Diversification

This is one of the most important lessons in investing and trading. You always need to diversify your portfolio. What does that mean? It means don't put all of your eggs in one basket. You should own more than one stock at a time in your portfolio. Diversification also refers to investing in different sectors of the market. It is important to spread your risk over different sectors so that if a sector gets hurt, your account does not suffer too much. For example, lets assume all of your stocks are oil companies, refiners, and alternative energy stocks. If energy prices come down heavily, your exposure to energy can really hurt your account. I would recommend buying a minimum of 8-10 stocks. I would suggest an account that comprises of an oil stock (ex. CVX), a bank (ex. BAC), a brokerage house (ex. LEH), a play on technology/internet stock (ex. EBAY), a commodity stock (ex. AU), a retailer (ex. BBY), a healthcare related stock(ex. PFE), a real estate, homebuilder/construction type of stock (ex. HD or CAT), a company you truly believe in and want to invest in (ex. NYX), a pure speculation play (alternative energy, nano technology or anything that has a craze). The portfolio I just built, is diversified and a great long term investment. For shorter term traders it is more difficult because you are constantly buying and selling stocks, but you still need to diversify. Check the sector that the stock your buying is in and make sure you do not have more than 2 stocks, in a portfolio of a minimum of 10 stocks, in the same sector. Divide your money equally over 10 stocks for true diversification. I would recommend starting with a minimum of $5,100.00. With that much money, you could join an E-Trade, Schwab, or Ameritrade and buy stocks at a rate of $10.00 per trade. This way you can put $500.00 in each stock. That is the minimum I would suggest putting in a stock, otherwise your gains will be fully cancelled out by your cost per trade. Stay diversified to minimize risk and exposure.