The atmosphere of stock trading is cyclic and seasons come and go like in our real life. But there are some differences. You know well when the winter season will come and end. Likewise, you know about every season like the summer, spring or rainy seasons. In stock trading you don’t know when the spring will come and go. But if you are a seasoned trader you must be knowing as which season traders are in nowadays. And even while you come to know about your trading season with some degree of certainty it is really impossible to predict which day will be normal and which choses to be an aberration for the declared season. And the patches of aberrations can be so long that you begin to believe that actually the season has changed wholly. The moment you take a move befitting to your assessed season indices you are forced to believe that the declared season has not passed away and is here to stay much longer to an indefinite period. (Graph courtesy- BSE we
It’s definitely diversity but not a hodgepodge that helps you sail through all the unforeseen tempests. Diversification across various classes of stocks based on industries, size, value vs. growth etc. within a portfolio helps an investor to minimize risks through summing up different risk behaviours of different stocks while keeping contribution of their respective return unaffected. So an investor has a freedom to construct his portfolio in a manner that risk is minimized and return is maximized. So early as in 1952 Harry Markowitz changed the whole mindset of all investors who used to measure their success by the performance of each of their stocks separately. He made it clear that one should not concern if some of the stocks did not show up well over a period of time subject to that it is compensated by the rewards of others. In brief, it is not the individual stock but the whole bunch of different stocks called portfolio that should be under purview. Markowitz showed in