Ultra Petroleum Corp. (UPL), Yamana Gold Inc. (USA) (AUY): Broken Investment Strategy? Here’s How to Fix It

Often, all it takes to get your risk level back to where it belongs is to rebalance your portfolio. With huge gains in stocks in recent years, many investors have seen the percentage of stock investments in their overall portfolio rise dramatically. Bringing your stock allocation down to more appropriate levels will reduce risk, with the caveat that the usually more sedate bond market has actually exhibited greater risk lately.

Problem 3: You’ve got too many stocks. When you run into a promising stock, there’s a great temptation simply to buy it. But as a result, many investors end up owning dozens of stocks added on impulse buys but never critically assessed to see if they deserve to remain in their portfolio. That can make it impossible to track what’s happening with every company.

One solution is to pick your best one or two ideas in each industry. As an example, if you think that natural gas is poised to keep rebounding, then low-cost producer Ultra Petroleum Corp. (NYSE:UPL) is arguably the most likely to produce the greatest profits from the space. Similarly, with gold-mining stocks, Yamana Gold Inc. (USA) (NYSE:AUY) emerges with the most attractive combination of low costs, growth potential, and balance-sheet strength.

On the other hand, if you truly can’t figure out which company in a given industry is most likely to succeed, then sector-specific ETFs are very useful in giving you broader exposure without unduly cluttering up your portfolio. Again using natural gas as an example, United States Natural Gas Fund, LP (NYSEARCA:UNG) focuses on prices of nat-gas futures rather than concentrating on any one producer, and with the nat-gas futures markets exhibiting minimal amounts of contango currently, the ETF isn’t subject to the same downward pressure that has plagued its longer-term results over the years.

You can fix it! Having a broken investment strategy is no fun for anyone. But if you keep these simple fixes in mind, you should be able to make your investing experience a lot more rewarding, both financially and in providing peace of mind.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Ultra Petroleum. The Motley Fool owns shares of Ultra Petroleum and has the following options: Long Jan 2014 $30 Calls on Ultra Petroleum, Long Jan 2014 $40 Calls on Ultra Petroleum, and Long Jan 2014 $50 Calls on Ultra Petroleum.

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