Message Font: Serif | Sans-Serif
No. of Recommendations: 14
I destroyed one of my most cherished ideas this year: Diversification.

Thanks for a very interesting post. However, my understanding of diversification is quite different. To me it means investing in different industries and asset classes, not investing in many stocks. My portfolio is diversified with only about 20 stocks. I think this reduces risk if one sector does poorly in a year.

It also allows you to rebalance by adding more to areas that lag behind for a year. When I look for a stock to buy, generally I look first in industries where I am underweight. Right now that would be health care, a sector that has underperformed for several years. It's one of the few areas in the market where stocks are cheap. So I'm buying stocks in inexpensive sectors.

A couple of other ideas. I think it's good to have some exposure to foreign stocks through ADRs or exchange-traded index funds. One of those is EEM and there are many others.

One of my rules is not to own stocks for less than 1% of my portfolio. It's not worth the trouble to worry about and if they're not worth adding to, they should probably be sold. Another rule is not to have stocks grow to bigger than 10%. When that happens, I generally cut the position in half. I'm not sure if that's a good rule though - I've cut AEOS in half 2 times and am about to do it again! Would have made a lot more money by hanging on, but I'm not comfortable with a larger position in any one stock.

BRK is different because it's essentially a mutual fund (I don't own it).

Good luck investing,
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.