Monday, March 23, 1998

Why Diversify?
By Kevin Podsiadlik ([email protected])

A funny thing happened to me today. One of my stocks got hammered. I mean slaughtered, battered, clobbered, decimated -- well, you can look up more words like that in your thesaurus. 17% by day's end. (A lot of Fools probably know which stock I'm talking about.)

And on that fateful day, my portfolio gained 0.88%, a tenth or two off of the overall market performance that day. That is what diversification can get you.

And I'm not really even that diversified, either. I'm still pretty much a beginner in the world of stock investing, and as such only really have enough to invest in five or six different stocks. And yet, almost as if they sensed I was in trouble with one stock, the others pulled ahead, so much so that I ended with a decent profit on a day that should have by all rights been disastrous.

When I look at the historical returns of, say, the Fool Port, advertising sixteen-fold gains with AOL, while the portfolio as a whole gained only about 250%, I would often wonder, "you could have done so much better if you'd put it all into AOL, why didn't you?" Indeed, why diversify? Isn't tech the hot issue of the day? How can you go wrong with Compaq, Motorola, Intel, Iomega?

Today I learned better. And in the process, I made a little money on the way to a better education. If only the real world worked that way all the time.

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