Modern problem of diversification.
People often look to diversify in order to hedge their positions in case something goes wrong. The typical consensus in the stock market is that you have to diversify. However, most people who start trading don’t have enough money to diversify. That’s the problem with diversification.
And you also have to remember that the more positions you have, the more difficult it is to fix them if something does go against you.
If you’re the kind of person that just wants to let his stocks sit for years, then I think having 3 or 5 positions might be a good thing, because ultimately that’s what diversification is all about. If one thing goes bad, at least you have another investment to keep moving forward and growing.
But if this is your case, and you’re a completely hands-off investor, and you want just to let your stocks sit for years, then you might be better off with a retirement fund, something like a simple ETF that diversifies on its own. That just makes things a lot easier for you.
But if you’re an active investor and you want to increase the amount of positions you have in order to diversify and protect against something going wrong, this is not always a great idea. Many people, especially at the beginning stages, think that they have to diversify so much, to the point where they actually over diversify.
If you have many positions in the stock market, usually when something major happens and things go wrong, you’ll have to make adjustments to at least more than half, if not all of your positions. And this can take quite a bit of time.
However, if you have few positions, making those adjustments is much easier and quicker. And that’s where you want to get to. You want to make things as simple as possible.
Remember that diversification is there to reduce your risk when the market goes against you. And this is because most people have long-only positions. However, if you have a mixed portfolio that includes long, short, and option hedge positions, you will need less diversification.
And if you’re trading higher grade value stocks, you don’t need a lot of positions. A handful of trades in Apple, Amazon, or a couple of other companies are enough.
#stocks #holdstocks #stockportfolio #holdingstocks #reducingrisk
Posted at: https://tradersfly.com/blog/ep-154-stocks-should-you-hold-at-once/
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