By Alvin Chow
Portfolio management if one of the costliest mistakes that investors make.
Imagine a portfolio as a forest, and the stocks would be trees. Investors tend to focus a lot more on the individual trees that they forget about the forest. In a diversified portfolio, one tree is not as important when compared to the forest.
A stock that has made 50% does not mean much, because the portfolio of stocks can still lose money as a whole despite the one big gain in a stock.
A good gardener would understand portfolio management easily.
His aim is to maintain a nice looking garden. It would be a garden with blooming flowers and scent abound. To achieve that, he would have to do two main tasks; one, to rid the weeds and second, to fertilize and water the garden to keep the flowers growing.
That is exactly what an investor should do with his portfolio of stocks. Constantly ridding stocks that should not be in the holdings (weeds) and keep the ones that are still worthy (flowers).
Duh! So simple!
But often, traders and investors do the opposite – cut flowers and keep weeds.
I generally define traders to have higher frequency of entries and exits, and focus more on …read more