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[_sachiel]

Hurah! I am finally doing at least decent in a realistic portfolio scenario! I created a portfolio, realistic of $10k about..a week and a day ago. Within that period my portfolio, which is, I believe, properly diversified, has performed excellently, neting me a healthy 9.8% so far. Of the top winners in that portfolio lie, True Religion, up 9.35%,

Comments

[_sachiel]

Its harder to find 11 stocks which will all do well. Granted, I understand diversification, and I understand why you dont pour everything into one or two companies, that is a given. BUT, I think it is possible to have diversification with less than that...or more. I mean, you can have 20 companies, but if they are all tech stocks, or oil stocks..that isnt diversified (there are soo many people out there who do only that, its crazy!). If you are able to spread your stocks out evenly amongst various industries, you should be able to be properly diversified with as little as 6 or 7 companies. There are also other factors of diversification, such as knowing which companies do well at different times in the market. Like..essential's do well when money is tight, while other more exotic companies will do well when consumer spending and confidence are up. Its a matter of timing, as well as diversification.
Bottom line, I think one can be properly diversified under 11 companies, but you have to pick and chose wisely, and in different sectors. I would be interested in looking at the graph though, no harm in learning a thing or two from impircal book knowledge either. :)

[10secimportpyro]

you are not going to blindly pick 20 competitor tech companies. at least i hope not. the point is to pick random stocks, if that. it's about the correlation of stocks with one another. hmm, maybe i don't have the graph- i think my professor had it and showed us but didn't include it in our course pack. oh, and perhaps i was wrong about 11 companies. it might have been 20 or so. but the point remains, the more you have, the less unsystematic risk you should have (vaguely speaking).