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Most portfolio managers will recommend a wide diversification, proceeding from the premise “Do not put all your eggs in one basket.” Such diversification would reduce the eventual loss of movement in the opposite desired direction of stock indexes.
Experts commented, however, it is difficult to manage a portfolio of too many positions, especially when it is individual. And if investment funds have a large number of analysts responsible for monitoring the various sectors, for individual participants is not easy task.
The author of the book “How to make money from shares” – William O’Neil argues that “The more you diversify your portfolio is, the less you know about each area in which you invest”.
He added that the highest yield is most often achieved when investing in a small number of companies from sectors that you are familiar and that you watch very closely.
Keeping track of large numbers of shares is related to risk. Missing important warning from one of the companies or important news related to the strategic development of the company.
Naturally the question arises, what is a reasonable number of companies that are components of a portfolio?
According O’Neil in not very large portfolio of $ 10 000, two or three companies are enough for diversification.
By increasing the value of the portfolio to 25 000 dollars – a reasonable number of companies that you need to included, is three or four.
Even if you have a portfolio of 100,000 dollars or more, five or six components are also enough, another expert advises.
Other tips are given to investors – if you see a company that you think has significant potential for growth, do not hesitate to get rid of poorly performing stocks in your portfolio and use the funds to purchase shares of the target company.
If you notice that a company part of your wallet, performed extremely well, it might be wise to use secondary opportunities to increase her weight
Such a possibility might be the achievement of its moving average value for the last 10 weeks after corrective decline.
Monitoring a small number of stock keep in focus the attention of investors and there is opportunity for better portfolio management.
In a market correction is good for investors to stay slightly away from the market, be ready to enter into selected share, when there are signs that the correction is over.