This is an important advice given to all the investors. Usually, investors have a practice of choosing a favourite share and invest all their money in that particular share only. There are over 2000 shares listed in Indian stock exchange. But people usually take only a few stocks in their watch list and show favouritism towards those stocks. In a way, it is good to be on top of a few stocks but it is not completely fair to ignore other stocks. If you are able to show equal importance to many stocks and learn about different stocks, it is definitely a great advantage.
Diversifying your portfolio
We may not have luck all the time in the share market. Most of the times we might be confused on which stock to invest and most importantly we may not know which stock will give a fair advantage to us in a long run. But even if we are not sure about that, we can still do our own analysis and identify few stocks to invest on. After identifying the right stocks, we have to be very careful in investing. It is not fair to put all your investment value into a single stock. One of my friends is highly fond of a stock called REC. He has accumulated a huge quantity of REC. This is definitely going to profit him in the long run if the stock grows. No doubt about it. But what if the stock falls, the loss will be huge.
If we have lots of quantity in our holding it is a fair advantage. If the stock quantity is 50,000 and if the stock price increases by just 1 rupee, we will end up having a profit of 50,000 easily. But at the same time, if the stock price reduces by just one rupee, the loss that we might have to bare will all be 50,000. It is definitely a win-win situation for all the investors. This is one of the reasons why the investors are advised not to put all their investments in one single stock.
Advantages of diversifying your portfolio
If you would like to see a good profit gradually, it is always advisable to diversify your portfolio. We may not always have a profit from all the investments that we make. Sometimes we might even end up in a huge loss. If we have our portfolio diversified on different stocks, even if one stock is providing us with a considerable amount of loss, it can easily be compensated by another stock. Even though we end up hitting a loss, we will be able to balance it easily with the help of the profits as well.
Diversifying the portfolio gives a good chance of gaining a nice profit. We can set a profit limit as well as a stop loss trigger for our investment and easily handle our profit and loss. At the end of the day, our pockets should be filled with profits and not a loss. Diversifying the portfolio also helps in exploring lots of different stocks available in the exchange. If you are a day trader you can try your luck on different stocks and understand the pattern and trend. Based on how things work out for you, you can take the next move.
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