(FORTUNE Magazine) – Paul Stephens has dodged more than one golden bullet. Among this country's most prominent cheerleaders for gold stocks, Stephens could have been creamed this year when two of the hottest names in the industry, Bre-X and Delgratia Mining, both collapsed amid news that their prospects were--to put it mildly--less than advertised. But while other big-time investors found themselves bloodied by these scandals, Stephens, who manages the Robertson Stephens Contrarian mutual fund, escaped unscathed. It's not that he was never tempted by these stocks--he actually owned Bre-X in a hedge fund several years ago--but he got himself clear well before the trouble started. Stephens recently sat down with FORTUNE and shared his insights on buying gold stocks and selling Bre-X, and about opportunities for gold investors in the post-Bre-X world. Here's a core sample:

On the biggest mistake investors make with gold stocks: It's the same mistake they make with semiconductor and PC companies--they buy them for no other reason than because the stocks have momentum, because they're going up every day. Bre-X was the classic example.

On why he got out of Bre-X: I called CEO David Walsh to come down to our offices in San Francisco to make a presentation, and we did a background check on [John] Felderhof, their geologist. I used to be a venture capitalist, and you make lots of background checks because you don't want to get stuck. Felderhof was known as a "river walker," someone who would go off for three to six months in the jungle. The background checks showed he had low credibility.

Then Walsh showed up in our office. He had this massive potbelly and brought this woman along whose business card said she was the secretary of the company. Our checks on him were just awful. He had a history of filing for bankruptcy. And then, when you met him in person, he was a slob. Bottom line: All you had to do was meet him and you wouldn't have bought the stock.

I walked out of the room and went straight to our trading desk. This was in February of 1994. By then we had doubled our money; a $200,000 investment became $400,000. After we sold, the stock went up by 300 times, so for a while it looked like we had left $100 million on the table because we did due diligence.

On what gold stocks he is buying today: Everything we own has a high exploration focus and is growing reserves, which we call "growth gold." Our biggest gold position is Indo-China Gold Fields. Its president is our former geologist. Due to the Bre-X phenomenon, the stock has dropped from $19 a share to $11. Our second-largest position is Golden Star Resources, which has dropped from $16 a share to $9. We just joined three other investors to buy an additional three million shares. We think both stocks are worth $50 to $100 over the next three to five years.

One thing to look out for with gold stocks: When it comes to gold, you have to trust the integrity of the management team, and then you have to trust the property. Bre-X, for instance, didn't own the assets. They were drilling on somebody else's property. If they found something, the Indonesian government could still have taken it away from them. You want to invest only in companies that have title to the property.

Another thing to look out for: Mining companies have to have a promoter. That's a dirty word in the U.S., but in the exploration business, you have to have someone who goes out and tells the story so the company can raise a lot of money. There are more [promoters] who are not honest than are honest, so you have to know their past history.

On opportunities in non-gold-mining stocks: One of our favorites is a nickel company called Inco, commonly known as Voisey's Bay Nickel. The Class VBN shares, which is what you want, dropped to $21 a share from $31 because investors began to recognize that revenues won't begin coming in until 1999. But the company owns 25% of the future cash flow of the huge Diamond Fields nickel discovery. I think the stock is currently worth $75 a share.

HERB GREENBERG is a business columnist for the San Francisco Chronicle.