IFB01: Optimal Portfolio Diversification for Sectors and Individual Stocks

 
One of the most difficult ideas for beginners is the idea of diversification. If you read any investing publications they all talk about it. But they often don’t discuss the optimal diversification for sectors and individual stocks.  There is so much conflicting information regarding diversification. And how to set up your portfolio for maximum benefit. In this episode, we will tackle this question and much more.
 

* How to monitors your stocks one you have purchase them?
* How to use the Value Trap Indicator to find stocks?
* What sources do you use to find stock ideas?
* What is the optimal portfolio diversification for sectors and individual stocks?
* What is the ideal number companies to own?

Welcome to our first session of Investing for Beginners where our goal is to help you become a better investor.
The idea of this podcast started with Andrew Sather, from einvestidingforbeginners.com who has and had lots of success in the blogging and podcast world, with his awesome website and blog and being a founding member of “The Money Tree Podcast”.
When Andrew first became interested in investing he looked around and noticed that there was no real voice to help beginners. There are tons of blogs and podcasts about investing but very little for the beginner. This gave him the idea of starting his own blog to help others that were just starting out. And he did just that, with his blog, podcasts and his wonderful book “The Value Trap Indicator” he has created a place that beginners can go to get premium advice to answers those questions.
He recently asked me to help him start a podcast to spread the word about what he and I are most passionate about, and that is helping others succeed in the investing world and create a better life for themselves and their families.
Our mission with this podcast is to take the time to answer questions of beginners that are just starting out or maybe someone who has been at it for a while and is frustrated with their lack of success. It is never easy and we don’t claim it ever will be. But we believe that everyone can do it,
In our first session, we will be discussing some questions from one of Andrew’s readers. His name is Mason and he just recently graduated from college and has started his new career.
He has some great thought provoking questions for us and it was a ton of fun helping answer them for him.
So here we go.
After you make your first purchase of a stock, what is your method of monitoring that stock?
Andrew: This is a great question and one of the questions that everyone asks when you buy a stock. Of course, everyone wants to sell at the top and buy at the bottom but that doesn’t always happen. One of the growth strategies out there is to buy at a high valuation and ride the stock even higher, but that is another discussion for another time.
What I do is split my portfolio into two parts. I do a regular portfolio that I allow myself to take a little more risk and put a 25% trailing stop on those positions.
For those of you not familiar with a trailing stop, it is a device that you can use to put a limit on the potential loss when a stock or the market suddenly drops. By setting the limit at 25% it allows you some buffer if the price fluctuates on a daily basis but doesn’t drop below that limit. If it does drop to that limit I can sell at that time without losing a large part of my position.
By setting the trailing stop it also allows me to continue to ride my stocks as they rise and protect any gains I’ve made and mitigate the losses if they occur.
Any brokerage account will allow you to place these for you for an additio...