Investment is always dicey. Investment in stocks could be wrought with dangers of all kinds. So, we need to be extra careful while making investment decisions. The cardinal principle of investment is: Don’t put all your eggs in one basket. All the eggs may break in one go if the basket falls.
We cannot take that kind of risk. We need to exercise caution. We need to be logical in our approach. We need to segregate our investment and invest in different segments of business in order to protect our interests.
When the economy dwindles, stock markets crash. Usually, that affects all kinds of industries. But when the stock market begins to recover after a steep fall, some industries may not find their feet. So, it is always wise to invest in different kinds of industries to spread the risk. That would help ensure that even if you are neck-deep in trouble, you may not drown completely.
Assuming that we have a hundred dollars to invest, we may consider investing the amount in different industries depending upon their product line and importance to consumers. For the purpose of simplicity, we will divide the hundred dollars into four portions of 25 dollars each and invest the same in four different segments. So, we will invest 25% in each of the segments just to illustrate the point.
For instance, the food industry has always been the hot favourite with investors. As a general rule based on experience of legendary investors, most investors invest 25% or thereabouts in food and beverages. Nothing sells like hot cakes as food and beverages!
Then comes health. Not everyone is a fitness freak. But all of us are keen to lead a healthy life. So, healthcare products and medicines enjoy a huge market share. Many of us have to take regular medicines. Others have to take medicine when they are ill. But most of us consume health products on a regular basis. Therefore, after food industry, it is pharmaceuticals and healthcare products that rule the roost. It makes perfect sense to invest the next 25% in pharma and healthcare companies.
The bidder for the next position is obviously Artificial Intelligence and Robotics which are revolutionizing the way business is being conducted the world over. Labour-intensive jobs are being edged out by AI and robotics. They are becoming the order of the day because of the quality of their output. Also, it is easier to handle them than employees. So, why not invest 25% on these?
Now that we have invested 75% of our resources, the final contender is perhaps Information Technology, Software, Cloud Computing, and other IT service industry. These are industries that would be around for a long time to come. With this 25% investment we complete our basket of investment. But this is just a primer for beginners. As you gain experience, you will learn to mix-and-match and add other portfolios.
If you are into investment, it is always wise to invest in such a way that you do not sink like a ship that hits an iceberg. If you are contracting risk, you might as well spread it thin by taking calculated risks. That way, you would be able to salvage as much as possible and regain lost ground if it comes to that. Besides, that is the only way to remain afloat when disaster strikes.
