Choosing Your Investment

Choosing Your Investment

Choosing your Investment

So vast an area of selection as the 10,000 securities which are quoted on the stock exchanges of Britain might well overwhelm the would-be investor, as his range of choice appears limitless. It is of first importance, therefore, for (1) the number of your selections to be determined and (2) their distribution decided.

1. DETERMINING NUMBER OF SELECTIONS. For the individual investor, almost all sections of the market can be represented by a range of 30-50 securities. Because of limitation of available investment capital, it may be wiser to limit the number of your selections in accordance with the size of your capital. By this you will avoid undue fragmentation of your capital, with consequent diminution of 'capital appreciation' or 'income from each security, and the unnecessary mutual cancelling out of successes and failures. Should the number of your selections be too low, you will not be spreading the risk sufficiently, and will be in danger of a loss in one section of the market being unbalanced by any compensating gain in another. The ideal, therefore, is to strike a judicious balance between over-spreading and over-concentration.

What the investor wants, for the specific purpose of selecting securities, is a clear panorama of all sections of the market unencumbered by figures and an orderly classification which groups together all related industries. Although the financial columns of the Press, in quoting the daily prices, do provide classified-lists of securities, under appropriate headings, these are intended rather for quick reference to current prices than as adequate aids to selection. We give below a classification of industries specially prepared to acquaint the investor with all the main sectors of the market, in making his selections.

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