Isn’t averaging like diversification; cancelling out vulnerability to one stock?
Yes, the averaging that takes place in an index is equivalent to diversification. Diversification cancels out individual stock fluctuations. From an investment perspective, diversification reduces risk, the only thing left after good diversification is the common factor — news such as nuclear bombs — which hits all stocks and cannot possibly be removed by diversification.
Related Questions
- Should the small dollar investor attempt to follow, or just ignore, portfolio diversification and dollar cost averaging strategies?
- How could I ignore such a well known financial expert as ONeil who advocates against averaging down on a falling stock?
- Isn’t the vulnerability information included in OVAL also in vulnerability databases?