In one of my previous articles (Investing in the stock market -9 powerful tips), tip number one was:
1. Do not spread your money too thin.
My friend has a little over $200,000 invested in the stock market through 27 different Mutual funds. In my opinion, 27 Mutual funds is 27 too many collecting load fees, management fees, commission fees, operating and advertising fees. Diversity is important, but just as important is over-diversification. Also, in my opinion, $200,000 should not be put into more than 12 stocks, let alone 27 different Mutual funds.
If I may, I would like to explain where I'm coming from by stating that tip.
On October 16, 1990 the Royal Swedish Academy of Sciences awarded 3 men each a third of the Nobel Peace Prize for their work in the theory of financial economics ? Harry Markowitz, Merton Miller and William Sharpe.
Harry Markowitz's work involved the theory of portfolio choice. (This in layman's terms was the introduction of a diversified portfolio to help offset the uncertainty and risk of investing in the stock market. Harry Markowitz has been labeled the 'Father of Diversification'.
William Sharpe used Markowitz's model from an individual investment theory to a market analysis theory based on price formation for financial assets. This formulation is called Capital Asset Pricing Model (CAPM). From what I understand about this model is that it places a "beta value" on a share, the higher the beta value, the higher the risk. By knowing the 'beta value' of each stock in a portfolio, the portfolio can be adjusted to either involve more or less risk.
Merton Miller's work involved dividends supplied by companies to a shareholder and its effect on stock market value and the effects of taxes. Miller's theorems are used for theoretical and empirical analysis in corporate finance.
Markowitz received his award for an essay published in 1952, "Portfolio Selection" and for his book in 1959, Portfolio Selection: Efficient Diversification.
Harry Markowitz, in his Nobel lecture given in 1990 says: "an investor who knew the future returns of a security with certainty would invest in only one security, namely the one with the highest future return'.
Nowhere could I find that an investor should own 27 different mutual funds.
For more excerpts from the book 'The Stockopoly Plan' please visit http://www.thestockopolyplan.com
Charles M. O'Melia is an individual investor with almost 40 years of experience and passion for the stock market. The author of the book 'The Stockopoly Plan ? Investing for Retirement'; published by American-Book Publishing. To order a copy of the book: http://www.thestockopolyplan.com
Wood Dale Chicago prom limo .. Lockport Chicago limo O’HareThere can't be many traders who haven't at least considered... Read More
Minority Report the movie may not be far off if... Read More
Duck! No I don't mean a quack, quack. I meant... Read More
A stock market index is a statistical measure of changes... Read More
Picking a beaten-down stock requires a different kind of selection... Read More
In my opinion, due to the volatility of stock market... Read More
I receive emails from Morningstar. This company provides statistics and... Read More
Mutual fund investing is a lot like Thai cooking. Everyone... Read More
If you have not back tested your trading system, you... Read More
Let's assume that you want to make some serious money... Read More
Should the market turn against you, it is important that... Read More
Every broker and financial planner will tell you that you... Read More
I was recently interviewed for a press release through a... Read More
How do you make money without picking tops and bottoms?I... Read More
The trash business in its efforts to cook their books... Read More
If you're like many investors who squander those small dividend... Read More
Someday you may want to retire and continue to live... Read More
Buy high and sell low -- It's not a typo.Millions... Read More
As the man said, "I've got some good news and... Read More
This is an extract of an article which was first... Read More
We are already in it, but you can't see it.... Read More
The spring-loaded rat catcher is the ultimate low-tech device invented... Read More
Are you one of those many people who dread reading... Read More
Did you know you can make money (and a lot... Read More
Have you bought any mutual funds this year or late... Read More
Antigo wedding limo ..Mutual fund investing is a lot like Thai cooking. Everyone... Read More
You have a lock on your house. You have a... Read More
Wall Street has been preaching for years and years to... Read More
Invest in the stock market for the RIGHT reason, using... Read More
Why? Because I am going to shatter your conventional wisdom... Read More
(1) Stock Market is Tough Place to Make Any Money... Read More
Time to look back2004 is over, now we are in... Read More
Mutual funds by definition are a mixed bag of stocks,... Read More
People are constantly asking me why is the stock market... Read More
Recently I was invited to appear on a live CNNfn... Read More
Wall Street's watchword has always been diversification, but what does... Read More
Carefully thinking through your goal as a trader is of... Read More
Every successful trader has a winning system. There are of... Read More
Suppose your position has made a big move and you... Read More
Sidney felt sick as she looked at her latest OptionsXpress... Read More
I use the P/E ratio as a secondary indicator for... Read More
Every day I see in the financial section of newspapers... Read More
Because you don't feel too sure about which stock or... Read More
The spring-loaded rat catcher is the ultimate low-tech device invented... Read More
It is wonderful to be alive in the information age.... Read More
What the heck am I talking about?It is often said... Read More
I am hearing predictions by brokers, financial planners, talk show... Read More
Before you embark upon a journey of trading stocks or... Read More
When it comes to buying a stock or mutual fund... Read More
Mutual funds were created with the idea that one person... Read More
Stocks & Mutual Fund |