Diversification

The question is how much diversification do you need? If you are just starting out and have a few thousand dollars, one stock is enough. When you have at least $10,000 you should have 3 stocks in difference sectors, like Financial, Utility and REIT. When you build your portfolio to another $10,000 you should be looking to diversify into another stock.

It is important to have stocks in different sectors. The TSX divides the TSX stocks into sectors of:

Sector	Example 1	Example 2
Consumer Discretionary	Dollarama Inc.	EnerCare Inc.
Consumer Staples	Jean Coutu Group Inc.	Loblaw Companies Ltd
Energy	ARC Resources Ltd.	Imperial Oil Limited
Financial	Bank of Montreal	Manulife Financial Corp
Health Care	Chartwell Retirement Res.	Valeant Pharmaceuticals
Industrials	Canadian National Railway	Finning International Inc.
Information Technology	BlackBerry Ltd	Computer Modelling Group Ltd.
Materials	Barrick Gold Corp	Franco-Nevada Corp
Real Estate	Brookfield Property Partners L.P.	First Capital Realty Inc.
Telecommunications	BCE Inc.	Rogers Communications Inc.
Utilities	Fortis Inc.	Superior Plus Corp.

The Investment report divides their stocks into the following sectors:

Sector	Example 1	Example 2
Manufacturing	PPG Industries	Magna International Inc
Resources	Teck Resources Ltd	Imperial Oil Ltd
Consumer	Jean Coutu Group Inc	Shaw Communications
Financial	Bank of Montreal	Manulife Financial Corp
Utility	TransCanada Corp	BCE Inc

There are theories about maximum diversification that you should do. Some hold a portfolio does not need more than 15 stocks and some say 20. But it is important to cover different sorts of companies because in different economic climates, sectors can act differently. You want to limit your exposure to any one type of asset or risk.

The sectors act differently in different parts of the economic cycle. An illustration can be seen on Bay Street. For today, some sectors are going up and some are going down. There is a good article on the Business Cycle or Economic Cycle and Investing at Wall Street Survivor.

When you are starting off and if you are a conservative investor use the Beta Ratio to help in picking stocks. Pick stocks that have a Beta Ratio of around or below 1.00. Basically this measures volatility against the TSX, so if the Beta Ratio is 1.00 it is just a volatile as the TSX. Your first stocks should have a low Beta. Also, I would not buy any in the Resources or Materials sectors as they are higher risk.

On my other blog I wrote yesterday about Obsidian Energy Ltd TSX-OBE, NYSE-OBE)... learn more. Tomorrow, I will write about Dorel Industries Inc. (TSX-DII.B, OTC-DIIBF)... learn more on Friday, July 28, 2017 around 9 am.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.