Diversifying a Stock Portfolio

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Diversifying a Stock Portfolio

What is meant by diversifying a stock portfolio? Why do it? How does an investor diversify? Diversifying a stock portfolio is an investment strategy where the investor chooses investments that react differently to varying conditions in the stock market and market sectors. Investors diversify their investments to reduce investment risk. A basic method of diversifying a stock portfolio is to choose five stocks in five different market sectors. Ideally the various market sectors and the stocks react differently at the various points in the business cycle.

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Diversifying a Stock Portfolio

  1. 1. Diversifying a Stock PortfolioBywww.CandlestickForums.com
  2. 2. What is meant by diversifying a stockportfolio? Why do it? How does aninvestor diversify?www.CandlestickForums.com
  3. 3. Diversifying a stock portfolio is aninvestment strategy where the investorwww.CandlestickForums.com
  4. 4. chooses investments that reactdifferently to varying conditions in thestock market and market sectors.www.CandlestickForums.com
  5. 5. Investors diversify their investments toreduce investment risk.www.CandlestickForums.com
  6. 6. A basic method of diversifying a stockportfolio is to choose five stocks in fivedifferent market sectors.www.CandlestickForums.com
  7. 7. Ideally the various market sectors andthe stocks react differently at the variouspoints in the business cycle.www.CandlestickForums.com
  8. 8. By choosing stocks with differentcharacteristics, diversifying a stockportfolio spreads out the risk ofinvesting.www.CandlestickForums.com
  9. 9. Ideally the investor chooses stocks insuch a way that when one stock,www.CandlestickForums.com
  10. 10. such as a manufacturing company is hurtby higher interest rates, and drops instock price,www.CandlestickForums.com
  11. 11. another, a bank charging higher interestrates, will see the price of its stockshares go up.www.CandlestickForums.com
  12. 12. In diversifying a stock portfolio the pointis not just to pick stocks that will balanceeach other but picking stocks in morethan one potential area of growth andprofit.www.CandlestickForums.com
  13. 13. Buying stocks in computertechnology, biotech, big oil, consumergoods, and financials not only reducesthe investor’swww.CandlestickForums.com
  14. 14. risk of a huge loss if one company hasproblems but it offers opportunity forgrowth in a wider arena.www.CandlestickForums.com
  15. 15. Diversifying a stock portfolio can befairly simple and it can be immenselycomplicated with lots ofcharts, formulas, and the like.www.CandlestickForums.com
  16. 16. A good rule of thumb for beginninginvesting in the stock market is to keep itsimple.www.CandlestickForums.com
  17. 17. A good practice is to buy stock in nomore than one company to start with.www.CandlestickForums.com
  18. 18. In fact, smart stock market investing fora beginner would be to pick one stock ata time and stop at five.www.CandlestickForums.com
  19. 19. Diversifying is to reduce risk butfundamental analysis, valueinvesting, and using tools such asCandlestickwww.CandlestickForums.com
  20. 20. basics to find currently low prices ingood stocks are necessary to find thebest individual stocks.www.CandlestickForums.com
  21. 21. Unless the investor is a professional whodevotes all of his or her day to investingand stock trading there is only so muchtime to devote to following stocks in aportfolio.www.CandlestickForums.com
  22. 22. Five stocks is typically a sufficientnumber for diversifying a stock portfolioand not too many to keep track of withtools such as Candlestick analysis at leastonce a week.www.CandlestickForums.com
  23. 23. Five stocks are usually not too many forkeeping up with the stock market newsas it applies to each stock and its sectorof the stock market.www.CandlestickForums.com
  24. 24. More complicated stock portfoliodiversification has its place withinstitutional investors managing hugeportfolios.www.CandlestickForums.com
  25. 25. For the beginner, keeping it simple is thebest choice.www.CandlestickForums.com
  26. 26. Diversifying a stock portfolio need notbe limited to picking five differentstocks.www.CandlestickForums.com
  27. 27. The investor can also choose to invest inthe futures market, the commoditymarket, and foreign currency trading aswell as basic stocks and bonds.www.CandlestickForums.com
  28. 28. As with all investing and trading, successhas to do with an adequate knowledgebase,www.CandlestickForums.com
  29. 29. well practiced, attention to detail, andsufficient time in the work day toaccomplish what needs to be done.www.CandlestickForums.com
  30. 30. Although there is potentially no limit tohow much an investor can manageportfolio diversification (and life)www.CandlestickForums.com
  31. 31. there always comes a point wherekeeping it basic and simple works as wellor better than excessive variety anddetail.www.CandlestickForums.com

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