Diversification

I read a suggestion that the minimum number of stocks you should have in your portfolio is five -- all from different industries. In doing this, you should not have more than 20 percent of your portfolio in any one industry (i.e., you shouldn't have 20 percent in Yahoo! and 20 percent in Google). This principle would have saved a lot of people money during the Dot-com craze since people were pouring all of their money into high-growth, high-risk technology stocks -- allowing their entire portfolio to be nested in one industry! I think that smart investors, like Warren Buffett, probably still did okay despite the burst since they had properly diversified.

I'm sure that there are loads of people who do very well without properly diversifying. But one downturn in the chosen stock can lead to a loss of years of growth, just like the Dot-com era. I'm also reminded of Amaranth -- a Hedge Fund -- that lost one-third of its value in one week because of bets in the energy market. $6 billion down the drain because it weighed too heavily in the energy sector. I think that all investors would be wise to learn from that mistake -- diversify!

Multi-Tasking

I was reading a copy of Costco Connection today -- an interesting magazine that Costco puts out monthly. There was an article talking about multi-tasking that I thought was pretty interesting. It reminded me of an experience that I have with a friend who multi-tasks on a regular basis. We were talking, then somebody came into the room and he started to talk to that person. Then his phone rang and he started to talk on the phone. Then he finished the phone call, did something on the computer, finished his conversation with the other person, then came back to the conversation with me. I was quite annoyed because I had to wait through all of this while my friend cycled through all of his multi-tasks.

This experience made me start thinking about my own multi-tasking habits. My biggest problem is (or was) working on homework only to get distracted by a new email or news story. One thing that I feel that I have successfully mastered is to not answer my cell phone if I'm doing something that is more important (such as eating dinner with my wife or talking to a friend face to face). Michelle M. Weil, PhD, gave three recommendations for effectively managing time in relation to multi-tasking:

1. Estimate how long tasks take: We sometimes spend more time doing things than we realize. I think we would be amazed if we timed how long we spend just checking our emails on the computer. The author suggested that we set a time limit for tasks and try our hardest to stick to those time limits.
2. Develop an "external memory": We sometimes do things because we're afraid that we'll forget to do them later. If we set a method of remembering to do things (such as a "to do" list in a notebook), then we can avoid having to multi-task now.
3. Give yourself a chance to persevere on a task until completion: If you are engrossed in a task, stick to it until you are done. If you stop, then you'll have to spend time figuring out where you were in addition to the time you'll have to spend doing the task. Get it done and move onto the next step.