Risk - part 2

One thing that annoys me is when respected investors preach that you must have a well diversified portfolio. It is often recommended that the private investor own stakes in at least 20 different companies so that if one share price plummets the portfolio is not decimated. What the sages never say is that if one share price takes off and doubles in six months the effect on your portfolio is also minimised.

Everyone knows that the more you risk you take the more chance you have of growth. So surely the advice should be: if you want less risk diversify more, but accept that your potential growth (and loss) is less.

There are some risks I will not take. Borrowing money to invest is one of them. Investing a large portion of my portfolio in a company like Delta Airlines that may go bankrupt is another. But split my portfolio between 3 or 4 fantastic, profit-making companies that are already on high multiples? You bet!

I think the ideal situation for me is to have 3 to 6 companies that are attractive enough for me to invest in. Hopefully at any one time one of them will be at an attractive price and can lap up surplus money. At the moment I think Ask Jeeves, eBay and Vodafone are all attractively priced. All I need now is some surplus money!

Happy investing.