A good stock picker will also ensure that they do not possess too many of the same types of companies in their overall portfolio, such as too many banks, too many smaller companies, or too many companies based in one country. This is known as diversification.
A strong analogy is that good diversification is not just like choosing a variety of different sweets from a sweet shop; it’s about visiting lots of different sweet shops and selecting sweets from all their shelves too. The more sweets from the more sweet shops, the better diversified one’s portfolio is.
At Columbia Threadneedle Investments, our approach to stock picking is underpinned by a culture that is dynamic and interactive – for a very good reason. We invest in an increasingly interconnected and interdependent world, so the ability to exchange and debate investment insights in a genuinely collaborative environment enriches our teams’ individual investment processes, and results in better informed investment decisions for our clients.
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