Monday, August 27, 2007

My portfolio diversified too much

I had diversified my stocks portfolio so much that now when all other stocks including the benchmark index is going up my net folio is going down.

It's basically because initially I had diversified my portfolio in such a manner so that not all stocks follow each other. They move with their own momentum with with the least correlation with the other stocks. Indeed this was the result of my frustration in the recent stock market crash globally.

I had sold those stocks which have given me 10-12% profits. One of them gave me 20.3% profits. One gave 10% while other two gave 12%. I started out with 8 stocks in my portfolio in this financial year. But to average out the losses in a particular stock I had diversified it more thereby increasing the risk. After selling these stocks, two of the four are still going up. While the remaining four in my folio started downtrend.

I am patient enough to wait for them reap profits. As I am targeting no less than a 10% profit it makes sense for me to wait for the stocks to reach their targets.

But it indeed is a good diversification because those stocks which have gone up gave me money. While others will also give when they reverse. On the other hand if I do not sell those stocks which have gone up, I would be simply happy to see that I am not losing anything while the profits are no better than the benchmark indices.

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