Diversifying a Stock Portfolio

Diversifying a Stock Portfolio
By
www.CandlestickForums.com

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.

By choosing stocks with different
characteristics, diversifying a stock
portfolio spreads out the risk of
investing.

Ideally the investor chooses stocks in
such a way that when one stock,

such as a manufacturing company is hurt
by higher interest rates, and drops in
stock price,

another, a bank charging higher interest
rates, will see the price of its stock
shares go up.

In diversifying a stock portfolio the point
is not just to pick stocks that will balance
each other but picking stocks in more
than one potential area of growth and
profit.

Buying stocks in computer
technology, biotech, big oil, consumer
goods, and financials not only reduces
the investor’s

risk of a huge loss if one company has
problems but it offers opportunity for
growth in a wider arena.

Diversifying a stock portfolio can be
fairly simple and it can be immensely
complicated with lots of
charts, formulas, and the like.

A good rule of thumb for beginning
investing in the stock market is to keep it
simple.

A good practice is to buy stock in no
more than one company to start with.

In fact, smart stock market investing for
a beginner would be to pick one stock at
a time and stop at five.

Diversifying is to reduce risk but
fundamental analysis, value
investing, and using tools such as
Candlestick

basics to find currently low prices in
good stocks are necessary to find the
best individual stocks.

Unless the investor is a professional who
devotes all of his or her day to investing
and stock trading there is only so much
time to devote to following stocks in a
portfolio.

Five stocks is typically a sufficient
number for diversifying a stock portfolio
and not too many to keep track of with
tools such as Candlestick analysis at least
once a week.

Five stocks are usually not too many for
keeping up with the stock market news
as it applies to each stock and its sector
of the stock market.

More complicated stock portfolio
diversification has its place with
institutional investors managing huge
portfolios.

For the beginner, keeping it simple is the
best choice.

Diversifying a stock portfolio need not
be limited to picking five different
stocks.

The investor can also choose to invest in
the futures market, the commodity
market, and foreign currency trading as
well as basic stocks and bonds.

As with all investing and trading, success
has to do with an adequate knowledge
base,

well practiced, attention to detail, and
sufficient time in the work day to
accomplish what needs to be done.

Although there is potentially no limit to
how much an investor can manage
portfolio diversification (and life)

there always comes a point where
keeping it basic and simple works as well
or better than excessive variety and
detail.

Diversifying a Stock Portfolio

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Diversifying a Stock Portfolio