You need to diversify your investments to maximize returns while minimizing risk. Everyone knows that. See: Efficient Frontier. It can get hard, though, because companies can share characteristics that turn out to be obvious, but are so fundamental they can hide in plain sight.
Take geography. You invest in a promising app developer, a medical device company, an insurance giant and oil producer. Pretty good industry diversification.
But it turns out all those companies are headquartered in the same few blocks in Manhattan. Meanwhile, that part of New York has suffered an outbreak of a hallucinogenic black mold, which has caused every executive related to your portfolio to make erratic decisions, and to bark like seals during investor conference calls.
Now all the stocks in your portfolio are plummeting. A lack of geographical diversity coming home to roost.
In real-life practice, geographical diversity involves putting money in different countries and global regions. So don’t just buy stocks in U.S. companies. Look for firms centered overseas as well. Russia. China. Japan. New Zealand. Belize.
Well, maybe diversify to Belize by buying some beach-front property there.
Related or Semi-related Video
Finance: What is a market order?3 Views
Finance a la shmoop what is a market order? alright people it's a type of buy
or sell order which simply says I will buy or sell this stock or bond at this
price right now that is whatever price the market is telling me it's worth [Investor discussing market orders]
right now that's my price so the market prices change all the time and yes of
course the broker can choose to look at his screen this minute or that minute or [Broker looking at computer screen]
the following minute and the market will be changing if you're placing the order
during the day so yes there is some discretion in defining exactly what
dollar amounts and penny amounts a market order means but in real life
usually through online portals or even through old-school telephones yes those [Person using an old-style telephone]
things the broker will say something like yep I see coca-cola quota here at
42.48 that's market right now you want it and if you want to sell well then you [Woman selling bonds while on the phone]
mumble something like go ahead and just so you know the kissing cousin of a
market order is a limit order like an investor might tell the broker give me a
42.50 limit on that coke sale if the stock never hits 42.50 like it's
below at 42.49 doesn't do it well then no sale ever happens and the [Coca cola stock price graph stamped with no sale]
owner of those coca-cola shares well they just keep them if the stock
suddenly pops and it gets there then blam the shares have been sold well in
practice most relatively sophisticated buyers and sellers put in limits like
limit orders not just naked market orders even if they are below what the
market currently floats because flash crashes happen all the time it seems
these days and in one fleeting moment shares of coca-cola could suddenly [Coca cola share price drops]
plummet to 34.12 a share and if the seller has a market order in while those
shares will transact or be sold at 34.12 even though 15 minutes later the markets
back to its 42.50 a share pricing so you can get really heard if you rely on
the market being a stable and rational so vanilla pure market orders can be a [Man with pigs head riding a bike]
dangerous thing be careful just ask the little piggy you know who went to market
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