OpportunityToday, resource stocks are some of the best bargains in the world…

But the average investor tends to be scared when stocks are at their most attractive valuations. He sells at the moment when he should buy…

That’s what we’re seeing in the market today.

When it comes to natural resource investments, you’re either a contrarian or a victim. Victims are selling today. Contrarians are buying (or at least holding). Don’t be a victim. Ride out the panicky downtrends, and you’ll be happy a few years from now. Sell a great business today at a deep loss, and you’ll regret it.

[ad#Google Adsense 336×280-IA]Like legendary money manager Peter Lynch says, “The key to making money in stocks is not getting scared out of them.”

Not all stocks are created equal, so I’d change that slightly to, “The key to making money owning great businesses run by great management teams is not getting scared out of them.”

But to be a good contrarian like us, you need some basic financial tools and skills.

Today, I’ll share a quick guide to the top few…

First and foremost, nothing in the contrarian’s toolkit is as important as a stellar financial condition. If you’re up to your ears in debt and in danger of losing your job, you simply don’t have the staying power to buy commodity-related stocks. Knowing you won’t have to sell your commodity positions to pay the bills will take a load off your back, allowing you to hold them (or even buy more) when prices are down, as they are today.

Commodity stocks can disappoint you, possibly for extended periods of time. You must have financial peace of mind to hang on or buy more when prices are low and falling.

Basic steps toward a stellar financial condition include eliminating credit-card and other consumer debt and saving six to 12 months of expenses in cash. Then you can start building your investment portfolio. There is no substitute for the financial peace of mind these basic steps will give you.

Next, you need to learn how to build positions S-L-O-W-L-Y… In a bull market, you have to bet big and bet fast, before the opportunity disappears. But being a contrarian means buying stocks in a bear market. The best way to do that is to build positions slowly.

You might want to start with a mechanical strategy, like buying 1/12 of a position each month. If the overall market turns, you can always speed up your buying. But until you’re confident the bottom is behind you, build slowly.

Take your time. Find a way to discipline yourself not to commit too much too soon. Think of it like cooking… You can always add more salt. You can’t take it away once it’s added.

Third, an untrained, inexperienced, non-professional investor should never, ever, ever buy a bad business. Only you know if “untrained, inexperienced, non-professional” describes you. If it doesn’t, no worries. If it does, and you aren’t 100% confident the company you’re investing in is a good business run by highly competent, honest people… don’t buy the stock.

If you want to buy beaten-down commodity stocks, stick to high-quality businesses – like the ones we recommend in Extreme Value. You might also find a highly knowledgeable money manager or broker who has made money in commodities before and let him help guide you.

I read recently that humans have only a limited amount of willpower, so we need to be careful how we use it. Do yourself a huge favor…

Conserve your willpower when investing in beaten-down commodity markets by maintaining a stellar financial condition, building positions slowly, and only buying shares of the best commodity businesses.

Investors who stick to these rules could make a fortune in resource stocks over the next few years.

Good investing,

Dan Ferris

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Source: Daily Wealth