Diversify Portfolio & Rule of Three


It is evident that investing is a process of controlling your behavior and managing the risk than chasing the returns.” Investing isn’t about beating others at their game; it is about controlling yourself at your own game.” – Jesan Zweig (Author of “Your Money and Your Brain”).

Every day you spend around 8 to 10 hours to earn money. Do you spend 1% of the same time trying to find the best way to utilize it? While it is essential to spend time to earn money, it is also not less important to spend time to figure out the right approach to minimize the risk of actions and investments.

“The broader the diversification of the portfolio, the more stable the returns will generally be and therefore will diffuse the overall risk to the investor, “ says Daniel R. Hill.

From an analysis, we have seen that if an investor enlarges his portfolio to include approximately 25 shares, the unsystematic risk is reduced & close to zero.

But is it practical to invest or maintain in such a variety of portfolios from your personal or business viewpoint?

Moreover, systemic risk like COVID-19, upcoming recession, and unemployment cannot be reduced by diversification portfolio. Then what we have to do?

Street vendors often sell seemingly unrelated products umbrella and sunglasses. When will someone buy both the items at the same time? The answer is probably never, and that’s the point. Vendors know that when it rains, it is easier to sell umbrella but harder to sell sunglasses, and when it is sunny, the reverse is true.

Rule of Three: In my case, I always follow the rule of three. I have devoted my time and money in three different projects. My fashion business is right now the cash cow. I am putting more than 50% of my energy in promoting the business. The revenue follow is not up to the mark. Hence I am further diversified the marketing strategy to reach customers through offline and online channels.

On the other hand, I have just launched my Agro-business and run the pilot project to test the market on organic food products. Here also I am checking the right channels of selling. Finally, my project on “Doctors for Life” is in the R&D stage.

It is not about only projects. Whenever I set some plans, strategy and daily plan, I always keep two more alternatives. It gives me a better focus and minimizes my risk of failure.

It would be better if we can keep more variety in alternative lines of action, but my recommendation is to go with the three.

Warren Buffet said that “Diversification is protection against ignorance.” I completely align with this. You have to diversify your investments, projects, actions, plans, and strategy. But do not put an equal level of time and money everywhere. Instead, you can set your priority and put your more than 50% time and investment on prime project or strategy and rest on the others.

Also ready to learn and accept failure and again come back with new leanings and adjust the plan. At least keep continue the projects up to three to six months. Do not let it go easily.

These are my own beliefs. It may be useful to you as well.

Thanks for reading.

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