Diversify and Sleep Better

[billyjoe]

" I'm ruined, Mr.Market's pick ,CME, went down 10.75% today." What's that you say. You aren't diversified?

Meanwhile, Mr.Market was seen today jauntily dodging snow piles with a large stogie in his mouth on the way to his favorite pub. Looking quite content, he downed several beers to wash down a wickid large sub, followed by a bowl of clam chowdah. Still not full, he treated himself to a giant sized chocolate frappe. He will sleep well tonight in his palatial estate without a hint of indigestion because he is diversified.
Assuming Mr.Market has a similar amount of $ in each of his 14 open positions, each stock amounts to 7.143% of his total portfolio. The 10.75% drop in CME accounts to only .77% of his huge total. You might not bother to pick up .77% of your days pay were you to drop it.
If you were likewise diversified with 14 stocks you would be down .77% today but if you had only:

1 stock (CME) you'd be off 10.75%
2 stocks 5.38%
4 stocks 2.69
6 stocks 1.79
8 stocks 1.35
10 1.08
12 .99

So get diversified and sleep like Mr.Market tonight.

billyjoe

[Websman]

You have an excellent point Billyjoe. I've been guilty of piling too much cash in one stock.
I, myself, need to take a look at my available funds and consider diversifying. I'm not sure I could get 14 positions out of my meager funds, but I could get 7 - 8 positons.
I've never seen Mr Market worry about a stock tanking, yet I've sweated when some of mine dropped a few points.
I will definitely reconsider my strategy.

[df21084]

You might not bother to pick up .77% of your days pay were you to drop it.

I would. But that's just me.

Everything else you said I agree with.

[B.J]

All depends on risk tolerance vs. practicality. I like to have about six or seven stocks. It's just enough to be diversified, yet not too many to keep track of. You don't want more stocks than you have time to track.

[scifos]

Assuming Mr.Market has a similar amount of $ in each of his 14 open positions, each stock amounts to 7.143% of his total portfolio. The 10.75% drop in CME accounts to only .77% of his huge total.

Perhaps a more accurate assessment would be to start with equal dollar amounts invested at the prices Mr.Market acutally paid. After holding his 14 positions for various amounts of time and with varying performances, his portfolio would not be equally weighted today.

[billyjoe]

Scifos,
I had to simplify it because only Mr. Market knows the real figures and really it's none of our business what the totals are, but I'm betting he's not developing an ulcer over this blip in the plan.
billyjoe

[mrmarket]

Scifos,
I had to simplify it because only Mr. Market knows the real figures and really it's none of our business what the totals are, but I'm betting he's not developing an ulcer over this blip in the plan.
billyjoe

I'm not unhappy at all with CME's earnings report. Now if they start crying about trading volumes yada yada yada, then we have to look a little closer.