I started serious Investing Journey in Jan 2000 to create wealth through long-term investing and short-term trading; but as from April 2013 my Journey in Investing has changed to create Retirement Income for Life till 85 years old in 2041 for two persons over market cycles of Bull and Bear.

Since 2017 after retiring from full-time job as employee; I am moving towards Investing Nirvana - Freehold Investment Income for Life investing strategy where 100% of investment income from portfolio investment is cashed out to support household expenses i.e. not a single cent of re-investing!

It is 57% (2017 to Aug 2022) to the Land of Investing Nirvana - Freehold Income for Life!


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Welcome to Ministry of Wealth!

This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

It is here where I share with you how I did it! FREE Education in stock market wisdom.

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Value Investing
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Sunday 30 May 2010

Portfolio Management - Diversification Is Your Friend - Part 3


Some retail investors disagree that diversification is your friend and like to quote Warren Buffet's saying.

"Diversification is Nothing More Than Protection Against Ignorance." - Warren Buffett
 
I advocate diversification for the purpose of risk control as investing in stock market by nature is risky.
 
Doing the Maths
 
For example:
 
You have $100K as investing capital and invest in a portfolio of 10 diversified stocks - $10K per stock. You are taking a risk of 10% of your investing capital per stock.
 
If unfortunately bad thing happen to one of your stocks in your portfolio and get wipe out.

Your portfolio lost 10% and your investing capital is down to $90K. This $90K capital will require an average 11.3% returns on 9 stocks to break-even. Do you think it is easy to achieve an average 11.3% returns for 9 counters.
 
But what if your weight-age of each stock is only 5% of your capital or total of 20 diversified stocks, then the portfolio will require 5.3% returns to break-even. An average of 5.3% returns on 19 counters may be achievable.
 
See the table below for different weight-age:
 

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