Diversification

I became a serious investor not too long ago.  Prior to that I considered myself to be a “trader.”  Before I made the switch from trader to investor, I was younger, greener, and not a parent.

Like many people at that time, I got caught up in the hysteria known as Apple ($AAPL).  At the time, Apple could do no wrong, it could only go up and it did so for several months.  I jumped on the train and rode it to the Top, the last shares I purchased were about $700.00.  The first shares I purchased were in the high 400’s.

To me, diversification was a silly thing, after all, why put my money in stocks that weren’t going up as fast or had down days from time to time?  Needless to say, I was a complete idiot and was savagely burned.  The gains from my current portfolio, which is relatively well diversified (besides my legacy Apple position), has offset my losses in Apple, but the losses are still there.

I have still not exited Apple, I don’t want to realize the loss and I have hopes that Apple will one day rebound or at least go up a bit to make back some of the losses.

However, due to my stupidity in the past, I am having difficulty concentrating at work because a large chunk of my portfolio still rests on Apple’s shoulders.  The company is releasing earnings today and it really could go either way.  A lot of other tech companies have missed this quarter.

The difference between them and Apple?  Each of them takes up less than 3% of my portolio, thus, losses are not as sharp and are generally made up by gains on other stocks.  For example, I own Microsoft ($MSFT), Intel ($INTC) and Google ($GOOG), all of them had horrible weeks last week.  Despite this, I ended up about flat for the week because of gains in other portfolio companies such as $GE.  I won’t be able to say the same this week if Apple misses.

The moral of the story, no matter how good a stock seems at the time, don’t put all, or even a majority, of your eggs in one basket.  Fight the urge and fight the greed.  It will pay off in the long term.

Hopefully I’m not too poor when Apple releases their Q3 earnings.

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