“Diversification is a protection against ignorance,” Warren Buffett told the investors in a 1996 annual meeting of his company, Berkshire Hathaway. His tactics of investing is putting all his focus on one or a few stocks that he knows very well instead of diversifying the risk by investing in many stocks.Besides that, Warren Buffett always emphasizes on the intrinsic value of companies while investing. I do agree with him to certain extent, saying that investors have been oversold on diversification that fear of having too many eggs in one basket has caused them to invest in too many companies that they do not actually know well. This in turn will increase the risk of losses. Imagine that if you were having 50 wives,i am sure that u can't know each of your wife very well. However, the degree of loss due to investing one shot into one or a few selected stocks is very massive. In my opinion, if u can't really afford to lose much, then it is advisable to diversify your portfolios to between 5 and 10 stocks that you know very well. Spread your capital so there is never more than 20% in a single stock. However, remember don't take this to extremes and over-diversify by investing in too many stocks at once. ''No pain and no gain''. Of course, if you are confident enough that a few stocks you have chosen will benefit in the long run, then just go ahead and focus on them.
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