My post in Part I: Stock Diversification or Stock Concentration, I have explained in detail the difference and which is better between the two....
Now, I will discuss more about diversification strategy. Why talk about diversification? Because in practice many traders use this strategy for trading rather than a concentration strategy, but in practice, there are still many who do not understand this strategy properly, even though they have been trading for quite a while in the capital market...
So, what trader carelessness most often occurs when using diversification? THE MOST MAIN FOLLOWING IS HAVE TOO MANY SHARE PORTFOLIO... Some people have 15 stocks... Wow.... that's a lot... Is it wrong? Yes, it is a fatal mistake. You need to know, if you store too much portfolio, there will be 2 negative impacts.
First, the return you get is too small.. The more shares you buy, automatically you have to divide your funds into these stocks... Automatically, the return you get will be less.. Don't believe it? See my illustration below:
Bread = Funds you have for stock trading
Children = Shares
ILLUSTRATION 1:
There is a very large loaf. Then, there were 4 children who looked very tired after playing ball. The children saw the bread and divided it equally.
ILLUSTRATION 2:
There is a very large loaf. Then, there were 4 children who looked very tired after playing ball. The children saw the bread and immediately divided it equally. However, 5 more friends came and wanted to join in consuming the bread. So, in total there are 9 children. Then, the 9 children divided the bread equally.
From the 2 illustrations above, the first 4 children can eat more satisfactorily in illustration 1 or 2?
I'm sure you also agree with me, namely in the first illustration. Why? Because in illustration 1, the large bread is only divided for 4 people, so the first 4 children will eat more fully. But in the second illustration, the bread must be divided among 9 children, so the first 4 children will definitely get a smaller share. So far, do you understand?
Well, this is all the same as the stock I described earlier. If you divide your funds only to buy 4 shares, then you can enjoy your return bigger. But, if you divide your funds to buy up to 9 shares, the potential for getting a return is definitely smaller, because your allotment of funds that you should be able to allocate to 4 shares, you allocate for an additional 5 shares, so the funds you put in for each share will be more a little. If the funds are less, the profits will be less. Remember the investment principle: HIGH RISK, HIGH RETURN...
Second, you will find it difficult and confused to monitor your own stocks. Too many portfolios make you even more confused about monitoring your stock movements... If you don't believe me, I've proven it myself.. Having too many stocks, especially for a trader, will be very difficult to monitor...
Then you make another statement: "After that, the stock price is about to go up again, I'm afraid that the stock price will suddenly go up drastically, and I won't get the stock or miss the train."
If you have a statement like that, it means you can't control your emotions as a trader...
"Then what is the solution, sir?"'
As a trader who uses diversification, the solution I recommend, please continue reading to my post Part III: Using the Right Stock Diversification..
