Diversification is the Key to Investing in the Stock Market

Everyone knows that when it comes to investing in the stock market, diversification is always the safest way to protect your financial assets. I knew this too but when a tempting pharmaceutical stock came along that was selling at historic lows, I took a gamble and lost.
Get Lucky or Lose Money

When some people think about the stock market, they see the dreams of getting lucky and hitting a hot stock that nobody knows about yet, a stock that is selling at a low price but could be selling at a much higher price down the road. These people are the dreamers.

Other people look at stocks and see the dangers and pitfalls. They see how you can invest an amount of money and watch as that cash disappears forever as the stock price falls faster than a heavy anchor in the ocean.

The best approach to investing in stocks is diversification, of course, and spreading out your investments in a number of categories, like stocks, bonds and index funds, and specifically as in low, medium or high capitalization stocks.


Loading Up on One Stock

But sometimes it gets easy to think you know something others don’t. I fell into this trap and loaded up on a pharmaceutical stock in 2008 because I thought it had some promising drugs and that I might be able to get lucky and make twice or three times my initial investment.

Soon the price of this stock starting going down, along with the stocks of nearly every other company as the market started to crash in late 2008. That was okay, I thought. I will just keep buying more. After all, now the stock was even cheaper than before, and an even better deal.

But then the stock price of this pharmaceutical company kept falling more and more. After a while I needed to face reality and stop buying more stock because, quite possibly, the price could go all the way down to zero.


Controlling Oneself

I forced myself to stop buying. Now I try not to think of this big mistake I made. The end of the story has not yet been written, of course, because the company is still listed and shares are still being sold, but for far less than the lowest price I paid at any time.

Now I have to wait and hope. I have definitely learned my lesson and that is to always diversify oneself in a portfolio and never get emotionally involved with a stock, hoping that it will be what they call a lottery stock. A lottery stock is when you buy a stock for a very low cost and you hope that stock will hit the jackpot and skyrocket in price on some other date.

I hope that this story of my personal experience with the recent stock market decline will help you. Always be careful when investing in stocks because you never really know for sure what will happen to a stock.

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