Diversification

[DesertCat]

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Well, think of it this way, if we are only buying one stock from our list of top stocks, our lock of the year or whatever we want to call it, shouldn't it outperform our own picks of top 10 or top 25 stocks?

We don't expect all of our picks to perform equally do we?

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No, of course not. But our pick of the year doesn't always outperform, sometimes we make mistakes. That's why my goal is five stocks, it's enough diversification to prevent one bad pick from killing me, without forcing me to buy a bunch of lower quality opportunities just for diversifications sake.

My memory tells me (for however accurate that is) that the returns from my #1 picks haven't been much higher than from my #2-#5 picks over time. In fact I can remember several that I thought were the greatest ideas ever that turned out to be lousy.

This thread is motivating me to prune some of the worst ideas out of my portfolio now. I have ten positions and some of them are "mistake refusals", stuff I bought that turned out to be mistakes, and I'm waiting for slightly better prices to unload so I can make a small profit and declare victory. This is very bad behavior (see the behaviorial investing thread) and I'm going to heal myself right now.