Your Favourite Stock Might Be the Biggest Risk in Your Investment Portfolio
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
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We all have that one stock we''ve ''fallen in love'' with. Maybe Tesla. Maybe Apple. Or perhaps a small-cap stock that doubled in value within a few months. It''s the stock we check first when we open our apps, the one we proudly talk about with friends.
But according to renowned Wall Street Journal columnist Jason Zweig, the stock we love the most… might actually be the biggest threat to our own finances.
The stock market is currently buzzing. Several popular stocks have been climbing strongly. So many investors start thinking: "If this stock keeps going up, why don''t I just go all-in?"
The problem, says Zweig on the Your Money Matters podcast, is that when one stock becomes too large in our portfolio, we''re no longer diversified. We''re essentially gambling.
And the real risk isn''t just share price volatility. It''s our own emotions.
As humans, we all have weaknesses. We tend to seek information that supports what we already believe (confirmation bias). We think we''re smarter than others (overconfidence). And we assume what went up last week will keep going up (recency bias).
The combination of all these biases makes us overly confident in one stock. We can''t see the risk. We don''t notice when the price starts to wobble. And when that stock falls? We panic. We make hasty decisions. We lose focus.
What''s the solution? It''s not about dumping your favourite stock entirely. But don''t let it dominate your portfolio.
Zweig suggests that we should regularly review our holdings. If one stock has grown too large, trim it a little. Rebalance. Don''t let emotions control your strategy.
Diversification may seem boring. Not viral. Not something you can brag about on social media. But it works. When the market falls, a balanced portfolio is usually more stable and less stressful.
In closing…
Your favourite stock? Keep it if you''re confident. But don''t let it become the centre of everything.
It''s not wrong to have favourites. But don''t become unable to let go.
When you''re overly concentrated on a single stock, your portfolio is exposed to concentration risk. If that stock drops sharply, your entire portfolio will be severely affected because there''s no diversification to cushion the losses.
Confirmation bias is the tendency to only seek information that supports your existing beliefs. In investing, investors only read positive news about their favourite stock and ignore warning signs, leading to biased investment decisions.
Spread your investments across various sectors, company sizes, and asset classes. Ensure no single stock exceeds 10-15% of your total portfolio. Review and rebalance your portfolio regularly.
Reduce your holdings when a single stock has grown too large in your portfolio, when the company''s fundamentals change negatively, or when you find your investment decisions are driven by emotion rather than rational analysis.
Understanding concentration risk and investment psychology is a crucial step towards building a healthy and resilient portfolio for the long term.
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