Diversify or Die. Diversification among many individual stocks and various stock groups is necessary for any successful investment plan.
Westport, CT (PRWEB) August 9, 2006 — Why is it that some people only buy one or two stocks? Others may have 15 stocks but have 50 percent of their investment assets in just one of those 15 stocks. In Wall Street we refer to this type of behavior as concentration. Some firms call it over-concentration. When this happens in a brokerage firm it is always considered dangerous. It is so dangerous, in fact, that if the brokerage firm is using a concentrated stock position as capital, then the market value of the security in question is given a haircut. This means that the full market value of the security is chopped by some fixed percentage in any capital computation. In other words, if you are over-concentrated, you don't get full value.
Some of you may have margin accounts. As you know, StocksAtBottom.com advocates cash ownership of stocks. If you own stocks on margin, it is our opinion that you will get sold out on margin. Normally in a margin account you put up 50 percent of the value of the stock you acquire in cash. If equity falls below 35 percent, you get a margin call. Now, brokerage firms love it when clients have 15 or 20 different stocks in a margin account. If there are some bonds in that account, guess what, they love it even more. Why? Because brokerage firms know that stocks represent risky investments.
Something can always go wrong in any one situation. Maybe something can go wrong in any two situations. It's tough to see something go wrong in 15 situations. That is the essence of diversification. SPREAD THE RISK AROUND. It makes a lot of sense. Some investors own 50 to 100 stocks. This is because they think they need that many to achieve the investment goals that they set out for themselves.
In business school at a master's degree level they teach you that to achieve true diversification you need to own something approaching 14 equity positions. It has been the experience of StocksAtBottom.com that 6 to 10 different equity positions is sufficient to achieve diversification. The one thing we know for sure is that it's not one stock or two stocks. Own one or two and you get killed.
Putting all your eggs in one basket
We advise all investors to own several stocks and to own more than one sector. Own more than one type of investment (that means equities, bonds, real estate, cash, you get the picture) or you will have problems. Sectors refer to stocks with broad themes. Examples are:
- Energy
- Semi-conductors
- Housing
- Auto
- Consumer
- Airlines
- Personal Computers
- Technology in general
If you own 10 stocks, but they fall into only 2 sectors then you really have not achieved diversity in your portfolio. You see, when they come to get Ford Motor, usually
General Motors is not that far behind. By the way, it's great on the upside to own everything in one sector when that sector is going your way. There's probably not a greater high in the world than when everything you own is going up. On the flip side, when you are overly concentrated in a sector that's heading down, lower and lower every day, there is no worse emotional low. The depression can be almost unbelievable.
There's also the issue of owning more than one type of investment. There are equity investments, which are stocks. There are real estate investments, and bond investments. There are also venture capital investments, precious metals, and others such as oil and gas. To a large extent, you achieve diversity in your investment strategies by owning different types of investments, as well as investing in different sectors.
Let's go into a few real life examples. We at StocksAtBottom.com believe we have already made the equivalent of a lifetime of investing mistakes, so learn from a few of ours.
Arrow Electronics
Before the advent of the Belt Conveyor Idler/Roller Bearing Isolator, end users had to deal with outdated sealing methods, in particular elastomeric seals to protect idler bearings. Small, spring loaded, contact seal, elastomerics are tiny plastic devices that make contact and rub on the exterior of the idler roll while operating.
Elastomeric seals are widely used because they are cheap and because there has not been anything better available — that is until now. As a contact seal is prone to failure and needs constant maintenance, the entire bearing protection system is somewhat precarious. And when an elastomeric seal quits working, undesirable things happen, much of it without warning.
Use Of Conveyor Idlers
Belt conveyors are in service, around the world, working 24/7 to “trough the belt” or transport bulk materials in coal mining, ore mining, aggregate, hard quarry and related applications including; concrete, asphalt, fertilizer, salt, recycling, wood, pulp and paper, electric utility, grain, construction, agricultural, steel and general industrial.
These belts are typically supported by three conveyor rollers, or idlers, positioned at intervals as close as three linear feet. One roller is horizontal and other two are positioned on either side, at an angle necessary to carry the burden.
Depending on the specific application, they operate above and under ground and may extend for many miles over mountainous terrain, roads and streams. There may be as many as 10,500 bearings and bearing protection devices on the conveyor rollers per mile of run. In the mining industry it is estimated that each mine has 3-4 miles of conveyor with idlers strung out the entire length of the belt.
Failure Is Not An Option
When an idler fails, it is most likely be the result of bearing damage caused by contaminants (dust or moisture) entering the bearing environment. Chances are the plastic has failed by wearing out and has grooved the shaft or has burned to a crisp at the point of contact.
Once an elastomeric seal fails, contaminants are drawn into the housing where they condense and contaminate the lubricant and cause the bearings to fail. The end result is a seized roll, belt damage or worse. The idler can burst open, and if it does, metal-on-metal contact can cause a fire. To counter, most mining operations employ greasers that work – around the clock – to try to keep idler bearings lubricated in an effort to try to make contact seals work. Because lip seals carry a 100% failure rate, eventually end users will have to deal with catastrophic belt failure no matter what they try.
Enter The Belt Conveyor Idler Roller Bearing Isolator
To counter, Inpro/Seal took their bearing isolator, a compound labyrinth bearing protection device, that they invented (and patented) in 1977 and modified it for use bulk solid applications. A non-contacting, non-sparking bronze labyrinth type seal, it provides safe, permanent bearing protection that never wears out and requires only a negligible amount of energy to operate.
In the event of main rolling element bearing failure, it can also operate as an emergency sleeve bearing for a short time. Because it is located completely exposed at each end of the idler, generated heat can be measured with a thermographic sensor
No Equipment Modification, Easy To Install
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