Investment Rule 6: Diversify, but not to mediocrity

You are vulnerable if you invest in only one or two shares, so diversify. Beyond about 10 securities however the benefits of further diversification become small – your knowledge is going to become more thinly spread. Better to concentrate on shares within your circle of competence, where you have an analytical edge than diversify into areas you don’t understand.

All investors will make many mistakes, even the great ones. Given that many errors will be made investors should be diversified so that any one mistake will not cripple. But beyond that point “take extreme care to own not the most, but the best…a little bit of a great many can never be more than a poor substitute for a few of the outstanding.” (Phillip Fisher, Common Stocks and Uncommon Profits). Peter Lynch likens share ownership to having children, “don’t get involved in …………………………………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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