Diversification

Whenever I hear or read about diversified or diversification in investments, I have mixed feelings or thoughts.

To truely reap substantial investment returns, your porfiolio cannot be too diversified.

E.g $100 is used to buy 1 share of 10 different stocks @ $10 each. 1 year later, the 10th stock doubled to $20/share. Total value of stock is $110.

Now if the same $100 is now used to buy 2 shares of 5 stocks @ $10 a share, and the 5th stock doubled. Total value of stock is 80 + 40 = $120.

The converse can be said if the stock price dipped.

For me, the no. 1 reason for buying share is to reap capital gain and earn passive income in the form of dividends. My goal is not to avoid losses. Hence if my investment is so diversified that a substantial gain (very hard to come by) is translated into a meagre increase in the value of my investment, then I would rather not invest.

I apply diversification by investing in a few stocks (less than 5 now). Even though there is a possibility that my stocks could tank, as long as I did not sell my stocks, the reds(losses) are just temporary.