Safety comes from spreading it wide - Mary Holm

Monday 13 December 2004

Q: There is an issue that your readers might consider when they try to diversify their portfolio.

Diversification is not related to the number of different shares that you have in your portfolio.

Having a portfolio of many real estate developers is not diversification, even if you have 20 different firms in your portfolio. Diversification depends on the relationshi

By The Landlord

p between those shares (their correlation).

You can have a diversified portfolio by holding a biotech share, a computer software share and shares in a hedge fund. You have a risky portfolio but well diversified nonetheless.

A: You make a really good point that I should have made more clearly in recent columns. I think, though, that you overstate your case.

The more shares you hold, the more diversified you are - even if they are all in the same industry.

While economic, legislative and other factors affect all the companies in an industry, there are also many company-specific factors that affect a share price.

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