Diversification, diversification and diversification – that’s one of the strategies in stocks investing if you wish to make money. Why diversify? To old birds (veteran investors) you should know what does that mean. To new birds (newbies) it simply means not all stocks will go up or down at the same time. And if you do not know which sector is going up then how can you possibly pick which stocks to invest? Well you don’t and won’t know but in order to get maximum exposure (if you can afford it) the best bet is always diversify.
A classic example was when the U.S. subprime crisis blew off. The dust of the housing explosion affected not only property sector within U.S.’s shore but also the United Kingdom, Europe and even Japan. If only I can transport you back to the future in say, 2005, you would be thrilled trading housing stocks. And if you’re one of investors trading or investing U.S. stocks or options, you would smile the moment I mention companies such as Eagle Materials Inc. (NYSE: EXP, stock) and KB Home (NYSE: KBH, stock).
Now you will probably show me your middle finger if I were to tell you to buy housing stocks. Really, it’s the perception of the public that the housing problem is not over yet. At least it will last for 2 years, so goes the saying. Does that mean you’re doomed (can’t make money anymore)? Weak in housing industry doesn’t mean the rest of the sectors are equivalent fragile. Let’s think it this way, where will you put your money if the housing stocks are cursed? The answer is other sectors be it technology or energy. So what if you got burnt (hope you practice stop loss and risk management) but you’re diversified into other sectors in the first place. Guess what, if you happen to have positions in Apple Inc. or Google Inc. but got screwed by KBH, you might still be able to smile, no?
A month back (25th Sept 2007 to be exact) I talked about Malaysian Bulk Carriers Berhad (KLSE: MAYBULK, stock-code 5077) and why it’s one of the stocks you can’t ignore. Read the article if you haven’t. If you were looking for fundamental stocks to add to your portfolio in align with the best of practice of diversification then you’ve every reason to smile with MayBulk. The stock breached the resistance level of RM4.40 on 4th Oct and the price-action-volume on 10th Oct should give you the signal to go in.
In fact, if you care to pull out the chart and plot the trend (refer to chart) you can see a very nice uptrend trading pattern. Maybulk seems to have traded out of the range for the last three-days and the bullishness looks to continue but not before a minor consolidation (started today?). The stock’s uptrend could be one of the easiest to understand and everything boils down to Baltic Dry Index. Since 25th Sept the BDI skyrocket from US$9.082 to US$11,033 – a whopping 21 percent increase.
Looking at the prices of commodities, can you imagine the potential uptrend of Maybulk stock if the BDI continue to increase by another 20 percent?
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