Stock Portfolio Diversification Question?

Question

I put $4000 into an online discount brokerage. I currently have all the money in 6 stocks with 10-15 shares in each stock.

1. When I put more money into the account is it better to buy more shares in your current stocks if they are doing well? or diversify more by buying new stocks?

2. Does this portfolio look OK for a beginner?

RTSX 10 shares
BAC 10 shares
XEC 10 shares
JNJ 10 shares
EBAY 15 shares
BBY 12 shares

commision is $7 per share with no fees

Answer 1

These are all decent stocks, worth adding to, but the performance of this portfolio is currently lagging badly. I know. I own a couple of those. In my opinion, which is not really shared by the diversification folks, you should add to the positions that are performing best. That would be XEC.

What I would do is change my strategy a little at this point and add an index fund. One of my favorites is RSP. Buy it like a stock. Then benchmark the stocks against the index. Also it adds diversity. If RSP performs better than the portfolio, add more to it. If particular of your holdings perform better add more to them.

Answer 2

This is a question only you can answer. Are the stocks you picked so far performing well for you or not. If your having difficulty finding another security to buy, you can certainly buy a few shares of one you already have a holdings in, and sell it later to put the money into something else you find. You need a new broker, $7 per share is horrible. You should be getting $7 per tradeno matter how many sharres you buy or sell.

Mutual funds for diversity typically will NOT work unless you pick the right one. Right now you've picked 6 different stocks. A Mutual fund will do exactly the same thing only someone else manages the buying and selling for you on a day to day basis. If you want to diversify, make sure you buy something thats really different like a Mutual Fund that buys foreign stocks or bonds, or US Treasury securities, or Municipal bonds. The downfall, is that many Government and Bond issues are a minimum of $10,000 and many mutual funds also have steeper minimims although you can find some as low as $500. Most are $1000 or $2500 to start though.

Answer 3

Well let me first state, I'm not a broker nor a investment planner i don't have my series 7. I m just a guy who's been in the market for 15+ yrs.

This is a tough question to answer, because i don't know your investment objectives and your risk reward tolerance.

I'm speaking from my past history, when you have little money like 4k, i think over diversification is a faulty strategy if your goal is to build wealth quickly. I also if i was in your shoes . i wouldnt buy stocks over 10 dollars. Even if ebay goes up 100 dollars from where it is now in the next year, you only have 15 shares so even if that happens you would make only 1500 dollars. ( which isn't bad , but not very likely that it will happen.) However if you leveraged your money in a few stock in the 2-5 range then a dollar move would be much more substantial.

If i was under 35, i would look at aggressively investing that 4k and trying to build capitol up by short term swing trading, though there are different tax implications when you don't hold a security for over a year.

It all comes down to opportunity cost, over-diversifying your holdings and tying up your money has a opportunity cost, because in the short term you could be making that 4k work for you by leveraging your self in the right stocks.

"In economics, opportunity cost, or economic cost, is the cost of something in terms of an opportunity forgone (and the benefits which could be received from that opportunity), or the most valuable forgone alternative (or highest-valued option forgone), i.e. the second best alternative. An early representation of the concept of opportunity cost is the broken window fallacy illustrated by Frédéric Bastiat in 1850.

For example, if a city decides to build a hospital on vacant land it owns, the opportunity cost is the cost of some other thing which might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, since those uses tend to be mutually exclusive. Also included in the opportunity cost would be what investments or purchases the private sector would have voluntarily made if it were not taxed to build the hospital. The total opportunity costs of such an action can never be known with certainty (and are sometimes called "hidden costs" or "hidden losses", because what has been prevented from being produced cannot be seen or known). Even the possibility of inaction is a lost opportunity (in this example, to preserve the scenery as-is for neighboring areas, perhaps including areas that it itself owns)." from wilkepedia


To know which is the right stocks, i suggest you get a good book on stock technicals, like Toni turners beginners guide to short term trading. Its very possible with good stock selection to turn that 4k over 100% by short term trading in a matter of weeks to months.

Heres a stock I'm looking at, that might be ready for bottom entry, the trick is to keep your losses small by using stops and letting the charts be your controls of when to take profits and losses. So you maximize profits and minimize losses., small losses should be part of the game, its called wealth management.

For example i took a small 5k@ avg 1.89 position in bvsn based on technicals to me are showing a reverse north, if the stock breaks 1.83 i will take a stop loss and lose 300 bucks.
Now if it goes up as i think it will each dime it moves up=100 dollar profit, now if the stock can move up .50 -1.00 as i suspect in the next month it should be some nice dinner money/


feel free to contact me if this didnt make sense too you, i like sharing the knowledge i gained from being in the ring this long, but in the middle of a few trades here so i hope this answer was ok

Answer 4

What controls do you have for when the market crashes?

When the market falls..stocks move down..which part of your portfolio will be unaffected?


You have not really diversified at all.

Diversification means spreading your money across
different asset classes:

stocks
real estate
cash

These questions are very important..don't dismiss them. The next predicted fall could be a move down of 20% or more.

The reason...the market has been moving UP for too long..the only period that compares is the

DOT COM period....NASDAQ hit 5000...

It's just a fact that things can't go UP forever.

What do you do?

Well you learn to make money as the market falls..

How?

You do courses...learn the trading BIZ.

If you want to chat more...email me:

[e-mail]

Answer 5

You failed to indicate how much money you are managing -- that makes a huge difference in my rating. If you are managing less than $500k, you should be in mutual funds and ETF's...even at $1mm in family assets I tend to frown on individual stock ownership exceeding 20% of the total. Far too much risk, even with professional management. My figures (above) assume total money under management. If your family has $5mm in assets of which you are managing $750,000 in a stock portfolio, that is an entirely different thing. NVDA - (too much risk for a general portfolio. Should be diversified with an ETF) MGM - (not appropriate for an investment port; speculative port only. Absolutely inappropriate for OPM) SBUX - (not diversified enough for a general portfolio. Should be diversified with an ETF) (Full disclosure: I own Morgan Stanley and General Electric securities)

Answer 6

I think you did very well regarding a diversified stock portfolio, and I would rate the portfolio moderately conservative. There is no correct or incorrect answer regarding what to do with new funds. That's your personal preference. I would recommend you rebalance your portfolio every six months or so... sell the losers and add to the winners. If something should take a big jump, then reap some of the profits. I would also be looking to Jim Cramer for new stock ideas.
http://www.thestreet.com/_tscnav/funds/madmoneywrap/10366326.html

Answer 7

1. Remember buy low sell high. If you alway buy more when a stock is up (doing well) you are breaking this basic rule.
2. It's not too bad. You won't lose your shirt but it isn't well diversified. I would rather see you purchase a mutual that is heavily diversified and build up some equity. You need more money so that you can trully diversify. But as I said, you need to build up your funds first. So I would start with a nicely diversified mutual to start with.

Answer 8

First off - you should reinvest dividends in the stocks that allow it (like BAC, BBY, JNJ).

Diversification would mean something other than stocks - such as corporate or municipal bonds or money funds - bond mutual funds, treasuries. More stocks is more equity positions - same thing, no diversity.

Nice start - reinvest dividends and keep buying shares - be sure and keep up with your basis information (what you've paid for each share, each time).

Answer 9

Having 6 different stocks is already good enough, providing they are diversified. If you buy new stocks, you are diluting your firepower. If the stocks u are currently holding are fundamentally sound, continue to build them up. Quite pointless to spread yourself too thinly.

www.soundinvesting.blogpsot.com

Answer 10

I guess this is OK if you are trying to learn about the market or get some entertainment, but not if you're trying to make money. $7 per share is a huge commission that makes it hard to make money because you have to make back the commission first.

Try looking at no load mutual funds. Many can be bought through a broker with no fees, or at worst, a small fee.