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DON’T INVEST IN JUST A FEW STOCKS (OR INVESTMENTS)

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While I am certainly not skilled enough to recommend which stocks you should purchase, I will tell
you to diversify your stock (and investment) portfolio. Diversification is the act of buying a number of
different investments so you lessen your investment risk.
I learned this through watching a couple of individuals make the mistake of investing all their money
in just three stocks. Over a five-year period, their investments grew from a few hundred thousand to
several million. Unfortunately, during the sixth year, one of the companies went bankrupt, and the
other two were worth significantly less than the original investments.
Thus, these individuals went from multi-millionaires to paupers in just twelve months. If they had put
their money in multiple investments, they would have done fine.
Believe me, this is not an anomaly. It occurs all the time. Investors get infatuated with a stock (or
bond or real estate) and put all their money into it. However, this is rarely a successful investment
strategy.
So, don’t put all your eggs in one basket. You will read more about this in the following investment
principles.

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