Single stock portfolio and Diversified portfolio (ext: Edge)

Single stock portfolio
There are also some investors who believe in a stock and invest only in that stock. The stock so chosen must have gained a lot of conviction from the investor. It could be due to sentimental value, trust that the investor has on the stock or simply out of superstitious belief in providing luck to the investor from previous experience. There are many owners of listed companies who invest only in their own company as they do not trust the management of other listed companies.

In terms of performance, this one-stock portfolio will behave quite differently from the benchmark index. The performance of this one-stock portfolio will depend entirely on the performance of the stock alone. Unless, the stock is a diversified blue chip, the share price could be very volatile. The risk of investing in a single stock is definitely high. Even a historically low beta stock could turn sour in the future due to unforeseen circumstances. For buy-and-hold strategy, single-stock portfolio does require close scrutiny by investors. This is possible if the investor is also the owner or a senior management of the company such that, he or she is able to keep track on every single movement of the company.

Diversified portfolio
Most investors have a diversified portfolio — having a variety of stocks accumulated over the years either by design or by default. Some investors know exactly what they want. They will choose the appropriate sectors and stocks to invest in. Some may have preference in certain sectors or to avoid certain sectors due to specific reasons. For example, Warren Buffett prefers consumer sector where it is easier to understand.

It is not uncommon to see those involved in property-related trades prefer to invest in property stocks, those working in the estates prefer to buy plantation stocks etc.

A well-diversified portfolio ideally should have stocks from different sectors especially those which are less correlated. Preferably in different business cycles — plantation (which depend on weather and price of palm oil), construction (which is highly dependent on the economy), stockbroking (which is linked to the vigour of the stock market) etc.

Unfortunately, many investors end up with a long list of stocks inherited from the previous bull market. The so-called "stuck" shares probably make up a large portion of the portfolio. The stocks were purchased at high prices and the investors are unwilling to cut loss. This "rojak" portfolio will not help the investors to move forward. A review is needed to re-look at each of the stock in the portfolio objectively such that if a stock is needed to be sold then sell it. There is no point crying over spilt milk. Relying purely on luck to recover past losses is an unwise decision.