Private Investor: Why investing in minerals could be a gold mine

I know what I did and didn't do in the past and, tellingly, it was the inaction that provided the reward and the inaction that represented a missed opportunity. In about 1997 I bought a few shares in Rio Tinto after some fairly careful research into the company. I bought mainly because the yield seemed very appealing, (it what was, I think, above 5 per cent and with a reasonable growth record) and the shares seemed cheap by most measures. I certainly thought that at 650p or so I couldn't really go too far wrong. Mining is a cyclical business, and, as the world was then well out of the early 1990s recession , I guessed that an upswing in global economic growth would be amplified in the share prices of the mining stocks. Rio Tinto, or RTZ as it's been known, with its impressive geographical spread, seemed as well placed as any to benefit form this effect. I also supposed the markets hadn't quite priced all that in at that stage.

For a while the shares did very little, but their growth has accelerated of late. I thought about adding to my holding when they rose and got stuck around the £10 mark, then again at £15 or £16. Yet because I had bought in at about half those prices, I thought they were "dear". I mean to say that I knew I was wrong to succumb to that traditional investor's fallacy, but I still couldn't bring myself to add to my holding.

Now I see Rio Tinto shares are going for gold, so to speak. They went up by 4 per cent on Tuesday last week, have slipped back a bit and are sitting at near all-time highs of about £23. It reflects a four-fold increase in operating profit in the company since its "nadir" of £800m in 2001. Nor is it especially hard to know the reason why things have been going so well for the mining companies lately: China. Rio and the rest of them can't keep up with the demands of that volatile but incessantly growing economy. New operations are opening up in Australia and elsewhere with pretty much the sole aim of trying to meet China's needs.

So the Rio Tinto story becomes increasingly a China story. The clever bit is that Rio Tinto is an excellent proxy for China and other emerging economies, but without some of the, shall we say, cultural risks attached even to collective funds that buy shares in Chinese companies. Rio Tinto, for all its critics, is unlikely to find itself going bust because of some crooked politician or capricious state government. Plus China isn't its only market, after all.

For those who think that China still has some way to go, long or short term, there are worse ways to gain exposure in this part of the world than to invest in Rio Tinto. My problem is that I haven't been buying my own story, because of that strange psychological effect. Now I have to persuade myself that £23 is quite good value for a share in such an exciting story. But I haven't convinced myself yet. Maybe I need my head examining.

Elsewhere the portfolio is going well, as indeed is the whole market. Judicious buying of some bigger companies, such as GSK, has paid off and the FTSE 100 has been making good progress and hitting four-year highs. It's actually catching up with the increases in valuations in the medium cap companies that had been making all the running before. There's plenty of merger and acquisition activity out there too, some welcome, some not so. I was sorry for example to see the medium Scottish brewer Belhaven taken over by Greene King. On the other hand I can't wait to see O2 finally going to a predator. There's plenty of gloom out there, but it seems to be a good time to be in the market.

s.o'grady@independent.co.uk