The stock market survival guide - IV

Diversify

As one enters the market, one accepts certain risks. Thus the investment strategy calls for risk mitigation. One of the most simplest and common strategy is diversification.
Diversification should aim at balancing exposure to market across different sectors, market capitalisation (company size by its total market value), stock characteristics (dividend stocks, growth stocks, long term investments, momentum stocks,etc).

Although there is no clear formula known to me, I am sure there wouldn't be dearth of material on portfolio diversification. I think a retail portfolio should be diversified to hold at least around 15 different stocks and not more than 10 % of the portfolio value in a single stock. This means that your portfolio is fairly diversified and yet you have a few concentrated bets to gain from price momentum. Generally higher diversification means lower risk, however the tendency to diversify too much should be avoided. The problem with over diversification is that while risk is lowered, returns may also be lower.