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Diversification
How important is it for you to diversify your investment portfolio? How would you diversify your investment portfolio?
Although 'the stock market' is often spoken of as a collective entity, in reality it is made up of a many different types of industry subsets. Furthermore, stocks are not the only assets investors should have: bonds, CDs, and more conservative and risky investments make up the full 'buffet' of available ways to allocate funds. The right 'menu' of investments will vary depending upon the investor's age, comfort with risk, goals, and other factors. "To build a diversified portfolio, an investor should look for assets whose returns haven't historically moved in the same direction, and, ideally, assets whose returns move in the opposite direction. This way, even if a portion of your portfolio is declining, the rest of your portfolio is designed to be growing. Thus, you can potentially offset the impact of poor market performance on your overall portfolio" (The pro's guide to diversification, 2013, Fidelity Investments).
Both types of investments (stocks vs. bonds) and also the specific investments themselves (different types of stocks) should be diversified according to most investment analysts. From a mathematical perspective, "your ability...
Correlation describes the degree to which returns on investments move together… An important principle in finance is that risk reduction cannot be achieved through diversification if the returns on two or more assets are perfectly positively correlated" (Risk and return: Diversification, 2013, PreMBA test). In other words, if an investor has stock in Nike, it would make sense to have other types of investments in his or her portfolio that 'trended' in different directions, versus correlating with the performance of consumer goods like apparel and sports equipment. If contemplating buying Tiffany stock, for example, the question would be if the stock's performance was correlated with or against Nike. Although both are in different industries, because they are somewhat pricey and are not strictly 'necessities' this might not be the case. A variety of statistical evidence supports the correlation of diversification and slowly building wealth but stresses the need for diversification to be meaningful and involve more than one or two stocks. "As many studies have shown, at least 40% of the variability in returns can be reduced by moving from a single company to 20. Once…
References
The pro's guide to diversification. (2013). Fidelity Investments. Retrieved from:
https://www.fidelity.com/viewpoints/guide-to-diversification
Risk and return: Diversification. (2013). PreMBA test. Retrieved from:
http://ci.columbia.edu/ci/premba_test/c0332/s6/s6_5.html
http://investingcaffeine.com/tag/wall-street-journal/
http://www.investopedia.com/articles/01/071801.asp
However, during that time, the car sales industry was experiencing a recession and Virgin Cars was caught up in the midst of this recession. Therefore, even though through franchise agreements with manufacturers they could stock many cars without paying for them, car sales slumped considerably thus the company was not able to turn a profit. Among the actions that could have been taken by Virgin Cars to make it successful
Diversification in Small and Medium Enterprises Adjustment and Renewal in the Aftermath of the Iraq War: A Case Study of Strategic and Functional Orientation for Diversification in a SME In this chapter, discussion will further explore how National United Group's (NUG) location decisions and its position in an industrial cluster are critical to understanding its strategic orientation, and also the design, implementation, and outcome of its diversification strategies in the post Iraqi
Annotated Bibliography on Value Creation Through Diversification Glvan, A., Pindado, J., & De La Torre, C. (2014). Diversification: A value-creating or value-destroying strategy? Evidence from the Eurozone countries. Journal of Financial Management, Markets, and Institutions, 2(1), 43-64. This research is aimed at showing the relationship between company value and product diversification strategy. The study digs deep into the types and levels of diversification to determine the real value addition that can be achieved using
Tera vs. Netflix TEVA VS. NETFLIX Teva, which you likely do not even know (Northrup, 2010), has won its business game by betting its success on products with a true future, while Netflix, stuck with a well-known brand name, appears to be dying the death of overconfidence. Technically, Teva could still do less well than anticipated because the market they are in -- the production of generic drugs and the ingredients that
Diversification General Electric has long worked within a conglomerate structure that gives it a significant amount of diversification. The company breaks down its diversification in its annual reports. GE earned $148.6 billion in 2014, coming in the following segments: The largest group is GE Capital, which itself has a high level of diversification: The company's diversification approach is generally strong. First, GE has done this for decades and is therefore more familiar with
Companies and Diversification Akpinar, O, and Yigit, I. (2016). The Relationship Between Diversification Strategy and Firm Performance in Developed and Emerging Economy Contexts: Evidence from Turkey, Italy And the Netherlands. Journal of Economic and Social Development, 3(2), 78-86. This research encompassed a close look at data from 166 firms in the Netherlands, 265 firms in Italy, and 128 firms in Turkey (using data from 2007-2011). The point of the research was to