Investment in the stock market requires deliberate effort to ensure more wins and fewer losses. At that, it is important for investors to know what to do in order to minimize their risks while taking bold steps to make money in the capital market.
Portfolio diversification is very key if you want to win more as an investor. It is risky to put your eggs in one basket. Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited.
In a recent interview with The Sun Newspaper, Abayomi Obabolujo, ‘the oracle of the capital market’ explained the reason why investors should pitch their tent with fundamentally sound stocks and the need to diversify portfolio. Sharing his experience of over three decades in the capital market, the investment guru stated thus:
“If you want your money to be secured within the stock market, diversify your portfolio. The kind of stocks that I bought were such that between 2008 and now had not recovered. And for them to recover back to their 2008 prices might take almost all eternity.
So, if you know you want to pitch your tent with only the stock market, make sure that you invest in stocks that are fundamentally sound; stocks that have age to their advantage. Stocks that are in very good industry, stocks that have what I call inelastic demand of their products. What is inelastic? This means the demand that no matter how high their price goes, it will not reduce the quantity that you buy…
But the stocks that I held were blindly insurance stocks. I was engaged more in what was called private placement. Of course, there were a lot of opportunities and a lot of money in there. But they were not the type that we could call fundamentally sound stocks. So, when the market even began to stage a comeback, those stocks refused to come back”.