Examples of Good Stock Portfolio Diversification
Now, if you are still confused on what is proper stock portfolio diversification, I’ll go ahead and give you some stock knowledge on poor diversification to hopefully, clear things up. If you owned Sun Microsystems (a server) and Microsoft (a software company), you own two companies that are in the same sector, technology. This is where amateur investors get confused. One company is a server and the other is software, so logic tells us they are different. Wrong. Don’t confuse industry with sector. If you were to own these two companies in the same portfolio, then you would not be fully diversified from sector risk.