implemented to bring in combined gains of 878.80% from 14 shares in one of the most difficult markets we’ve ever seen, read about it here.

****************************
Have you seen our new trading portal?

Click here to visit TradingTips, your gateway to trading success!

****************************
Know of a colleague or friend who will benefit from today's Money Morning?
Forward this email onto them so that they too can start taking advantage our brilliant investing commentary. And if they want to subscribe all they need to do is click here!