Basic Investment Strategies, Part 1: Diversification
Tuesday, February 19th, 2008I have been promising a part 2 to The Bullhunters Guide eBook. My ideas haven’t come to fruition so far. Instead, I have put together a 12 Part Basic Investment Strategies blog series. It will be posted weekly here in The Bullhunters Guide.
This blog entry is the first in the series. The series has been designed from the ground up to help you get more actively involved in the world of investing, so that you can get the most out of your investments. Our approach is to take the amateur investor and slowly introduce him or her to the more sophisticated and advanced concepts that are practiced to great profit by the professional traders in the industry. In other words, this is a tutorial in how to become wealthy! The series will be rather long, and each blog entry will concern itself with one particular technique that you can add to your repertoire of investment knowledge and strategies in order to become a stronger player in the stock market. So, just sit back and relax, and try to take this all in. Ready to start maximizing your earning potential? Then, let’s go!
This time, we’re going to get off to a really basic start and discuss the virtues of diversification. Chances are good that you’ve heard the jargon thrown around on a few television dramas from time to time about how so and so was in dire need of “diversifying his portfolio“. Well, that trope had to come from somewhere.
Diversify Or All Your Eggs In One Basket
Diversification is a rather simple concept that simply refers to the idea of “not putting all your eggs in one basket“. Many beginning investors are often tempted to buy a huge number of shares in a single stock, because the initial cost of sales commissions will usually be quite a bit lower than if they had taken that same amount of money and bought just a few shares in a wide number of stocks. Furthermore, they tend to think that without a substantial number of shares in a stock, their payout will never “amount to anything”.
Try and overcome this way of thinking. The upfront costs might be higher, but what will you do if that one stock you put everything in collapses? It’s happened to many people and it can easily happen to you. Avoid this potential by spreading your funds around in a variety of interests, preferably across a number of different industries. This should help to protect you somewhat against market forces that can sometimes capsize a whole industry worth of stocks and leave you with losses in every single stock in your portfolio.
See you next week for part 2 of Basic Investment Strategies.
Sean Rasmussen
The Bullhunters Guide
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