Diversification

JC Project Freedom Diversification
Image by SplitShire from Pixabay

If you do not know what you are doing then you require to diversify your investment. If you know what you are doing, then why need to diversify? If you know what you are doing, keep all the eggs in one basket and watch that basket very carefully.

When you are over diversified, you will not be able to create exceptional returns. If you have 50 stocks and equally weighted, 1 stock with exceptional returns will not be able to boost your overall portfolio’s performance. This is the key reason why we should focus on 5 to 10 stocks and know them inside out.

We have the same amount of time and we do not have time to cover too many companies’ business performance. All listed companies will announce quarterly results and at the end of financial year will produce an annual report. We need to read the financial reports from the companies that we own. We need to understand the business performance and whether the numbers are telling the same. Through the thorough financial analysis of the numbers, we can choose the great companies to place our financial resources with.

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